The United Arab Emirates' new unemployment insurance scheme came into force on 1st January 2023, providing an income protection for expatriate residents and citizens should their employment be terminated subject to satisfying the insurance coverage provisions under the policy.
The United Arab Emirates' new unemployment insurance scheme came into force on 1st January 2023, providing an income protection for expatriate residents and citizens should their employment be terminated subject to satisfying the insurance coverage provisions under the policy. Originally announced in May last year, the legal framework was launched as a means of attracting more talent and investment into the United Arab Emirates. Simon Isgar, Head of Insurance and Reinsurance, discusses how the insurance will fill exposure gaps in the UAE Labour Market with Premium Insurance Magazine.
The legal framework falls under Federal Decree No. 13 of 2022 concerning unemployment insurance, Cabinet Decision No. 97 of 2022 concerning the mechanisms and controls for implementing the unemployment insurance scheme, and Resolution No. 604 of 2022 concerning the unemployment insurance scheme, collectively the "Unemployment Insurance Law".
The Unemployment Insurance Law is a mechanism to fill in liability gaps in the labour market and indemnify the employee where there is a loss of income due to the employment relationship terminating, where certain conditions have been satisfied by the ex-employee.
This is a positive development for the UAE insurance market, offering a new line of insurance income protection for on-shore UAE employees, which must be taken out by those employees on a mandatory basis. In addition, employees will benefit from a short bridging period of income to assist with finding new and alternative employment.
Is the UAE Unemployment Insurance Law mandatory?
The Unemployment Insurance Law is compulsory for all on-shore UAE employees, which are required to subscribe to the scheme and register through Dubai Insurance company, a local UAE licensed insurer. Several other UAE insurers offer the coverage, including Emirates Insurance, National General Insurance, Oman Insurance, Orient Insurance, Abu Dhabi National Insurance Company, Al Ain Ahlia Insurance Company and Orient UNB Takaful Company. We understand that the scheme is not at this time applicable to employees of Free Zones but may, however be rolled out to those employees in due course. The Unemployment Insurance Law does not apply to investors, contractors, domestic workers, pension-receiving retirees who still work and juveniles under 18 years of age.
The premium costs range in two categories based on the level of basic income earned by the employee. Those earing basic incomes of AED 16,000 or less fall into a category 1 contribution of 5 dirhams per month and those earning a basic income of over AED 16,000 fall into a category 2 contribution at 10 dirhams per month.
One interesting observation under the scheme is that of the wide distribution channels, which are not normally seen with other lines of insurance due to prohibition under the UAE insurance laws and regulations. For example, premiums payments can be paid through licensed and authorised UAE money exchanges companies, Bank ATMs, online and other channels. This is a welcome change and may result in a widening of insurance distribution channels for other lines of insurance, such as health, motor and travel. This is needed in a developing insurance market wishing to embrace technologies. The Electronic Insurance Regulations attempt to do this but only to a limited extent.
Claims payments under the Unemployment Insurance Law are subject to a qualifying and waiting period of 12 continuous months of employment from the date of inception/commencement of the policy. In addition, the coverage and insurance will not respond to claims/cases where the employee has resigned or the employment has been terminated for disciplinary sanctions under the labour law, or the employee finds new employment, or where the premium payments have not been made in time in compliance with the policy terms and coverage.
The indemnity amount in terms of the claim's payment is limited to 60% of the employee's basic salary and capped at AED 10,000 per month for category 1 and AED 20,000 per month for category 2 capped at no more than 3 months from the date of the employee's termination of employment.
The legal obligation is on the employee to satisfy the requirements under the Unemployment Insurance Law, including payment of the premium and the moral obligation is on the employer to make sure that its staff are indeed insured under the scheme, which may, to some extent establish a new duty of care on the employer. The scheme came into effect as of 1st January 2023 and subscription to the scheme must be completed by no later that 30 June 2023.
There are several sanctions under the Unemployment Insurance Law in respect of non-compliance, including fines and non-renewal of visa and work permits, until all premiums have been settled and are up to date. The sanctions will fall under the Ministry of Human Resources and Emiratisation's (MOHRE) jurisdiction.
In addition to the Unemployment Insurance Law, the UAE Authorities have taken further initiatives to fill potential liability gaps in the UAE labour market with "Workers Protection Insurance", This insurance can replace the rather cumbersome scheme of the bank guarantees, which is a welcome change. Employers are therefore at liberty to opt for insurance in lieu of the bank guarantees.
Unemployment insurance or income protection cover has been in the market for many years, including the UAE insurance markets, often offered through bancassurance arrangements for credit facilities. Insurers offer these products based on their underwriting terms and they tend to be low value coverage. These products are not overly utilized, and distribution is poor. The Unemployment Insurance Law and Workers Protection Insurance offers a new dawn for the UAE insurance market and has created a real long-term development in the market, placing unforeseen labour risks in the hands of insurers on a mandatory basis.
The scheme will no doubt gather and generate substantial premiums over the first 12 months, and it is assumed that claims experience will be low given the current economic climate in the UAE. This will be an added boost to the UAE insurance market, where those premiums can be reinvested into the market for the benefit of the UAE labour market. Of course, the scheme may appear unfair to those employees on low incomes that may not be in a position to sacrifice AED 5 per month. In this regard considerations might be given to extending the scheme and the some of the earned premiums into an investment pool to cover those low-income employees that can't afford the mandated premium amounts and accordingly exempt them from the scheme.
It is not clear whether the scheme will be reinsured and ceded out to other markets but given its low premium value and presumed low claims experience, where loss ratios will be profitable, it may not have been ceded out to the reinsurance markets. On this point, it is worth noting that should a global economic down-turn result in large redundancies and restructuring of the labour market, which of course may impact on the UAE, then perhaps reinsurance should be considered.
All in all, the Unemployment Insurance Law provides a welcome change to encourage confidence in the UAE in attracting top talent given the transient nature of the labour markets and the interchangeability between jobs and professions. One would anticipate that new insurance products and lines will be developed around the Unemployment Insurance Law placing the UAE in to one of the leading insurance markets of the region.
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.