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The case for disaster insurance in the UAE
Posted on Apr 13, 2017 by Rob McBroom
Here, UAE Medical Insurance discusses disaster insurance in the UAE and the types of insurance businesses need to weather anything.
One of the best ways to ensure that your business remains successful is to plan for anything. Many business experts agree that if you plan for the worst your business is far more likely to be resilient to things like slowing economies, scandals, and even natural disasters. When it comes to disasters, one of the key components of any plan on how to deal with them is the securing of disaster insurance. Here, we take a look at reasons why this solution has become so important and the common types of disaster insurance in the UAE that businesses can secure.
The economic impact of disasters in the region
Around the world, it would appear that both natural and man-made disasters are becoming increasingly common. For example, this article from the Middle East Insurance Review reported that, "Total [global] economic losses from natural and man-made disasters in 2016 totaled at least US$158 billion". You can bet that businesses in every region and country were affected by a natural disaster in some way or another last year.
But what about in the UAE? As you might remember there were a number of serious fires in late 2015 and throughout 2016, not to mention floods in Dubai in March 2016 which saw damage to homes and businesses alike.
When it comes to the fires, one of the more prevalent cases, the fire at the Address Downtown hotel on January 31, 2015, recently saw a total insurance payout of AED 1.22 billion. This represents a major loss.
Potential for disaster in the region
While it is interesting to look at the impact disasters have had, it is also important to look at the potential impact of disaster in the region. According to PreventionWeb, the UAE does face some vulnerability to disaster, namely earthquakes. The group estimates that should an earthquake strike the UAE the average annual loss could be as high as USD 753.10 million.
Of course, it's not just local disasters that have an impact on business. In an increasingly globalized world disasters in countries with close ties to the UAE can have a direct impact on businesses operating here.
One example of this would be if your business has direct relationships with say a supplier located along the Yangtze river in China. According to Swiss Re, flooding along the river in 2016 caused an estimated USD 22 billion in losses. Future disasters like this could have a drastic negative impact on your ability to operate.
Do you really need disaster insurance in the UAE?
From the figures and examples above, you can see that it is important for any business to secure some form of disaster insurance. But the problem is, according to this article in the Insurance Journal, of all of the natural disasters experienced in 2016 only 26% of the economic losses were insured.
In other words, just under 75% of all losses were unrecoverable and had to be either accounted for or eaten by businesses and parties affected. If you do not have adequate disaster insurance in place, you could find your business paying for a variety of losses including:
The cost to repair your facilities
The cost of replacing your assets
Loss of income due to being unable to operate
Potential lawsuits that might arise from breach of contract with suppliers or clients
If your business operates on a day-to-day or week-to-week basis a disaster that closes your business for even a day could result in major financial issues that you might not recover from.
What are my coverage options?
Businesses tend to secure three common types of disaster insurance in the UAE: Property insurance and business interruption insurance.
Property insurance also referred to as building insurance or contents insurance is designed to cover your physical building and assets from damage. Almost every plan will damage protection from a number of disasters including:
Theft or vandalism
Storm, wind, rain damage
Damages that result in necessary repairs or replacement.
Some plans will even extend coverage from the physical building to attached elements like garages, patios, storage sheds, or other freestanding structures on the land your businesses owns.
That said, it is advisable to consult with your broker or insurer before securing coverage as insurers will have different terms and conditions on what they cover. Do not assume something is covered just because you have secured property insurance.
It is also important to note that some natural disasters like flooding and earthquakes might not be covered in basic plans, with this type of coverage being available as an additional purchase.
This type of insurance is not just important for your business, as it is becoming increasingly common for banks around the world to require that any person or business taking out a mortgage on a property also secure property insurance. It would, therefore, be worthwhile reviewing the terms and conditions of any loan or mortgage to see if this is required and whether there are any specific levels of coverage needed in order to receive the mortgage.
Business interruption insurance
Business interruption insurance is designed to provide coverage for businesses that have been affected by a disaster. Its main purpose is to ensure that should you be forced to shut down, or should your business be interrupted and unable to generate income you will be able to pay your bills, your employees, and any other obligations.
It will also help cover you should a partner see an interruption in their business. For example, if a key supplier suffers a massive disaster, this insurance will see any losses that stem from this covered.
Third party liability insurance
More often than not, it's not a natural disaster that will seriously affect your business, but a man-made one. Take for example the Address Downtown hotel fire in late 2015, it was determined that the cause of the fire was faulty wiring of a spotlight. That much damage without insurance coverage is enough to put even the most solid operation into bankruptcy.
In many cases, not only will your business be left paying for repairs, but it could also be facing expensive damage claims against other parties. To protect yourself from this, third party liability insurance is essential. Simply put, it is designed to help ensure that any claims for damages against you or your company will be covered.
One important thing to be aware of here is that many of these plans have a set coverage limit. If the damages go above this limit, you will be required to pay the balance.
If you are looking to learn more about insurance for your business, contact UAE Medical Insurance today.