While the overall economic slowdown and disruption in the market has had some impact on the insurance sector as well, the UAE insurance market still seems to be going strong. Market reports state that Loss Ratios continue to present a positive outlook and the total written premium of the Industry for the half-year ended 2019 was estimated to be AED 13.7 Billion which shows a growth of 9% from the same period for the previous year.
That said, 2019 saw some major disruption in the UAE insurance market, largely driven by the new guidance and regulations issued by the UAE Insurance Authority. While these regulations were a need of the hour for the otherwise under-regulated insurance market in the UAE and broader region, like any other part of the world, the immediate reaction to these regulations is not very positive and the market players are of the view that this would slow down the market growth. While this may be true from a short-term perspective, in the long run this will definitely benefit the entire market.
We have compiled a list of the major regulations issued by the UAE Insurance Authority in the calendar year 2019, with a brief summary of its likely impact:
January 2019 – Cabinet Resolution No. (7) of 2019 Concerning the Administrative Fines Imposed by the Insurance Authority – This resolution was a rather unexpected start from the Insurance Authority for the year 2019. The circular sets out the list of violations applicable to insurers, brokers, TPAs, consultants and even third parties, and administrative fines for breach of such listed violations. Historically, fines and penalties for violations were listed in the respective laws and regulations, with very minimal application by the regulator and this resolution is expected to change the supervisory framework of the insurance authority.
January 2019 – Third draft of the Life Insurance Regulations, dated 31 January 2019 – After having issued the first draft of the life insurance regulations in 2016, followed by a second draft in 2017, the Insurance Authority issued the third draft of the life insurance regulations, pursuant to comments from the market stakeholders. This draft reiterated the provisions in relation to commission caps and provided further clarity that the commission caps apply in aggregate to all insurance intermediaries. The final regulation was issued later in the year (details below).
January 2019 – First draft of the Electronic Insurance Regulations, dated 14 January 2019 – The Insurance Authority's draft 'Board of Directors Resolution Concerning the Electronic Insurance Regulations' intends to govern any insurance business carried out online or concluded electronically in the UAE. These draft regulations apply to Insurance Companies, Insurance Brokers, Insurance Agents and Health Insurance TPA companies and prescribe the requirement for such entities to obtain a pre-approval from the Insurance Authority in relation to their electronic insurance operations. The draft regulations also specify the nature of the products that can be sold online, and some of the products such as the investment linked life insurance cannot be sold online. The intention of these regulations appears to be to register and regulate any entity offering insurance online, as agent, broker or insurance company and seems to be targeting the unlicensed web aggregation websites that are offering a comparison of insurance products. A revised draft was published later in the year (details below).
April 2019 – Decision No. (50) of 2019 Concerning Enhancing the Shari'a Controller's Role in Takaful Insurance Companies Operating in the State – The decision clearly sets out the qualification and appointment procedure for the Sharia Controller in a Takaful Insurer, and that the appointment must be on full-time basis and on recommendation of the Sharia Supervisory Board of the Takaful Insurer. In addition, the decision also sets out the mandatory functions that the Sharia Controller must perform in a Takaful Insurer.
April 2019 – Board of Directors' Decision No. (15) of 2019 On the Instructions Concerning the Rules of Ownership Ratios in the Capital of Insurance Companies – This decision of the Insurance Authority is relevant to all insurance companies operating in the UAE and prescribes the disclosure requirements applicable on natural and corporate persons who wish to become stakeholders of insurance companies. This decision also introduces the concept of "Strategic Partner", who could even be a foreign person provided that does not change the ownership ratio of UAE Nationals.
May 2019 – Insurance Authority's Board of Directors Decision No.(23) of 2019 Concerning Instructions Organizing Reinsurance Operations – The Insurance Authority issued the final reinsurance regulations after a few tweaks to their prior drafts of the reinsurance regulation issued in 2018. While the expectation was that the regulations would introduce mandatory local retention on some lines of business, the regulation focused largely on setting up of local reinsurers in UAE, capital requirement for which has been set at AED 250million, with 51% ownership restricted to UAE Nationals.
