1 Legal framework
1.1 Which legislative and regulatory provisions govern the insurance sector in your jurisdiction?
Several laws and regulations govern the insurance sector in the United Arab Emirates.
Part 3 of Chapter 4 (Articles 1026–1055) of Federal Law 5/1985 on Civil Transactions ('Civil Code') sets out among other things:
- the basic essence of an insurance contract; and
- the obligations of the insurer and the insured under the insurance contract.
However, the main law setting out guidelines for the insurance sector in the United Arab Emirates is Federal Law 6/2007 on the Establishment of the Insurance Authority and Organisation of its Operations. Among other things, this law:
- identifies the types of insurance operations that can be conducted in the United Arab Emirates (ie, life insurance, property insurance and life liability insurance); and
- provided for the establishment of the Insurance Authority to regulate the conduct of the insurance markets in the country.
Marine insurance in the United Arab Emirates is governed by Federal Law 26/1981 on Commercial Maritime Law.
Takaful insurance is governed by the Insurance Authority's Board of Directors Resolution 4/2010 Concerning the Takaful Insurance Regulations.
In line with Decretal Federal Law 25/2020, the Insurance Authority has now been merged into the UAE Central Bank, which has now assumed the supervisory and regulatory responsibility of the insurance sector (the terms 'Insurance Authority' and 'Central Bank of the United Arab Emirates' are used interchangeably throughout the Q&A as a result of this merger).
There are various other laws and regulations and ministerial resolutions governing the conduct of insurance business in the United Arab Emirates. In summary, these laws and regulations set out guidelines on issues such as:
- corporate governance;
- insurance broking; and
- insurance consultancy.
1.2 Which bilateral and multilateral instruments on insurance have effect in your jurisdiction?
At present, the United Arab Emirates is not a party to any bilateral or multilateral insurance treaties.
1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?
The onshore UAE insurance market is regulated by the UAE Central Bank, which supervises the activities of insurers, brokers and other insurance related service providers.
The UAE Insurance Authority was established under Federal Law 6/2007 as a legal entity with financial and administrative independence. The Insurance Authority is the main regulatory body governing the conduct of the insurance market in the United Arab Emirates. As per Article 7 of the law, the objective of the Insurance Authority is to organise and oversee the insurance sector in a conducive manner. The duties of the Insurance Authority include:
- protecting the rights of insureds and the beneficiaries of insurance operations;
- enhancing the performance and efficiency of insurers and binding them to observe the profession's code and rule of conduct, in order to strengthen their capabilities to provide the beneficiaries of insurance with the best services and ensure constructive competition; and
- proposing programmes and plans to develop the insurance sector and enhance awareness of insurance, and conducting studies and research relevant to insurance operations.
The Insurance Authority also monitors the solvency of insurers.
Insurance contracts entered into within the free zones are governed differently from those concluded onshore in the United Arab Emirates. The Dubai Financial Services Authority and the Financial Services Regulatory Authority regulate all insurance companies operating in the Dubai International Financial Centre and the Abu Dhabi Global Market respectively.
1.4 What is the regulators' general approach in regulating the insurance sector?
The Insurance Authority is proactive in implementing best international practices applicable in foreign jurisdictions that accord with Sharia principles.
The Insurance Authority aims to:
- organise and oversee the insurance sector in a way that creates a conducive environment for the development of the sector, and that enhances the role of the insurance industry in securing lives, properties and liabilities against risk, in order to protect the national economy;
- collect, develop and invest national savings to sustain the economic development of the state;
- encourage fair and effective competition; and
- facilitate the provision of the best insurance services with competitive premiums and coverage.
2 Insurance contracts
2.1 What are the main types of insurance available in your jurisdiction?
As per Article 4 of Federal Law 6/2007 on the Establishment of the Insurance Authority and Organisation of the Insurance Operations, the three main types of insurance in the United Arab Emirates are as follows:
- Life insurance and funds accumulation: This includes life insurance, health insurance and personal accident insurance.
- Property insurance: This includes marine and aviation hull insurance, railway locomotive insurance, vehicle insurance and fire and allied peril insurance.
- Liability insurance: This includes liability insurance on account of accidents involving vehicles, ships, aircraft and other liabilities that might arise.
Article 6 of Insurance Authority Board of Directors' Resolution 2/2009 prescribes that the Insurance Authority may at any time determine other types of insurance to be enlisted.
Additionally, the United Arab Emirates allows for takaful insurance, which is a type of insurance based on Sharia or Islamic law. This is a cooperative insurance system modelled on the concept of shared contributions that are accumulated to compensate individual participants in case of the occurrence of loss. Participants pay contributions (on subscription) to a takaful fund which is managed by the takaful operator (insurance company) on their behalf.
