Several vehicle owners in the UAE have observed that premiums for their motor insurance plans have gone up. This development has come amidst the recent efforts of the top insurance providers to reduce the significant losses they incurred from vehicle claims in 2022.
Reports have emerged mentioning that while there was a hint of the scheduled increase in the motor starting in 2023, around nine major insurance providers would soon begin enforcing a higher premium.
The Insurance Authority declared a COVID-19 premium cut of up to 50% in 2020. Before the pandemic, however, insurance firms were permitted to offer discounts of up to 30% based on the driver's record. Furthermore, to increase the insurance sector's contribution to the national economy, the UAE government united the Insurance Authority and the Central Bank in October 2020.
Neeraj Gupta, our CEO was quoted saying, "[in]" November, we have seen all insurers announcing their rate change to reduce the impact of the 50 percent discount scheme and streamline rates back to a minimum of up to 30 percent discount".
In the past, insurance providers were permitted to provide a 10% discount to users who hadn’t filed a claim for 1 year, a 20% discount for a 2-year tenure, and a 30% discount for 3 years or more.
The CEO further stated that insurance firms began modifying premiums in the third quarter of last year.
Since the Insurance Authority announced COVID-19 discounts of up to 50% in mid-2020, motor insurance costs have remained low as per the Chief Marketing Officer (CMO) of a prominent insurance aggregator.
As per the quoted CMO, while the starting premium for SUVs and saloon vehicles was AED 2,000 and AED 1,300 earlier, these figures dropped to AED 1,000 and AED 650, respectively. The minimum premiums, however, have increased again. One can expect the average premium of up to AED 1,200 for an SUV currently - almost near the pre-pandemic levels. These premiums can further increase by up to 20% in 2023. He continued, noting that the premium rate is beginning to stabilise as it was before the pandemic.
A rather high number of claims, in a nutshell, are the answer. The double blow (low costs and high claim number) severely impacted insurers with sizable automotive portfolios. With respect to the costs, the same was the case for insurance renewal, as the renewal prices for vehicle insurance were considerably low.
The Executive Director of a prominent insurance broker cited the impact of the pandemic and how it has significantly transformed the market.
He explained, with respect to revenue and tariffs, there had been numerous changes over time. One can not expect fixed rates in the current market due to its competitiveness. The rates (as set by insurance companies), however, have been significantly changed to facilitate recovery during the post-pandemic period.
He also noted the impact of car sales on the premiums. With the pandemic, a decrease was observed in the demand for cars, which reflected in the insurance premiums. However, with the market recovering, the rates are now being raised to former points.
Wrapping up, one can safely say that while 2023 will be an interesting market for vehicle insurance providers, the changes in motor insurance premiums may require consistent monitoring from the customer’s point of view.
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