Time for an overhaul
New rules governing car insurance market give with one hand and take with another
Ali Waqar was considering buying a 2009 Ford Explorer for Dh14,500 in December, but he put off the purchase until January.
The delay cost the Pakistani banker, 36, an additional Dh400 – not on the price of his new motor, but on the car insurance policy.
This was because of a raft of new rules introduced in the UAE on January 1 governing how the car insurance market operates.
“It was an old car, so I wasn’t willing to go for anything other than third-party insurance,” says the Abu Dhabi resident. “But I delayed the transaction and then when I bought the car in January, I had to pay Dh1,400, compared to about Dh1,000, which I had been quoted from the same insurance company a month earlier.” Mr Waqar is one of many UAE residents to receive an unexpected hike in his insurance quote this year. While the changes have resulted in increased coverage for drivers, they have also increased premiums, causing confusion for many drivers.
Recent data from the comparison site compareit4me. com shows that drivers in the UAE are paying an average of 14.88 per cent more for their car insurance this year than in 2016. Those who have fared the worst are drivers of SUVs valued at under Dh50,000, who have seen fully comprehensive premiums jump by an average of 40.59 per cent, compared to 9.53 per cent more for saloon car owners.
But the changes aren’t all bad news for consumers, says Mirza Qouneh, a legal adviser at the UAE’s Insurance Authority who helped to draw up the new legal framework. “Now the maximum liability of the insurance company for third-party property damage has increased eightfold, from Dh250,000 to Dh2 million, so it’s a win-win situation,” says Mr Qouneh.
He illustrates his point with the example of an insured driver causing an accident that writes off another driver’s SUV, worth Dh400,000. “In the past, the insurance company would only pay up to Dh250,000, so the insured would then be liable to pay Dh150,000 from their own pocket,” explains Mr Qouneh. “Now the insurance company pays up to Dh2m, which provides enough protection for the person who caused the accident and also for the injured parties.”
Mr Qouneh and his team didn’t embark upon the changes lightly. First they spent three years researching car insurance practices in other countries, as well as analysing the local market.
“Car insurance policies in the UAE had remained more or less the same for the past 30 years,” Mr Qouneh says. “Back then, the most expensive cars only cost around Dh15,000. But now the price of cars has of course gone up, so there was a substantial need to make a new policy model that provides a wider scope of protection.” A number of other new rules have also widened the scope of coverage. Whereas in the past, parents, spouses and children present in the car at the time of an accident were excluded from coverage, now they are covered up to Dh200,000 each. Omar Ghazanfar, a British doctor based in Abu Dhabi, has a Ford Explorer that he insured last year for Dh3,200. He is currently looking at a quotation of Dh4,000 – “despite the car value having depreciated”, he says. Although he’s now paying more than he’d anticipated for his insurance, at least now, Mr Ghazanfar’s wife and two children, ages 10 and 7, are also covered in the event they are also in the car in an accident.
The new rules also work in favour of those with cars less than a year old.
“In the past, insurance companies had the freedom to fix the car of the injured party in any auto shop, even if it was one that was run by a couple of novices trying to learn how to become mechanics,” says Mr Qouneh. “Now, according to the new regulations, if the car is one year old or less, the insurance company is compelled to fi x the car in the dealership.”
Another plus point is that insurance companies were previously under no legal obligation to compensate within a specific period of time. Now, if a person files a claim with the company and has all the necessary documents, the insurance company must settle the claim and pay compensation within 15 days.
“It’s about speeding up the process,” Mr Qouneh explains. “If the insurance company doesn’t pay the claim in a timely manner, the injured party, and/or the insured, can ask the insurance company to pay them damages for not paying the claims within that 15 days, in addition to paying the amount of the claim.”
If you are not at fault, according to the new rules, you’re now automatically provided with a replacement car (or the equivalent compensation) by the other party’s insurance provider for a maximum of 10 days at up to Dh300 a day.
The new regulations have also closed legal loopholes to prevent insurance companies from getting out of paying in the event of bad weather.