2.2 Are all insurance contracts regulated? What terms do they typically include?
All insurance contracts/policies are regulated in the United Arab Emirates, primarily by the Insurance Authority. Insurance contracts/policies issued by insurers registered in the Dubai International Financial Centre and the Abu Dhabi Global Market are respectively regulated by the Dubai Financial Services Authority and the Financial Services Regulatory Authority. Furthermore, general laws on insurance contracts are set out in the UAE Civil Code, which also stipulates that provisions concerning the various insurance contracts which are not mentioned in the present law will be governed by special laws. Insurance policies must identify:
- the insurer and the insured;
- the subject matter of the policy (eg, a vehicle, a ship, an aircraft or real estate);
- the period of coverage; and
- the quantum of coverage provided under the policy.
The terms of the insurance policy also typically set out:
- the risks insured (the insured perils);
- exclusions to the insurance cover; and
Under Federal Law 6/2007, it is essential that the terms and conditions capable of rendering the insurance contract void by the insurer be:
- written in bold letters and a different colour; and
- endorsed by the insured.
However, the UAE courts and authorities do not interpret these requirements rigidly.
2.3 What are the formal and documentary requirements for conclusion of an insurance contract?
An insurance contract is a contract of good faith under which the insured undertakes to pay a premium to the insurer for covering its risk. This requires that the parties executing the contract (ie, the insured and the insurer) make full disclosure in respect of the subject matter being insured. For instance, in obtaining medical insurance, it is the insured's obligation to make an advance declaration of all pre-existing (medical/health) conditions which might affect the insurer's decision to offer coverage or calculation of the premium. If the insurance to be obtained is for property (eg, vehicles, ships, aircraft or real estate), the insured must provide documentary evidence regarding its ownership and value. Similarly, the insurer must clearly and unequivocally set out:
- the policy details;
- the premium amount;
- the scope of coverage;
- the warranty clauses;
- insured perils;
- the deductibles; and
- the exclusions which might be relied upon to reject a claim.
2.4 What are the procedural requirements for conclusion of an insurance contract?
There are no particular procedural requirements for the conclusion of an insurance contract. However, as detailed in question 2.3, the insured must make full and honest disclosure in respect of the subject matter being insured.
2.5 What are the respective obligations and liabilities of insurer and insured, both on concluding an insurance contract and during its term? What are the consequences of any breach?
The general obligations of the insured are specified in Article 1032 of the UAE Civil Code as follows:
- to pay the agreed amounts on the term fixed in the contract;
- to reveal, at the time of conclusion of the contract, all information which the insurer considers important for it to know in order to assess the risks assumed by it; and
- to inform the insurer of all matters occurring during the contract period which lead to the aggravation of risks.
The general obligation of the insurer is to pay an amount to the insured or beneficiary upon occurrence of the risk (Article 1034 of the Civil Code). Insurers are also subject to the principle of good faith. Article 7(2) of Insurance Authority Resolution 3/2010 requires the insurer to ensure that the policy is printed in clear and legible font.
As per Article 1033(1) of the Civil Code, if an insured acts in bad faith and conceals any information or provides any incorrect information, the insurer can require that the policy be cancelled.
According to Article 1035 of the Civil Code, in the case of insurance covering civil liability, the insurer's obligation will have no effect unless the injured party files a claim against the beneficiary after the occurrence of the event from which such liability resulted.
Under Federal Law 26/1981 on Commercial Maritime Law, the insured is liable to take all necessary measures to preserve its rights against liable third parties.
3 Making a claim
3.1 What are the formal and documentary requirements for making a claim?
Once an event for which indemnification is sought under an insurance policy occurs, the insurer should be notified and a claim should be filed strictly within the timeframe stipulated in the policy. To this end, a claim form must be duly filed by the insured with the insurer, setting out all details of the event for the insurer to assess and evaluate the claim. In order to facilitate the assessment and evaluation of the risks caused, the insurer may ask for certain documents for proof of loss, which the insured must provide as per the standard terms of insurance policies. Upon satisfaction, the insurer will indemnify the insured as per the terms of the policy and a discharge receipt will be executed by the insured in favour of the insurer.
3.2 What are the procedural requirements for making a claim?
As mentioned in question 3.1, the insurer should be notified and a claim should be filed strictly within the timeframe stipulated in the policy. Thereafter, a claim form must be duly filed by the insured with the insurer for evaluation of the claim.
3.3 On what grounds can the claim be denied? How can the insured challenge the denial of claim?
A claim may be denied on the following grounds:
- A warranty has been breached;
- The event was not an insured peril; or
- The event falls under the exclusion clause of the policy.
The decision to deny the claim must be made in writing, along with the reasons therefor. Upon denial of a claim, the insurer may file a written complaint with the Committee of the Insurance Authority, which in turn may ask the insurer for clarification. It is a mandatory requirement for the insured to first bring an action against the insurer before the Committee of Insurance Authority; either party has the right to appeal the committee's decision before the courts of first instance.
3.4 How can third parties make a claim?
While an insurance contract is a contract between the insured and the insurer, there are cases in which a third party may make a claim as a beneficiary under the policy. This is particularly common in liability insurance, which covers accidents caused by the insured to third parties. This is common in motor insurance claims and contractors' all-risks policies covering third-party liability.
