UAE Insurance Sector – Year On Year Growth

Following the merger of the UAE Insurance Authority with the Central Bank, completed in 2021, there have been a number of regulatory developments, and in this article, we have summarised some of the key developments and what their impact is on the sector.

Guidance On AML/CFT Regulation For Insurance Sector

The Central Bank of the UAE (CBUAE) issued the guidance on anti-money laundering and combatting the financing of terrorism (AML/CFT) in October 2022 for the insurance sector comprising of insurance and reinsurance companies, agents, and brokers (Guidance Note).

The Guidance Note aims to assist insurance companies and related professionals in the understanding of risks and effective implementation of their statutory AML/CFT obligations. Amongst other changes, one major change was confirmation to the effect that AML/CFT laws and decisions are applicable for insurance companies, brokers and agents issuing/arranging direct and reinsurances for life and investment linked insurance policies. The relevant provision of the AML/CFT decision prior to the amendment and post amendment are paraphrased below:

Prior to the Amendment

“Article 2.16 - Insurance transactions, in accordance with Federal Law No. (6) of 2007 concerning the Establishment of the Insurance Authority and the Organisation of its Operation”

Post Amendment

“Article 2.16 – Direct insurance operation, reinsurance operation for the type and branches of personal insurance and money-making operations in insurance companies, insurance brokers and agents”

Prior to the amendment, the AML/CFT laws and decisions were applicable for all types of insurance operations carried out within the UAE by licensed insurance companies and other insurance related professionals which included third party administrators, insurance consultants etc. However, the Guidance Note issued by the CBUAE clarifies that only insurer, reinsurer, insurance brokers and insurance agents dealing with life insurance and investment linked insurance products are subject to the UAE’s AML/CFT’s legal and regulatory framework.

The Guidance Note mentions that the AML/CFT laws and decisions are not applicable to the following insurance professionals as they are not involved, or play a very limited role in selling, or facilitating the sale of insurance products:

(a) Health insurance third party administrators

(b) Insurance producers

(c) Price comparison websites

(d) Insurance consultants

(e) Actuaries

(f) Loss and damage adjusters

In view of the above, the position is clear that the AML/CFT laws and decisions issued in the UAE are not applicable for insurer/reinsurer/brokers dealing with general insurance products such as property and casualty insurance, considering general insurance products pose an almost non-existent risk of money laundering or the financing of terrorism.

Corporate Governance Regulation For Insurance Companies

Another significant change enforced by the CBUAE includes the Circular No. 24 of 2022 issued in September 2022, concerning the corporate governance regulations and standard to be enforced by the insurers operating in the UAE (Corporate Governance Regulation).

The requirements provided in the Corporate Governance Regulation are in addition to the provisions relating to Public Joint Stock Companies in the Federal Law No. 32 of 2021 on Commercial Companies (the Commercial Companies Law), and the Chairman of Authority's Board of Directors' Resolution No. (3/Chairman) of 2020 concerning approval of the Public Joint Stock Companies’ Governance Guide (SCA Regulation) or their amendments.

The insurance companies (including takaful companies) operating in the UAE and licensed by the CBUAE are required to comply with the obligations and requirements set out under this Regulation, which include:

General requirements

(a) The corporate governance framework established by the board of director (Board) of the insurer should be established at group level and the relevant subsidiary and the parent company shall abide by the same;

(b) In terms of the foreign insurer incorporated in the UAE, the foreign branches are required to establish local governance structures and Control Functions that are robust. The local management structure should be in place to help the branch meet corporate governance standards that fall in line with all regulations and standards in place;

(c) The framework developed by the insurer includes the process for identifying the conflict of interest and also develop a conflict-of-interest policy;

(d) In terms of Takaful insurers, the company must ensure its corporate governance framework complies with the following, amongst others:

(i) Internal Shari’ah controls review and Shari’ah governance reporting to ensure compliance with Shari’ah rules; and

(ii) The processes and controls for protecting the rights of the participants in line with the general terms and conditions and Shari’ah requirements.

Composition of the Board

(e) The chairmen and the majority of the board members of the insurance/takaful company must be UAE nationals. The board must be between seven and 11 members, in which at least one-third of them must be independent members and must meet at least six times a year.

(f) The maximum tenure as an Independent Member of the Board in the same insurance/takaful company is 12 consecutive years from the date of his/her first appointment. At the expiration of the tenure, the board member is no longer regarded as “independent”.

The Corporate Governance Regulation enforced by the CBUAE is tailored for an insurance/takaful company operating in the UAE which aims towards transparency and accountability within the management and financial reporting including the protection of insured’s interest at all times.

Requirements Of The Escrow Account For Funds And Premiums Of Insurance Companies

The CBUAE issued a circular in November 2022 instructing Insurance Agents, Insurance Brokerage Companies and Health Insurance Third Party Administrators Operating in the UAE to activate the escrow accounts requirements that applies to them under their respective regulations. There was a lot of confusion on its implementation and the CBUAE has subsequently issued guidance clarifying the requirements regarding the maintenance of Escrow Account (Escrow Guidelines). The Escrow Guidelines issued by the CBUAE are applicable to both the LFIs carrying out insurance intermediation such as insurance brokers, health insurance third party administrators, insurance agents (Insurance Intermediaries) and to the banks operating in the UAE.

The purpose of maintaining an escrow account is for the Insurance Intermediaries to maintain a separate account exclusively for holding the funds related to the insurance claims, premium and other insurance related funds of the insurance company. The CBUAE clarified that this requirement is not extended to the Insurance Intermediary who do not collect insurance premium or receive payments in relation to the claim settlements.

