United Arab Emirates: Regulation of the UAE Insurance Sector – an Environment of Expanding and Deepening Oversight

In brief:

• The Insurance Authority has issued several regulations so as to provide the level of detail required for providers (be they insurers, re-insurers, brokers, agents or advisers) to structure and manage themselves in compliance with the Insurance Law and the directives of the Authority.
• The Insurance Law provides that 'properties or possessions in existence inside the State or liabilities resultant thereof' must not be insured with insurance companies outside the UAE – nor may this insurance be mediated by foreign companies.
• The Insurance Law does not apply in the free zones except as specifically provided but this does not mean that an insurer can operate without being licensed by the Authority or (in the case of the DIFC), the DFSA.

Before 2007, the UAE insurance sector did not have its own dedicated regulator. The Insurance Law of that year replaced earlier legislation dating back to 1984, and established the Insurance Authority (the Authority) to regulate the local insurance industry in terms of licensing, conduct of business and prudential supervision.

To enable the Authority to perform its task, it has issued further regulation so as to provide the level of detail required for providers (be they insurers, re-insurers, brokers, agents or advisers) to structure and manage themselves in compliance with the Insurance Law and the directives of the Authority. This additional regulation is principally to be found in the Executive Regulations issued in 2009 and the Rules of Professional Practice and Code of Ethics issued in 2010.

Moreover, the Authority has increasingly made its presence felt by exercising its powers to de-register those it regards in breach of regulation. For example, at the end of 2009, it cancelled the registrations of 74 brokerage firms who had not met the capital and guarantee requirements that had been introduced earlier and in respect of which a grace period had been granted. Whilst many of these firms have now been re-instated, the action indicates the preparedness of the Authority to take robust action where it feels it necessary to protect the financial integrity of market.

And the insurance market is an important component in the UAE economy.

The UAE Insurance Market

According to Authority's Annual Report for 2009 funds invested in the market were AED23.7 billion and underwritten premiums amounted to AED20 billion. Business was conducted by 58 Insurance Companies of which 32 were local and 26 foreign. There were also 11 Insurance Agents and 169 Insurance Brokers (the overwhelming majority of which were local), along with 71 Loss Adjusters and 20 Actuaries.

The Annual Report and the accompanying schedule of statistics that segments the market by class and by reference to the ratio of activity as between local and foreign operators makes for interesting reading, and may be found on the Authority's website at www.ia.gov.ae.

However, the purpose of this short piece is to provide a flavour of the regulatory framework and those areas where legal advice might be required and, where necessary, consultation with the Authority itself, particularly when foreign entities wish to engage in the local market.

Some key features of the regulatory framework for the UAE insurance industry

• What kind of business does the Authority regulate? – the Insurance Law covers most categories of insurance (including re-insurance) as would be ordinarily understood in the market, namely: a) Life/capital, b) property and c) liability. The Executive Regulations then break down each of these wide classes into a detailed schedule of sub-categories. The Insurance Law provides that a company may not carry out both life/capital insurance and those b) and c) in the same entity. However, an adjustment period of five years has been provided which can be extended.
• Who can set up an insurance entity in the UAE – to conduct insurance or re-insurance here from a permanent establishment that is to be authorised by the Authority, the vehicle must be a) a UAE Public Joint Stock Company (PJSC), b) the Branch of a foreign insurance company or c) Insurance Agent. In the case of a PJSC and agent, local ownership requirements will apply and an increased level of Emirati involvement is applicable in the insurance sector. There is provision for the establishment of Representative Offices, but the scope of its activities is limited. In the case of Branches, the Executive Regulations set out a series of a additional conditions that must be satisfied including the provision of 'new insuring products' that are not currently on offer in the UAE or that the UAE needs and, in addition to 'basic' activity, it practices 'unconventional' insurance. These tests may represent significant hurdles to new entrants, but of course their application will be determined by the stance of the Authority towards them.
• Restriction on insuring UAE risk – the Insurance Law provides that 'properties or possessions in existence inside the State or liabilities resultant thereof' must not be insured with insurance companies outside the UAE – nor may this insurance be mediated by foreign companies (in other words, the UAE branch of a foreign company may insure UAE risk directly – but of course, there are hurdles to establishing a branch here in the first place). This is a key provision and essentially means that foreign companies can only engage in re-insurance within the ambit of classes covered by this provision. The direct insurance leg of coverage must be written (and/or mediated) by a local participant.
• What about the free zones? – the Insurance Law does not apply in the free zones except as specifically provided. A specific provision is the one above restricting the insurance/mediation of local risk to UAE insurers/brokers – this also applies in the free zones, including the DIFC (which has its own comprehensive regulatory framework for insurance business operated by the DFSA). The apparent freedom from the Insurance Law within free zones does not, we believe, mean that an insurer can operate without being licensed by the Authority or (in the case of the DIFC), the DFSA.
• What if I'm foreign but have no permanent place of business here? – as will be seen from the above, foreigners have relative freedom in the UAE market when it comes to re-insurance. For those foreigners who engage in the market here, it will be important that the level of their activity is not so much as to trigger the local (ie Emirate) requirements to be licensed locally. If that were to happen then any establishment set up in the UAE would then fall under the auspices of the Authority and require licensing from them with all that would entail (including the possibility that the Authority would reject an application).

The Insurance Law, the Executive Regulations and the Code of Ethics together with the other resolutions of the Authority (including new substantive regulations on the provision of takaful insurance) represent a broad base for insurance regulation in the UAE whereby the consumer may feel more reassured that participants are adequately capitalised and that there is a regulator prepared to act in the case of wrongdoing. For market participants, there is an emerging framework within which they can operate with an enhanced measure of regulatory certainty.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.