4 Form and structure of insurers
4.1 What types of insurance companies are typically found in your jurisdiction?
Insurers are regulated by:
- Federal Law 6/ 2007 on the Regulation of Insurance Operations;
- Federal Law 32/2021 on Commercial Companies;
- Federal Law 4/2012 on the Regulation of Competition; and
- various Insurance Authority directives issued from time to time.
Based on Article 11 of Federal Law 32/2021 on Commercial Companies, only public joint stock companies may engage in banking and insurance business, unless otherwise provided by the special laws regulating these activities or the decisions issued pursuant thereto.
According to Article 24 of Federal Law 6/2007 on the Regulation of Insurance Operations, insurance activities may be exercised in the state by any of the following persons that are licensed and registered with the Insurance Authority:
- a public joint stock company established in the state;
- a branch of a foreign insurance company; or
- an insurance agent.
The prior approval of the Insurance Authority must be obtained before:
- incorporating any insurance company;
- opening a branch of a foreign insurance company; or
- carrying out the operations of an insurance agent in the United Arab Emirates.
Any insurance contract concluded by a company that is not duly registered according to the provisions of the law will be deemed invalid and the affected party may claim compensation due to such invalidation.
Insurance companies registered with the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM) are regulated by their own set of rules and regulations and are further regulated by the Dubai Financial Services Authority and the Financial Services Regulatory Authority instead of the Insurance Authority.
4.2 How are these insurance companies typically structured and funded?
As mentioned in question 4.1, insurance operations in the United Arab Emirates can be carried out by public joint stock companies, whose structure is set out in Federal Decree-Law 32/2021 on Commercial Companies. In summary, a public joint stock company must have a minimum of five members. The federal government, the local government and any company or entity that is fully held by the federal government or local government may be a shareholder of a public joint stock company or incorporate by itself a public joint stock company; and may also join in contributions to the capital. The founders must subscribe to new shares up to the percentage specified in the prospectus prior to invitation for public subscription and subject to the requirements of the Securities and Commodities Authority.
4.3 Are there any restrictions on foreign ownership of insurance companies?
It is mandatory under the laws of the United Arab Emirates that all UAE-based risks be insured by UAE licensed entities. An exception to this rule applies to entities functioning from the free zones. The relevant insurance laws and regulations applicable to insurers in United Arab Emirates do not apply to entities established in the DIFC/ADGM. Instead, the DIFC/ADGM have separate sets of laws and regulations allowing for full foreign ownership of insurers within these free zones. Insurance companies operating in or from the DIFC/ADGM may provide direct insurance covers for risks that are situated in the DIFC/ADGM and risks situated offshore of the United Arab Emirates.
Insurance companies incorporated in the United Arab Emirates must have capital owned by a UAE or Gulf Cooperation Council (GCC) national, or by legal persons that are wholly owned by them. Where a company operates an insurance practice through a branch, a UAE national must be appointed as an agent of the branch.
Cabinet Decision 16/2017 on the Amendments to Cabinet Decision 42/ 2009 on the Minimum Limit of Capital of Insurance Companies provides that foreign ownership of insurers is restricted to 49%, as insurance business in the United Arab Emirates is categorised as a 'strategically important sector' and thus 100% foreign ownership for onshore insurance business is not allowed.
The only option for non-UAE or GCC natural or legal persons to be engaged in insurance operations is through the acquisition of up to 49% of the shares in an existing UAE insurance company, with all laws and corporate governance requirements applicable to the UAE insurance company and to the investors. Even with foreign involvement, the majority of the board of directors and the chairman of the insurance company must be UAE nationals.
5.1 What authorisations are required to provide insurance services in your jurisdiction? What activities do they cover?
In order to set up an insurance business in the United Arab Emirates, the prior approval of the Board of Directors of the Central Bank is required under Article 24(2)(A) of Federal Law 6 2007. The law identifies three types of insurance operations in the United Arab Emirates:
- life insurance;
- property insurance; and
- liability insurance.
As insurers in the United Arab Emirates are public joint stock companies, the incorporation procedures for such entities are set out in Federal Decree-Law 32/2021 on Commercial Companies.
5.2 What requirements must be satisfied to obtain authorisation?
Among other things, in addition to the requirements under Federal Decree-Law 32/2021 on Commercial Companies, the prior approval of the Central Bank is required (Article 24 of Federal Law 6/2007). Under Federal Decree-Law 32/2021 on Commercial Companies, public joint stock companies must be registered with the Securities and Commodities Authority and granted a commercial licence by the authority.
5.3 What is the procedure for obtaining authorisation? How long does this typically take?
An application to obtain a licence for insurance companies established in the United Arab Emirates must be submitted to the Central Bank along with the necessary documents, including:
- the articles of the company;
- a certificate from the actuary;
- the economic feasibility; and
- the company's work plan.
