Car owners in the UAE are feeling the pinch. Renewing a Car Insurance policy in the UAE now costs more than it did last year. If you’ve noticed your insurance premium creeping up, you’re not alone. But what’s driving this increase? It’s not just inflation or an unlucky streak of claims. There are more considerable financial forces at play, reshaping the way insurers calculate risks and determine costs.

In 2025, car insurance in the UAE is becoming more expensive due to economic shifts, raised claim frequencies, and industry-wide financial adjustments. But before frustration kicks in, understanding these factors can help you make informed decisions. This blog breaks down the key reasons behind the surge in premiums—so you know exactly what’s changing and why.

What Is an Insurance Premium?

Every car owner pays for insurance, but have you ever wondered what exactly you’re paying for? That recurring cost whether monthly or annually—is called an insurance premium. It’s the price you pay to keep your vehicle covered, ensuring financial protection in case of an accident, theft, or damage.

Breaking Down the Insurance Premium

An insurance premium isn’t just a random number. It’s carefully calculated based on risk, coverage, and financial factors. Think of it like a gym membership: you pay a set amount to access protection, even if you never need to file a claim. The higher the risk (just like with premium gym plans offering more benefits), the more you’ll have to pay.

Why Do You Have to Pay It?

Your insurance premium keeps your policy active. Without it, your coverage lapses, leaving you financially exposed. In the UAE, car insurance isn’t optional. It’s a legal requirement. So, whether you drive a luxury car in Dubai or a compact sedan in Abu Dhabi, paying your insurance premium ensures you stay road-legal and financially secure.

What Affects the Cost?

Not all car owners pay the same premium. The amount varies based on your car model, driving history, claim records, and even economic factors. Insurance companies assess multiple risks before deciding your final price.

Understanding how insurers determine your premium helps explain why costs are raised. Let’s break down the financial elements that shape these rates.

How Do Insurance Companies Decide Premiums?

Ever wondered why some people pay more for car insurance in the UAE while others get a lower rate? Insurance premiums aren’t picked at random—they’re calculated using a detailed formula that considers multiple financial factors. Insurers assess risks, operating costs, and market conditions before setting a price. Here’s a breakdown of what goes into the cost of your premium.

1. Pure Premium – The Core Cost of Insurance

At its core, an insurance premium covers expected claims. This is called the pure premium, which is the estimated cost of future claims based on past data. If accidents and repair costs increase, so does this base amount. Think of it like a restaurant setting menu prices; if ingredient costs rise, your meal gets pricier.

2. Expense Loading – Covering Administrative Costs

Running an insurance company isn’t free. Expense loading covers operational costs, including staff salaries, office expenses, IT infrastructure, and customer support. Every policy issued comes with administrative work, and insurers factor this into the premium to keep their business running smoothly.

3. Commission & Brokerage Fees – Paying the Middlemen

Insurance brokers and agents help customers find the best policies, but they don’t work for free. A portion of your premium goes toward commission fees paid to these intermediaries. The more complex the insurance product, the higher these costs can be.

4. Cost of Capital – The Insurer’s Investment Risk

Insurance companies need capital to function. They pool policyholder funds and invest them, expecting a return. However, they must maintain a financial cushion to handle large claims. If investment returns drop or economic conditions tighten, insurers may increase premiums to maintain stability.

5. Taxes and Licenses – The Government’s Share

Just like any business, insurance companies pay taxes and licensing fees. These regulatory costs vary by region and get passed down to policyholders as part of the premium. In the UAE, compliance with insurance laws comes at a price, which influences the final cost of your policy.

6. Risk Margin for Profit & Contingencies – Preparing for the Unexpected

Insurance isn’t just about covering expected claims. It must also account for unexpected losses. A risk margin ensures insurers remain profitable even in bad years when claims exceed forecasts. Without this buffer, companies would struggle to stay afloat.

7. Reinsurance Costs – Insurers Need Insurance Too

Insurance companies don’t take all the risk themselves; they transfer part of it to reinsurance firms. This protects them from catastrophic losses caused by large-scale accidents or disasters. When reinsurance costs rise, so do car insurance premiums for policyholders.

Understanding these financial components helps explain why insurance prices aren’t fixed. Now, let’s explore why car insurance premiums in the UAE are raised in 2025.

Why Are Car Insurance Premiums Raised in 2025?

If you’ve noticed a sharp increase in car insurance premiums in the UAE, you’re not alone. Many drivers are wondering why they’re paying more for the same coverage. The truth is, that several financial and environmental factors are driving these costs higher. Let’s break down the key reasons behind this rise and explore how small steps—like safer driving and fraud prevention—can help keep premiums in check.

1. Economic Factors – The Ripple Effect of Inflation

Inflation affects everything, including car insurance. raised prices for car parts, labor, and medical expenses make claim settlements more expensive. When repair shops charge more and hospitals raise treatment costs, insurers have to compensate by increasing premiums. Economic downturns also impact investment returns, forcing insurance companies to adjust pricing to stay profitable.

2. Frequency and Severity of Claims – More Accidents, Higher Costs

With more cars on the road and increased traffic congestion, accidents have become more frequent. Not only that, but modern cars come with expensive technology, making repairs costlier than ever. When insurers pay out more claims and for higher amounts, they recover these costs by raising premiums.

• Safe driving habits can help reduce claims, which in turn, may stabilise insurance prices.

3. Climate Change and Natural Disasters – A Growing Risk

Extreme weather events like floods, storms, and sandstorms are becoming more common in the UAE. These disasters cause widespread damage to vehicles, leading to a surge in insurance claims. With unpredictable climate patterns, insurers must prepare for future risks, which means adjusting premiums to cover potential losses.

• Being mindful of parking locations and using protective measures can help reduce vehicle damage.

4. Litigation Costs – The Raised Price of Legal Battles

Legal disputes over insurance claims are increasing, and so are the costs associated with them. Whether it’s a disagreement over liability or compensation, lawsuits take time and resources to resolve. As insurers face higher legal expenses, these costs trickle down to policyholders in the form of higher premiums.

• Avoiding unnecessary legal conflicts by understanding policy terms can help ease this burden.

5. Regulatory Changes – Compliance Comes at a Cost

New insurance regulations and government policies often lead to operational cost increases for insurers. Whether it’s stricter compliance requirements or additional coverage mandates, these changes can impact pricing. While regulations protect consumers, they also influence the final cost of insurance.

• Staying informed about policy changes helps drivers understand how their premiums are affected.

6. Fraud – A Hidden Cost for Honest Policyholders

Fraudulent claims cost the insurance industry millions each year. Some individuals exaggerate damages, stage accidents, or file false claims, leading to unnecessary payouts. To balance these losses, insurers increase premiums for everyone.

• Reporting suspicious claims and practicing honesty in insurance dealings can contribute to a fairer system and more stable rates.

7. Investment Income – The Role of Market Fluctuations

Insurance companies invest in premium payments to generate returns. However, when financial markets underperform, these returns shrink. To maintain profitability and ensure they can cover claims, insurers may compensate for lower investment income by adjusting premiums.

• Economic stability and responsible investment strategies play a crucial role in keeping insurance prices reasonable.

Understanding these factors helps policyholders see the bigger picture behind raised premiums.

Stay Ahead of Raised Premiums

We’ve explored the key reasons why car insurance premiums in the UAE are raised, from inflation and increasing claims to climate risks and fraud. Understanding these factors empowers you to make smart choices when managing your policy.

By staying informed and proactive, you can compare policies, choose the right coverage, and take steps to lower your premium. Don’t let raised costs catch you off guard—visit Insura today and find the best car insurance deals tailored to your needs!