The Escrow Guidelines define ‘Escrow Account’ as a bank account maintained by the Insurance Intermediary exclusively and separate from other bank accounts to hold the insurance monies such as premium, claim settlement amount. The funds deposited and withdrawn in the Escrow Account should only be in relation to the funds connected to insurance transactions limited to premium, claim settlement to the insured/policyholders/beneficiaries, payments to the health service provides like hospital/clinics etc. Therefore, the Escrow Account should not be used for payment of insurance commission, agent fees, including the fees payable to the escrow agent. This implies that brokers and agents must transfer the entire premium to the insurer and then receive their commission from the insurer, which is not how the current market operates.

Regulations Regarding Takaful Insurance

The CBUAE issued the Regulations Regarding Takaful Insurance (Takaful Regulations) on 29 November 2022 (Notice No. CUAE/BSD/2022/4803), which cancels and supersedes Insurance Authority’s Board of Directors Decision No. 4 of 2010 for Takaful Insurers. Under the Takaful Regulations, a Company is required to develop a Participation Membership Policy (PMP) and offer it to those that wish to subscribe to any type or class of Takaful insurance. The PMP must incorporate the following:

(a) The PMP Policy and Takaful Insurance Policy must be separated.

(b) The PMP must make clear that the Participant’s payments are made as donation commitment, commitment or investment.

(c) The PMP must disclose the information about the Company’s policy for investing the portions allocated for investment from the Contributions.

(d) The PMP must be provided to the Central Bank and Higher Shari’ah Authority (HSA) for approval.

The Takaful Regulations also requires companies to establish an Internal Shari’ah Supervision Committee (ISSC) to ensure Shari’ah compliance on an internal and external level.

Executive Regulation (re) Dubai Health Insurance

In November 2013, Law No 11 of 2013 Concerning Health Insurance in the Emirate of Dubai (Dubai Health Law) was issued, that made it mandatory for every resident in the Emirate of Dubai to be covered by medical insurance, which was the responsibility of their sponsor. The requirement was implemented in a phased manner until March 2017 and from then onwards it is mandatory for every resident of Dubai to be covered by medical insurance.

In October 2022 the Administrative Resolution No 78 of 2022 issuing the Executive Regulations of Law No 11 of 2013 Concerning Health Insurance in the Emirate of Dubai (Executive Regulations) was issued and it came into force on 17 November 2022, on its publication in the Gazette.

The Executive Regulations does not replace the provisions of Dubai Health Law, but is meant to complement it, providing more details on the process, procedures and obligations that apply to the various stakeholders of the health insurance industry. This is more relevant in the context, that pursuant to the formation of the Dubai Academic Health Corporation in July 2021, the Dubai Healthcare City Authority (DHCC) is set to merge with the DHA and the Executive Regulations, and DHA is now the unified health regulator in the Emirate of Dubai.

A number of changes have been brought forth to the obligations of the insurers, TPAs, brokers and health service providers, apart from introducing provisions relating to health insurance portfolio transfers between insurers. For instance, a health service provider is not allowed to adjust prices without obtaining prior approval of the DHCC of the DHA. The provisions relating to obligations of the beneficiaries have been further detailed, requiring beneficiary to notify the insurer with complete and correct medical history and to report to DHA if any misuse or manipulation of the health insurance system take place.

The Executive Regulation to the Dubai Health Law has brought forth changes that will impact the manner in which health insurance business are placed, disputed, managed, and priced within the Emirate of Dubai. It is therefore very important for the stakeholders to revisit their respective functions and adjust these to ensure compliance with the Executive Regulations, since they are already in force.

Other Initiatives By CBUAE

Emiratisation

Under the new Ministerial Decision No. 279 of 2022 in relation to Emiratisation in the UAE, the UAE government has implemented an Emiratisation strategy to encourage nationals to work in the insurance industry. The strategy introduced a policy that came into effect on 1 January 2023, introducing a quota for the insurance industry which requires insurance companies to achieve a 5 per cent national workforce. Penalties are enforceable against any company that does not comply with the announced quota. In line with this decision, CBUAE is keen to increase the Emiratisation for the insurance sector to 30 per cent by 2026 and create additional jobs for UAE nationals, as part of UAE vision for next 50 years.

Setting up of Insurance Ombudsman

The CBUAE has recently issued the guidelines relating to establishment of an Ombudsman unit named ‘Sanadak’. The unit is expected to provide a unique mechanism for consumer complaint resolution through easy access and quick turnaround. Currently insurance disputes must commence at Insurance Disputes Resolution Committee of CBUAE, and the same will continue to have appellate jurisdiction for   Insurance Dispute Committee already in place within the CBAUE, or would complement each other to resolve the consumer complains.

Anand Singh
Anand has over 11 years of experience advising stakeholders of the insurance industry on various contentious and non-contentious matters. He has particular expertise in transactional and regulatory advisory for the insurance sector. Anand’s clients range from public stock companies, insurers, reinsurers, MGAs, financial services companies, fintech and other start-ups across multiple jurisdictions. He started his career in India and is part of the India Group at Al Tamimi & Company. Anand was ranked as ”Up & Coming” practitioner in the Chambers and Partners 2023 for Insurance & Reinsurance. He is consistently recognised as one of the go-to lawyers for India related work and is regularly featured in magazines and newspapers in the UAE on insurance related publications.