The Central Bank will consider the licensing application within seven working days of submission; in case of any defects in the application, the applicant may be given the opportunity to cure those defects within 60 days of the date of notification under Article 13 of Insurance Authority Board of Directors' Decision 2/2009.
The resolution approving the licence will be published in the Official Gazette and the competent authorities will be advised to execute its content.
6 Regulatory capital and liquidity
6.1 What minimum capital requirements apply to insurance companies in your jurisdiction?
According to Article 1 of Insurance Authority Board of Directors' Decision 25/2014 dealing with the minimum capital requirements for insurance companies, the minimum subscribed and paid-up capital of each insurance company should not be less than:
- AED 100 million for an insurance company; and
- AED 250 million for a reinsurance company
There are also requirements under the law to maintain a minimum guarantee fund and a solvency margin.
The law initially required that at least 75% of the capital of an insurer in the United Arab Emirates be owned by:
- UAE or Gulf Cooperation Council (GCC) nationals; or
- legal persons wholly owned by citizens holding UAE or GCC nationality.
However, this provision was amended in 2017 by Cabinet Decision 16/2017, as a result of which the law now requires that 51% of the capital of an insurer in the United Arab Emirates be owned by:
- UAE or GCC nationals; or
- legal persons wholly owned by citizens holding UAE or GCC nationality.
6.2 What liquidity requirements apply to insurance companies in your jurisdiction?
The Insurance Authority must ensure that insurers and reinsurers in the United Arab Emirates maintain their solvency. To this end, under Article 41 of Federal Law 6/2007, the Insurance Authority is permitted to conduct periodic inspections of insurers and reinsurers to ensure the safety of their financial situations. Among other things, the director general of the Insurance Authority may intervene where he learns or is informed that an insurer:
- has not fulfilled its obligations or is unable to continue with its operations;
- has losses which exceed 50% of its paid-up capital; or
- has ceased carrying out its operations for over a year without legitimate reason.
The measures that may be imposed include:
- preventing the insurer from concluding or issuing further policies;
- setting an upper limit on the total premium amounts received by the insurer against issuing insurance policies;
- dissolving the insurer's board of directors;
- appointing a provisional neutral administrative committee; and
- restructuring or liquidating the insurer.
The law also requires that all insurers make bank deposits as a guarantee for fulfilling their obligations – these stand at:
- AED 4 million for life assurance and fund accumulation operations/endowment insurance; and
- ED 2 million for property and liability insurance (Article 42 of Federal Law 6/2007).
7 Supervision of insurance groups
7.1 What requirements apply with regard to the supervision of insurance groups in your jurisdiction?
Article 181 of Federal Decree-Law 32/2021 on Commercial Companies stipulates that the UAE Central Bank or the Insurance Authority may send one or more controllers to attend the general assembly meetings of companies licensed by the Central Bank and the Insurance Authority, without having the right to vote. The presence of such controllers must be stated in the minutes of the general assembly meeting. Accordingly, under Article 36(2) of Federal Law 6/2007, an insurer's board of directors must invite the director general of the Insurance Authority to attend the general assembly meetings.
Companies must submit any data or information required by the director general concerning themselves or other companies with ownership relations or that are otherwise connected. The director general may assign one or more employee(s) of the Insurance Authority to verify or scrutinise any of these companies' transactions, registers or documents; and the company must put all requested information at the disposal of the delegated employee and cooperate with him or her. As a result of this scrutiny, the director general may appoint experts, counsels, actuaries or auditors to verify the company's business transactions, assess its status and submit a report thereon (Article 36 of Federal Law 6/2007).
The company must offer any assistance required for the performance of its work in the most complete manner and must pay any salaries as determined by the director general.
8 Reporting, governance and risk management
8.1 What key disclosure requirements apply to insurance companies in your jurisdiction?
Under Article 39 of Federal Law 6/2007 on the Regulation of Insurance Operations, insurance and reinsurance companies registered with the Insurance Authority must abide by the principle of disclosure and transparency:
- in their dealings with their clients; and
- in all documents, papers, publications, advertisements, publicity, articles and scientific material issued by them.
Insurers must also provide:
- any data or information at the request of the director general of the Insurance Authority, either on the insurer itself or on any company related or associated thereto, within the timeframe specified by the director general; and
- any data or information to any other regulatory body and any data or information received by the insurer from those bodies.
Additionally, under Article 37, insurers must provide the Insurance Authority with a detailed report on their operations along with their audited annual financial statements and all related information, including the annual budget and a detailed profit and loss accounts (read with Article 3(3) of Financial Regulations for Insurance Companies)
8.2 What key reporting requirements apply to insurance companies in your jurisdiction?
In addition to the disclosures outlined in question 8.1, the company must submit to the Insurance Authority its solvency template and related information on an annual basis, including the validation certification of the solvency template issued by the actuary and the external auditor and endorsed by the chairman of the board of directors.