After the unprecedented storm of March 2016, some insurance companies tried to avoid paying claims by arguing that the damage to cars was caused by a “flood”, Mr Qouneh explains. “This was because floods, as well as other such natural disasters, were excluded from coverage. We amended the policy so that only the concerned authority in that particular emirate can declare an event to be a natural disaster, not the insurance company. In the case of the storm last March, the storm was never officially declared as such,” he says.
But while better cover is a positive for UAE consumers, the rise in premiums has the knock-on effect of making them gravitate towards cheaper third-party liability insurance, rather than comprehensive cover.
According to the website Compareit4me. com, its share of third-party policy sales doubled in the January-February period this year, compared to the last two months of 2016.
“This may suggest that more UAE residents are being driven towards third- party coverage, having been priced out of the ability to secure fully comprehensive policies,” says Jonathan Rawling, chief financial officer at Compareit4me.com. “If this trend continues, we may see a situation in which the least affluent people in the UAE are left with inadequate financial protection.”
The price of third-party liability, however, has also risen in line with new guidelines. In the past, insurance companies were able to sell third-party policies for a minimum of Dh600, whereas now it is Dh750.
Mr Rawling says those looking to reduce what they pay should consider reducing add-ons – extra protection that is not standard on a policy such as off-road cover.
“In a legal sense, you only ‘need’ to have third-party insurance for your car to drive on the roads. But lots of people opt for fully comprehensive cover because it protects the investment they’ve made into the vehicle. It’s the same story with add- ons,” he says.
“If you’ll benefit from the feature, then it’s probably a box worth ticking, particularly given they only cost about Dh150 apiece. If you really won’t benefit from an add-on then you’re under no obligation to buy it.”
However, not all consumers are paying more now for their car insurance.
Noelia Corte, a Spaniard who lives in Dubai, has just renewed her fully comprehensive policy with RSA Insurance Group for her 2012 Toyota Land Cruiser for Dh2,950. Last year, she paid approximately Dh3,600 with a different company.
“This is the lowest premium I have paid since I came to the UAE five years ago. I was really surprised to read that others are experiencing premium increases,” she says.
Mr Qouneh points out that consumers can now choose between 48 different insurance companies on the market when they’re shopping around for quotes.
“Many of them sell by the minimum standard, so you can always buy insurance from those cheaper companies,” he says.
But many consumers don’t renew their car insurance until the last minute, leaving them with less time to shop around. According to ServiceMarket.com, a marketplace for home services, almost a third of residents look to buy their car insurance within a day of their car registration renewal date.
Mr Waqar took a savvier approach, securing his premium through haggling and comparing the market online. He is now about to pay for the annual renewal on his other car, a 2014 Honda Accord. His premium is Dh2,450, which has remained the same year-on-year since he purchased the car new, despite the fact that the vehicle has depreciated in value by 15 to 20 per cent each year.
“Of course I’m not happy. I was expecting to pay less this year,” he says. “I feel like the companies are squeezing us, at a time when life in the UAE is becoming more expensive,” he says. Despite the wide scope of changes, some experts feel they don’t go far enough, especially when it comes to penalising dangerous drivers.
Phil Clarke, road safety consultant at the Transport Research Lab, says one factor that needs addressing is the ease of having a car insured without checking a background check on the motorist for traffic offences.
“In the UAE there is no link between driving records and the cost of insurance,” he says.
Frederik Bisbjerg, the executive vice president, retail Mena, at Qatar Insurance Company, says that drivers with a history of causing accidents can also still escape paying higher premiums by switching to another insurer.
“The issue arises when a driver with accident history switches insurers to avoid a higher premium; the new insurer cannot (yet) check his accidents and therefore will tend to offer him too low a rate. I know the RTA [Road and Transport Authority] is working on a solution where accident history will be shared between insurers, so I believe it’s a solution that’s coming soon.”
‘ If this trend continues, we may see a situation in which the least affluent people in the UAE are left with inadequate financial protection
Jonathan Rawling, chief financial officer at compareit4me.com