This country-specific Q&A provides an overview to insurance and reinsurance laws and regulations that may occur in United Arab Emirates.
This Q&A is part of the global guide to Insurance & Reinsurance (3rd edition). For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/insurance-and-reinsurance-3rd-edition
How is the writing of insurance contracts regulated in your jurisdiction?
The UAE is often described has having two separate but interconnected and interdependent insurance markets: the 'onshore' UAE market and the 'offshore market' which comprises the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), of which the latter two are largely wholesale ‘offshore’ reinsurance centres.
With the exception of the DIFC and ADGM, the UAE insurance market is supervised by the UAE Federal Insurance Authority (IA) pursuant to Federal Law No. 6 of 2007 on the Establishment of the Insurance Authority and Regulation of its Operations as amended by Federal Law No. 3 of 2018 (Insurance Law).
The IA oversees all insurance business in the UAE. However, for the offshore insurance market i.e. insurers based within the DIFC or the ADGM, the Dubai Financial Services Authority (DFSA) and the Financial Services Regulatory Authority (FRSA), respectively, regulate DIFC and ADGM-based insurers and reinsurers. Each regulator has its own specific requirements for the authorisation, licensing and regulation of companies offering insurance services.
In addition to the above, there are separate dedicated regulators for the health insurance sector in some of the individual Emirates including the Dubai Health Authority, the Department of Health of Abu Dhabi and the Sharjah Health Authority.
In relation to the actual writing of insurance contracts and policy wording, the majority of policies executed in the UAE incorporate London market wordings. Policies issued in the UAE are to be issued in Arabic (article 28 of the Insurance Law), and may be translated into any other language. If there is a difference in interpretation between the two languages, the Arabic version will prevail.
Should there be uncertainty as to the meaning of a policy term, it will be construed by the court in favour of the obligor (article 266(1) Civil Code). It is permissible to construe ambiguous wording in policies in a manner detrimental to the party that put it forward or the party that benefits from it if they are deemed to be contracts of adhesion (article 266(2) Civil Code). Should there be scope for interpretation of the policy, the court will make enquiries into the ‘mutual intentions of the parties’, as well as the nature of the transaction, and the trust and confidence that should exist between the parties (article 265(2) Civil Code). However, where the wording of a policy is clear, it may not be departed from by way of interpretation to ascertain the intention of the parties (article 265(1) Civil Code).
Are types of insurers regulated differently (i.e. life companies, reinsurers?)
The regulation of insurers offering different lines of insurance varies within the UAE. A key example of this is the regulations governing life insurers. As per the Insurance Law, a guarantee of 4million Dirhams must be submitted to a UAE bank in order to write life insurance, whereas all other types of insurance (property and liability insurance) must have a guarantee of 2million Dirhams (article 42 Insurance Law).
The separation between life insurers and non-life insurers is set to increase further with an upcoming Cabinet decision, which will implement the IA's new life insurance regulations. Whilst the proposed regulation has not been finalised, it is set to place an upper limit on commission paid to financial advisers selling 'Unit Linked Products' (insurance plans that provide the option to invest in any number of investments such as stocks, bonds, mutual funds), 'Savings Products' (any insurance product that has a cash value). The draft regulations stipulate that Indemnity Commission will be payable over the term of the product rather than as an up-front cost. There are also new provisions regarding the transparency of information provided to customers, so that they are aware of fees and commissions.
Further, Takaful insurance (an alternative system of cooperative Islamic insurance) is primarily subject to the same UAE laws as non-Takaful insurance, although there are some differences, for example, relating to policy content (Board of Directors Resolution No. 4 of 2010 Concerning the Takaful Insurance Regulations).
Are insurance brokers and other types of market intermediary subject to regulation?
In 2018, the IA passed a number of regulations in relation to brokers and insurance intermediaries, the rationale of which was to widen the scope of the IA's powers and provide additional protection to policyholders.