A corporate governance report signed by the chairman of the board of directors must be submitted to the Securities and Commodities Authority once a year, or upon request for joint stock insurance companies listed on the market (Article 14 of Ministerial Decision 518/2009 on Governance Restrictions and Corporate Discipline Standards)
When required by the Authority, the company must submit a financial condition report which has been certified by the actuary and endorsed by the chairman of the board of directors.
8.3 What key governance requirements apply to insurance companies in your jurisdiction?
The key governance requirements are set out in Insurance Authority Board Resolution 3/2010 – Instructions Concerning Code of Ethics to be Observed by Insurance Companies Operating in the United Arab Emirates. Among other things, the resolution requires insurers to ensure that their conduct is consistent with the laws of the United Arab Emirates, including Federal Law 6/2007. The resolution also mandates that insurers act in good faith and comply with legitimate practices towards insureds and beneficiaries. There are various other provisions on ethics set out in the resolution.
Under Insurance Authority Board of Directors' Decision 19/2020 Concerning the Guidance Manual for Insurance Companies and Related Professions to Submitting the Data, information & Supervisory Reports, insurance companies must establish and maintain a governance framework in the organisation. This further requires that insurance companies ensure that their policies, procedures and controls are regularly reviewed and updated as necessary.
Insurance companies must provide the Insurance Authority with a self-assessment of their governance procedures in the intended completed e-form when the annual financial statements are presented, along with a copy of the annual governance report. They must also file risk management reports and an internal audit report to the authority. In addition, they must appoint compliance officers to combat money laundering and terrorist financing.
8.4 What key risk management requirements apply to insurance companies in your jurisdiction?
Insurance Authority Board of Directors' Decisions 25/2014 and 26/2014 on Financial Regulations for Insurance Companies and Takaful Insurance Companies, respectively, govern the solvency aspect of UAE insurance companies. These decisions include provisions on:
- a minimum guarantee fund;
- solvency margins;
- solvency capital requirements; and
- certain disclosure obligations of financial and data governance.
In terms of risk management, among other things, as per Insurance Authority Board of Directors' Decision 19/2020 Concerning the Guidance Manual for Insurance Companies and Related Professions to Submitting the Data, Information & Supervisory Reports, it is mandatory for insurance companies to have suitable procedures and controls on risk management in place. Insurance companies must also submit a risk management e-form in the prescribed format along with their annual financial statements and reports to the Insurance Authority. Insurance companies must create and maintain internal control roles in the organisation with respect to risk management.
9 Senior management
9.1 What requirements apply with regard to the management structure of insurance companies in your jurisdiction?
Only public joint stock companies (PJSCs) may engage in banking and insurance business, unless otherwise provided by special laws regulating the field. Accordingly, with regard to the corporate governance and management of the company, insurance companies must abide by the provisions of:
- the Commercial Companies Law;
- Federal Law 6/2007; and
- Securities and Commodities Authority Decision 3/RM/2020 on the Approval of the PJSC's Governance Manual, which applies to local PJSCs listed on the market, with the exclusion of foreign listed companies. Among other governance requirements, the decision specifies that a PJSC must be managed by a board of directors whose formation method, exclusive number of members and membership team are specified by statute. The general assembly elects the members of the board of directors by way of secret cumulative vote. The board of directors will elect, by secret ballot and from among its members, a chairman and a vice chairman. The chairman and majority members of the board of directors must hold UAE nationality. The board of directors may select a managing director from among its members, whose competencies and remunerations will be specified by the board. A secretary must be appointed by the board of directors, independent of the company's management but who reports directly to the board, and not from among the members of the board.
9.2 How are directors and senior executives appointed and removed? What selection criteria apply in this regard?
The statute of the company must specify the executive and non-executive members and independent members. However, at least one-third of the members of the board of directors must be non-executive independent members with the experience and technical skills required to serve the interests of the company. A managing director is elected by the board from its members by secret ballot.
Among other fit and proper criteria as stipulated by Decision 3/RM/2020, Article 30 of Federal Law 6/2007 prescribes that no one may be a member of the board of directors, a general manager or an authorised manager of an insurance company if he or she has ever been:
- convicted of a crime or a felony of dishonour, distrust or public morals;
- pronounced bankrupt and not subsequently rehabilitated; or
- held liable for grave violations of any provisions of law in his or her capacity as general manager or board member of a company, including liability for causing a company to enter into compulsory liquidation.
Additionally, Article 31 stipulates that the chairman and the members of the board of directors of the insurer, its general manager, its authorised manager and anyone acting on their behalf, and any managers or senior officers must not, among other things:
- participate in the management of another competing insurer or compete with its operations;
- conduct any activity in conflict with the insurer's interest;
- carry out the operations of an insurance agent or a broker; or
- receive commission for any insurance operations.
The resignation of members of the board of directors is covered in Article 21 of Securities and Commodities Authority Decision 3/RM/2020, which provides that, among other things:
- a director can resign from his or her position by written notice;
- the general assembly may dismiss all or any of the directors; and
- when a director's fixed term elapses and is not renewed, his or her duties will terminate.