July 2019 – Insurance Authority Board Resolution No. (33) of 2019 Concerning the Regulation of the Committees for the Settlement and Resolution of Insurance Disputes – A follow up from the amendment to the Insurance Authority Law issued in 2018, this resolution from the Insurance Authority provided the manner in which the Dispute Resolution Committee will be formed and the manner in which it will carry out its functions, with the membership being restricted to one calendar year. The purpose of the committee is to reconcile the differences between parties and if they fail to do so, the parties are free to go through their standard dispute resolution process.
October 2019 – Insurance Authority Board of Directors' Decision No. (49) of 2019 Concerning Instructions for Life Insurance and Family Takaful Insurance – These regulations on Life Insurance were issued after three versions of the drafts being shared for public consultation over the last 2.5 years. These regulations limit the commission that can be paid to an intermediary for solicitation of life insurance and also caps upfront payments of indemnity commission by an insurer to such intermediaries, which is a highly prevalent market practice. These regulations are revolutionary in what they aim to achieve and while they may lead to a drop in incentives to the distribution channel, eventually such costs will be passed on to policyholders and is a very positive change for the life insurance sector in the UAE.
October 2019 – Insurance Authority Board of Directors' Decision No. (40) of 2019 Concerning the Amendment of Certain Provisions of the Insurance Authority Board Decision No. (3) of 2010 On the Instructions Concerning the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the UAE – This decision extends the applicability of the Insurance Authority's Code of Conduct to "insurance-related professions". The Code of Conduct provides the various terms and conditions that must be complied with by any entity licensed by the Insurance Authority, including but not limited to guidance on operations, publicity and advertisement, pricing, proposal form, policy wording, claims and renewal.
October 2019 – The Insurance Authority Board of Directors' Decision No. (41) of 2019
Concerning the Supervisory Rules for the Experimental Environment of Financial Technology in the Insurance Industry – This decision lays down the financial technology regulatory framework of the Insurance Authority. The decision is aimed at supporting the fintech companies and transforming the UAE insurance market into a smart insurance market. This is a great forward-looking step by the Insurance Authority, which will likely result in the development of indigenous (correct word?) solutions in the insurance sector and has set a high benchmark for other insurance regulators in the region.
October 2019 – The Insurance Authority Board of Directors' Decision No. (42) of 2019
On the Amendment of Certain Provisions of the Insurance Authority Board of Directors' Decision No. (13) of 2018 Instructions Concerning Marketing Insurance Policies through Banks – This decision amends certain provisions of the Bancassurance Regulations. The Bancassurance Regulations currently require the Designated Officer of the bank to acquire practical training of no less than two months at any insurance company, which has now been replaced by a training requirement of 30 (thirty) hours. Further, the decision provides that insurance companies can utilize the Bancassurance channel for distribution even in the Emirates where they do not have an Insurance Authority licensed "Branch" if they have either a "Point of Sale" in such Emirate or provide insurance services through electronic means
October 2019 – Administrative Decision No. (140) of 2019 Concerning the Exclusion of Some Insurance Policies from the Requirement of Being Written in the Arabic Language – Administrative Circular No 7 of 2019 relating to Administrative Fine, stated that if an insurer does not comply with the requirement of issuing the insurance policy in Arabic, fines could be levied. This Decision lists down the polices which have been exempted from this requirement of translation to Arabic, such as marine and aircraft policies, oil and gas-related insurance policies, space-related insurance policies and other insurance policies of international nature. The Decision further provides a list of documents that need to be submitted to the Authority for approval of the policy wordings, in relation to each life insurance policies and those in relation to general insurance policies
December 2019 – Draft of the Electronic Insurance Regulations, dated 24 December 2019 – The revised draft of the Electronic Insurance Regulations identifies "web aggregation companies" as a separate category, which require prior approval of the UAE Insurance Authority and who will work in conjunction with a licensed insurance broker. This draft also mentions "digital insurance broker" but does provide any details around the requirement and licensing procedure and the final draft will hopefully cater to these.
On the back of better loss ratios and underwriting results, most insurance companies have shown positive results and continue to maintain a positive outlook for the year ahead. However, we anticipate 2020 to be a year of consolidation, for the Takaful Insurers, Conventional Insurers, Insurance brokers and the Third-Party Administrators. Consolidation would likely lead to exit of players with a short-term strategy and bring in more experienced players who are ready to invest in the market with a long-term perspective.
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