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06 December 2023

Fire risk in warehouses too high for UAE insurance companies

By Majorie van Leijen

Orient Insurance Company has a simple rule: standalone warehouses don’t have to try to get an insurance policy.

"We do not cover warehouses unless they belong to large companies," said Omer Hassan Elamin, Senior Managing Director.

The risk of fire in a warehouse is considered relatively high because of the combustibility of the stored products. Also, once a fire breaks out, the entire contents of a warehouse could be destroyed in minutes, resulting in a big financial loss.

Six warehouses caught fire in Jebel Ali recently. On November 18, a fire that started in a warehouse storing furniture quickly spread to adjacent premises.

Dubai’s Al Quoz Industrial Area has a track record of major warehouse fires, with a blaze gutting a warehouse of food, clothes and electronics last summer.

According to Omer, who has chaired the Insurance Business Group Dubai for the past eight years, insurance companies generally avoid warehouses due to frequent fires in the UAE over the years.

"Warehouses are particularly risky because they often store combustible material," agrees Hermann Frankfurth, Senior Risk Consulting Manager at AXA Matrix, a Dubai-based insurance company that does offer insurance policies for warehouses but on certain conditions.

"Any building with combustible material is risky. But it would not be correct to say that we do not cover warehouses, because we do not only look at construction and combustibility, we also look at fire safety measures and many other factors such as the product stored in the warehouse, etc.,” Frankfurth said.

Rules have been found to have been violated in many warehouses. During a three-month-long campaign in 2012, Civil Defense inspection teams found 13,400 violations in 31,647 premises in industrial areas in the UAE.

According to Dubai Police, the main causes of warehouse fires are wrong placement of inflammable material and exceeding the warehouse's storage capacity.

"Despite the efforts of Civil Defense, housekeeping in some warehouses is still poor," said Omer.

"Also, some warehouses have poor wiring and electrical connections. Workers sometimes smoke in some warehouses, raising the risk of fire,” he added.

Insurance companies would like to see more frequent inspections and stricter enforcement of fire safety rules, says Omer.

"In one case, a fire broke out in a warehouse which was permitted to store one barrel of chemicals only. The investigative report after the fire showed that the warehouse had been storing 220 barrels," he said.

Sometimes, owners set fire to their warehouses intentionally to claim insurance money. "These are loss-making companies. When the investigative report shows that stocks have not been changed for some time, this may indicate that the fire was ignited on purpose," Omer said.

To assess the risks of insuring warehouses, insurance companies carry out their own inspections.

"The risk assessment we carry out will determine if we cover the warehouse or not," explains Frankfurth.

At the same time, most small-to-medium sized companies seem reluctant to get fire insurance coverage.

"It is mostly the bigger companies that opt for fire insurance coverage. Whether a warehouse is insured or not depends on the premises and the costs,” said a manager at Future Horizon Real Estate, which rents out warehouses in Al Quoz Industrial Area.