A board member will be deemed to have resigned if:
- he or she fails to attend board meetings on three consecutive or five intermittent occasions, within the term of the board, without an excuse acceptable to the board; or
- his or her membership is contrary to the provisions of the Companies Law.
9.3 What are the legal duties of directors and senior executives of insurance companies?
Articles 16 and 17 of Securities and Commodities Authority Decision 3/RM/2020 stipulate the obligations of members of the board of directors, as well as the obligations of non-executive members of the board of directors. Moreover, based on Article 22 of the Commercial Company Law, the duty of the managing director is to preserve the rights of the company and act with due care. Also, he or she must carry out all acts that are consistent with the object of the company and within the limits of the powers vested in him or her by virtue of the authorisation issued by the company to this effect.
Moreover, as per the Commercial Company Law, any provision in the memorandum of association or statute of the company authorising it or any of its subsidiaries to agree to exempt any person from any personal liability that such person bears in his or her capacity as a current or former officer of the company will be deemed null and void. The duties of the directors and managers include, among other things:
- to act diligently and in accordance with the objectives of the company;
- to manage the company in accordance with the applicable laws without any breach or fraudulent act or misuse of the power; and
- to ensure the effective functioning of the board, setting and accrediting the agenda of every board meeting, taking into consideration matters proposed by the members.
The directors and senior executives also have specific technical and daily duties under the Commercial Companies Law.
9.4 How is executive compensation regulated in your jurisdiction?
Article 29 of Securities and Commodities Authority Decision 3/RM/2020 stipulates the remuneration of the chairman and members of the board of directors. It provides that the remuneration of the chairman and members of the board of directors may consist of a certain percentage of the net profit, provided that this does not exceed 10% of the profits for the fiscal year, after deducting all depreciations and reserves. The company may pay additional costs, fees or allowances, or a monthly salary, to the members of the board of directors – in line with the policies proposed by the nominations and remuneration committee, and reviewed by the board of directors, and approved by the general assembly of the company – if the member is employed in any committee or exerts special efforts or performs additional activities to serve the company beyond his or her ordinary duties as a member of the board of directors. No attendance allowance may be paid to the chairman or to a member of the board of director for attending board meetings.
Any fines imposed on a company due to breach of the law or statute by the board of directors in the previous fiscal year will be deducted from the remuneration of the board of directors. However, the general assembly may not deduct such fines if it finds out that those fines are not the result of a default or error on the part of the board of directors.
10 Change of control and transfers of insurance companies
10.1 How are the assets and liabilities of insurance companies typically transferred in your jurisdiction?
10.2 What requirements must be met in the event of a change of control?
11 Consumer protection
11.1 What requirements must insurance companies comply with to protect consumers in your jurisdiction?
Federal Law 15/2020 on Consumer Protection aims to protect all customers' rights, including those relating to the quality of goods and services and the right to obtain them at the declared price. The law applies to every legal person that provides services across the UAE mainland and free zones.
Pursuant to the Consumer Protection Law, the Ministry of Economy has a set up a Supreme Committee for Consumer Protection, whose responsibilities include monitoring the consumer rights and protection regime within the United Arab Emirates to keep a record of the legal framework. The Ministry of Economy Consumer Protection Department is also empowered to receive consumer complaints and adopt procedures in this regard or refer them to the competent authorities. However, consumer complaints against insurers are extremely rare and it is usually the Insurance Authority which hears such complaints.
As per Federal Law 6/2007 on the Establishment of the Insurance Authority, an insurer must pay the indemnity provided for in the policy to the insured or the beneficiary, as the case might be, as soon as the insured peril or risk occurs; thereupon, the insurer must legally subrogate the insured or the beneficiary in respect of the rights or obligations.
The regulation pertaining to the protection of the consumers in the United Arab Emirates is evolving continuously. In 2020, the UAE Central Bank introduced two regulations applicable to licensed financial institutions – Circular 8/2020 and the Consumer Protection Standards – setting out guidance on consumer protection requirements.
11.2 What other measures has the state implemented to protect consumers in the insurance sector?
In relation to insurance, the Consumer Protection Standards provide as follows, among other things:
- A key facts statements specific to any financial product – including insurance/takaful and structured products – that is being distributed, advertised, marketed, sold or otherwise provided by a licensed financial institution must be offered to consumers.
- Where a licensed financial institution offers or markets insurance/takaful products and/or services associated with the credit/financing product, consumers must be informed in writing that they can choose whether to accept or reject the offer of insurance/takaful.
- In addition to any other UAE regulator's requirements regarding the sale and marketing of insurance/takaful, licensed financial institutions must, at a minimum:
- explain the nature, purpose, coverage and limitations of coverage;
- disclose its suitability for the consumer;
- disclose the termination conditions, including any obligations related to future insurance/takaful payments/premiums; and
- disclose the fees (including associated commissions) paid with the sale of such an insurance/takaful product.
