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Senior Executive Officer, Reinsurance, Middle East, AXA XL

A recent study found that more than 65 percent of the high rise buildings in the UAE were built with external panels containing combustible materials. Imminent updates to UAE building codes will prohibit the use of these materials, although plans to issue the updated codes have been delayed a number of times in order to make them even stronger. Significantly, the pending changes will not only restrict the use of combustible panels, they will also allow for manufacturers found providing unapproved building materials to be prosecuted. Despite these forthcoming changes, the fire risk posed by combustible claddings in the existing building stock remains a significant threat. Insurers and reinsurers recognize the threat, and the industry, along with other key stakeholders, is actively looking for solutions to minimize and mitigate this peril.​Materials​High rises in the region were typically built with exterior wall panels fixed to the outside wall of the building with small studs. These panels commonly contained a polyethylene core that can easily ignite, even from a low ignition source. Once started, these fires can spread very quickly.​The industry clearly has some options for dealing with this exposure including: ceasing to insure such risks; revising underwriting guidelines and rates to reflect the high hazard nature of this risk; investigating practical and cost-effective measures for minimizing the potential for an external wall fire; or some combination of the above.​At XL Catlin, due to our existing underwriting guidelines, such risks will need to be classified as a high hazard exposure and this will have an effect on the terms and conditions as well as the capacity we would deploy.​Over the years, test protocols (ASTM E-119 and NFPA 285) for determining the flammability of external wall panels have been incorporated into building codes in some countries, particularly the U.S. and  the UK. As a result, the building stock in these countries is highly resistant to an exterior wall fire.Other countries, including the UAE, are following suit and making moves to regulate the use of exterior panels with combustible cores. Saudi Arabia, China and South Korea, for example, have already updated their codes to greatly restrict the use of panels with combustible cores.​To minimize the risk possed by existing combustible panels, high rise building owners and managers should be aware of the precise composition of their exterior panels, especially in countries like UAE that historically have not required the use of noncombustible materials. If the panels have an ordinary polyethylene core, precautions should be taken to lessen the risk of the building becoming engulfed in fire.​- Electrical systems on the exterior of the building should be checked and shielded where necessary.​- Contractors working around the exterior of a building should be specifically alerted to this risk, and extra care should be taken when using, for example, welding equipment or anything else that could generate a spark.​- For residential buildings with terraces, limits should be placed on the use of grills, plastic and wood furniture, and storage of combustible household items.​Fire safety risk engineers can help owners and managers assess a building’s risk for an external wall fire, and identify appropriate steps to further minimize this threat. Insurance underwriters should also be aware of this risk – for both new and existing buildings – and base their underwriting and pricing decisions accordingly.​A variety of retrofit options are also currently being studied to improve fire safety. These include installing noncombustible panels at specific intervals to create fire breaks, and adding sprinklers at certain elevations to stop fires from spreading.As a whole, the industry needs to balance providing underwriting capacity to assist their clients to benefit the broader economy while maintaining underwriting discipline and a focus on profitability, which ultimately protects the long-term sustainability of the industry.Increase in natural catastrophes​The region has also seen an uptick in losses due to natural events, particularly in Saudi Arabia and the UAE where severe weather events and flooding are becoming more frequent. ​While the scale of these events and losses remains relatively small in comparison to global standards, insurers and reinsurers have historically treated natural catastrophes in the region as a low risk. As a result, the cost of insuring against natural perils in the GCC region has been quite low compared to other parts of the world. Insurers and reinsurers have also not established significant reserves to respond to natural catastrophes in this region.​While time will tell, these recent severe weather events could well represent a “new normal” which risk managers, insurers and reinsurers will have to confront.​A changing risk landscape​These developments suggest a different situation from the start of the year. At that time, insurance and reinsurance capacity dedicated to the region was on the rise, new projects were being canceled or deferred, and many existing facilities were operating at reduced capacities. For insurance buyers, that meant an increased competition for business and downward pressure on rates.​However, as the risk and macroeconomic landscape changes, strengthening the relation between the businesses driving the economy and the insurance sector are paramount. XL Catlin’s view is that the focus needs to broaden beyond pure rating considerations to encompass enhanced risk management practices based on clear, quantifiable goals. ​Focus on risk management​An increased focus on risk management will also allow clients and (re)insurers to understand current exposures better, and identify cost-effective and practical opportunities to mitigate different risks over the short- and long-term.​For example, fire safety engineers can help owners and managers assess a building’s exposure to an external wall fire, and identify appropriate steps to minimize this threat. And Property risk engineers can offer significant guidance on reducing the impact of a severe weather event; expertise developed from other parts of the world where such occurrences are much more widespread.​Going forward​Insurance penetration in the GCC region lags significantly below global averages. However, given the changes the region is witnessing, an opportunity exists to strengthen the ties between risk managers and the insurance industry.By working more closely together – and particularly with a heightened focus on risk management – companies throughout the GCC region will be better equipped to address today’s challenges, and have greater resilience to confront tomorrow’s threats.​First published in Premium magazine in July/August 2016

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