- The licensed financial institution must obtain the consumer's expressed consent for insurance/takaful independently of signing application forms or the contract for offering insurance/takaful.
- Where insurance/takaful coverage is a mandatory component of the credit/financing product and/or service, the licensed financial institution must disclose the purpose of the insurance/takaful.
- If the consumer decides to acquire insurance/takaful through the licensed financial institution, the consumer must be informed of any additional costs that may be incurred if the insurance/takaful costs are added to the loan/financing principal and additional interest/profit costs are thereby incurred.
12 Data security and cybersecurity
12.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for insurance companies?
On 2 January 2022, the new Federal Decree-Law 45/2021 on the protection of personal data came into force. This is the first comprehensive federal data privacy law in the United Arab Emirates and is largely modelled on the EU General Data Protection Regulation. The law covers the processing of personal data belonging to data subjects within the United Arab Emirates, regardless of the location of the data controller or processor. The consent requirement prior to processing any personal data is the key concept of the law, along with detailed requirements for data controllers and processors, as well as procedural measures to support data security. The law contains exceptions related to health insurance services, whereby processing without consent is permitted for health insurance services in accordance with the applicable laws, including:
- Federal Law 2/2019; and
- Cabinet Decision 32/2020 on the use of the Information and Communication Technology in Health Fields.
Data protection is also covered in the new UAE law on customer protection (Federal Law 15/2020), which establishes consumers' rights to the protection and security of their data, including protection from use of the same for promotional and marketing purposes.
Further, the Insurance Authority recently published Insurance Authority Board of Directors' Resolution 18/2020, regulating data protection for any business carried out by an insurance company through electronic and smart systems. This regulation has mandatory application not only for insurance companies, but also for a broad range of insurance-related players, such as insurance agents, actuaries, insurance brokers, surveyors and loss adjusters.
12.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for insurance companies?
The United Arab Emirates has introduced new legislation pertaining to cybersecurity. The previous Cyber Crime Law of 2012 was abrogated by Federal Decree Law 34/2021 Concerning the Fight Against Rumours and Cybercrime. The new law has enhanced the level of protection and now deals with a wide range of issues which were not covered under the previous law, such as:
- falsifying electronic documents; and
- tampering with medical data, bank accounts or confidential codes.
The law also imposes penalties for the collection and processing of personal data in violation of the legislation. Anyone that uses information technology or any means of information technology to collect, archive or process personal information and data relating to UAE citizens or residents in contravention of the law will be sentenced to detention and/or a fine of between AED 50,000 and AED 500,000.
Insurance companies must also comply with the cybersecurity standards and requirements issued by the competent authorities. Based on Insurance Authority Board of Directors' Decision 18/2020, in order to conduct electronic insurance operations, insurance companies must apply for the approval of the Insurance Authority. This application must contain an analysis of the risks associated with electronic transactions and the necessary precautionary measures and procedures to mitigate those risks, including cybersecurity risks. Furthermore, based on Insurance Authority Board of Directors' Decision 19/2020, insurance companies and insurance related professionals must provide the authority with annual risk and adherence self-assessment reports, which must also cover cyber risks.
13 Financial crime
13.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for insurance companies?
The anti-money laundering landscape is changing rapidly, as the Central Bank actively strengthens the regulatory framework. On 17 September 2019, the Insurance Authority issued Circular 16/2019 to all insurance companies and insurance-related professions operating in the United Arab Emirates, which confirms that the current applicable legal framework in this regard is as follows:
- Federal Decree 20/2018 Concerning Anti Money -Laundering and Terrorist Financing and Financing of Illicit Organisations and Cabinet Resolution 10/2019 on the Executive Regulations of Federal Decree 20/2018, which provides for the establishment of an independent financial intelligence unit (FIU) to receive and investigate all reports submitted by financial institutions and other corporate establishments regarding suspected illicit financial activities; and
- Cabinet Decision 10/2019 Implementing Regulation of Decree Law 20/2018 on Anti-money Laundering and Combating the Financing of Terrorism and Financing of Illegal Organisations, which clearly stipulates that all insurance transactions are considered financial activities for the purposes of the law.
Accordingly, insurance companies must:
- demonstrate compliance with the legislation;
- file suspicious transaction reports with the FIU through its electronic system; and
- register with the FIU for filing suspicious transaction reports through its electronic system.
Moreover, on 1 August 2022, the UAE Central Bank issued its Guidance for Licensed Financial Institutions on the Risks Relating to Payments. The guidance aims to help licensed financial institutions understand the risks and effective implementation of their statutory anti-money laundering/counterterrorist financing obligations, taking Financial Action Task Force standards into account.
14.1 What specific challenges or concerns does the insurance sector present from a competition perspective? Are there any pro-competition measures that are targeted specifically at insurance companies?
Competition in the UAE insurance market has intensified. While competition in this sector is vital to promote product innovations and improve the efficiency and variety of services, strong competition continues to have an impact on loss and retention ratios. That said, the Insurance Authority is committed to organising and overseeing the insurance sector in a way that is conducive to its development and that enhances the role of the insurance industry. The Insurance Authority encourages fair and effective competition for the core purpose of facilitating the provision of the best insurance services with competitive premiums and coverage.
Accordingly, the Insurance Authority works effectively to help enhance the performance and efficiency of insurers, which are bound to observe the profession's code and rules of conduct.
Generally, competition in the United Arab Emirates is governed by Federal Law 4/2012 on the Regulation of Competition, which:
- aims to protect and promote competition and anti-monopoly practices in the state; and
- restrictive agreements, acts and behaviour that would lead to the abuse of a dominant position; and
- anything that would endanger, limit or prevent competition.
However, the financial sector is exempt from this law, as it is exclusively regulated by the Central Bank. To date, the Central Bank has not issued any regulations governing competition in the financial services sector.
15 Restructuring and insolvency
15.1 What provisions govern insolvency in your jurisdiction and what specific implications do these have for insurance companies?
The laws governing insolvency in the United Arab Emirates are primarily Federal Law 9/2016 on Bankruptcy and Federal Law 19/2019 on Insolvency. The 2016 law applies to companies governed by the Law on Commercial Companies and thus applies to insurers which are established as public joint stock companies. However, insolvency or bankruptcy proceedings against an insurer on account of indemnity claims are not common in the United Arab Emirates; such claims are generally initiated by way of the dispute resolution process stipulated in the policy.
With regard to specific implications, Federal Law 6/2007 on the Regulation of Insurance Operations contains provisions on the liquidation and insolvency of insurance companies. Among other procedural provisions stipulated in Chapters 9 and 10 of the law, and notwithstanding the provisions of other UAE laws, the law specifies the order in which due debts and obligations of the company under liquidation will be discharged.
16 Trends and predictions
16.1 How would you describe the current insurance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Over the past two years, the UAE insurance market has demonstrated remarkable growth, notwithstanding the significant impact of the COVID-19 pandemic followed by the economic crisis resulting from Russia's invasion of Ukraine. The legislative reforms enacted in the past two years demonstrate that the UAE insurance market continues to evolve.
The catalyst for significant change in this regard was the merger between the Insurance Authority and the UAE Central Bank, as a result of which the regulation of the insurance sector was transferred to the Insurance Division of the Central Bank. Accordingly, insurance companies now report to the Central Bank, which is responsible for monitoring the compliance and reporting obligations of insurance companies While the insurance market has not been significantly affected by the merger, the new regulator has adopted a robust approach to matters such as:
- the financial solvency of insurance companies;
- the ethical conduct of insurance companies; and
- protection of the rights of insureds.
The United Arab Emirates has also made significant efforts to strengthen customer data protection. The law in this regard has been further codified in:
- Federal Decree-Law 45/2021 on personal data protection; and
- Insurance Authority Board of Directors' Decision 19/2020 Concerning the Guidance Manual for Insurance Companies and Related Professions to Submitting Data, Information and Supervisory Reports, which set out further requirements for insurance companies with regards to data protection measures.
Finally, in 2022 the United Arab Emirates introduced a new unemployment insurance scheme applicable both to UAE citizens and residents, which provides further assurance to employees in both the private and public sectors. The scheme will come into force in 2023.
17 Tips and traps
17.1 What are your top tips for insurance companies operating in your jurisdiction and what potential sticking points would you highlight?
Digitalisation: Given recent developments in the market, we strongly believe that the insurance sector will face increased challenges of technological innovation and digitalisation, which will require further legislative reforms. To this end, in 2021 the UAE Central Bank issued the Sandbox Regulation to establish a regulatory framework for the digitalisation of the industry. The regulation provides for the creation of an experimental environment in which players in the insurance sector can develop innovative systems and interact with fintech companies, with the overall aim of promoting economic growth and risk management.
Dispute resolution: Following recent developments in the sphere of litigation relating to the broad interpretation of jurisdiction clauses, we strongly recommend that insurance companies draft jurisdiction clauses with caution. Based on a recent ruling of the Dubai International Financial Centre (DIFC) Court, where the parties agree to refer disputes to the UAE or local courts, this includes the right to refer to the DIFC Court, with no need for a specific link to the DIFC (Al Buhaira National Insurance Company v Horizon Energy LLC, DIFC CFI 098/2021). Furthermore, the Dubai courts now have clear instructions to enforce judgments of the English courts based on the principle of reciprocity. It is thus recommended to specify, when drafting, the clear intention of the insurance company pertaining to the appropriate forum for dispute resolution.
Further recommendations: We would recommend that insurers in the jurisdiction strictly adhere to the guidelines laid down by the Central Bank and conduct their business within the specified parameters. Insurers should be transparent in the conduct of their operations and demonstrate a prudent, policyholder-focused approach to business. The insurance sector is closely monitored by the Central Bank and the number of regulatory and disciplinary penalties launched compared to previous years has increased notably.
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.