In relation to brokers, the IA introduced the Resolution of the Insurance Authority Board Decision No. 12 of 2018 On the Law of Licensing and Registration of Insurance Consultants ('Registration of Insurance Consultants'). This included the prohibition of persons from practising the profession of an insurance consultant or broker without a licence from the IA (Article 2 of the Registration of Insurance Consultants). A brokerage licence is valid for one year and renewable annually (Article 9 of the Registration of Insurance Consultants) with stipulations governing a broker's professional indemnity.
Article 10.1 of the Registration of Insurance Consultants states that a sole insurance consultant or broker whose application is accepted must submit to the IA a professional indemnity insurance policy providing cover of 1.5million Dirhams. A corporate insurance consultant/broker must submit to the IA a professional indemnity insurance policy providing cover of 3million Dirhams (article 10.2 of the Registration of Insurance Consultants).
In relation to Third Party Administrators (TPAs) handling health insurance claims, Insurance Authority Board Resolution No. 9 of 2011 (as amended by Resolution No. 7 of 2015), is the applicable legislation. As per article 5, companies intending to perform health insurance third party administration must have a paid-up capital of at least 5million Dirhams and must have an insurance policy of no less than 3million Dirhams, covering its professional liability risks. Further, in contrast to brokers, TPAs can neither sell nor market health insurance policies as per article 6.
There are regulations set out also in the Insurance Law in relation to insurance market intermediaries. Actuaries are licensed and regulated in accordance with Administrative Decision No. 9 of 2017 on the Licensing and Registration Regulation of Actuaries and the Organisation of Their Work. Surveyors and Loss Adjusters are licensed and regulated in accordance with Insurance Authority Board of Directors Resolution No. 6 of 2010 Concerning Surveyors and Loss Adjuster's Regulations.
Is authorisation or a licence required and if so how long does it take on average to obtain such permission?
As discussed above, both brokers and TPAs require a licence to conduct or service business in the UAE. In relation to insurance companies, it is compulsory for any business wishing to conduct insurance activities (including the servicing of such activities) within the UAE to obtain a licence from the IA. In addition to a licence from the IA, TPAs and insurers dealing with medical insurance are also required to obtain an additional insurance permit from the relevant healthcare authority, depending on the emirate in which they conduct business.
As per article 8 of IA Regulation No. 15 of 2013, applications for an insurance brokerage licence will take up to 20 days from the date of submission to the IA's decision, either approving or rejecting the application.
For insurance agents, article 9(3) of the IA Regulation No. 8 of 2011, states that any registration application will be examined and assessed within fifteen days' by the IA from the date of submission.
For surveyors and loss adjusters, article 7(3) of the Board of Directors Resolution No. 6 of 2010 states that a registration application shall be examined and evaluated within thirty days.
However, in practice the actual timeframe from the submission of the initial application and approval by the IA can take between four to six months.
Are there restrictions or controls over who owns or controls insurers (including restrictions on foreign ownership)?
Towards the last quarter of 2018, the UAE introduced a new Direct Foreign Investment Law (Federal Decree-Law No. 19 of 2018), permitting 100 percent foreign ownership of businesses located in on-shore UAE. The rationale behind the law was to promote further foreign investment in a manner consistent with the development policies of the UAE. Despite this, several economic sectors and activities are prohibited from being 100 percent owned by foreign investors including insurance (Article 7(2)(d)).
As such, insurance activities may be exercised within the UAE either by way of a public joint-stock company, listed on a UAE stock exchange and with UAE nationals owning at least a 51 percent stake in the company; a branch of a foreign insurance company; or an insurance agent (article 24 of the Federal Law No. 6 of 2007 on Establishing the Insurance Authority and the Regulation of its Operations as amended by Federal Law No. 3 of 2018).
Is it possible to insure risks in your jurisdiction without a licence or authorisation? (i.e. on a non-admitted basis)?
Non-admitted insurers are strictly prohibited under UAE law from writing direct business in the UAE. This prohibition applies to all types of insurance business. Article 26 of the Insurance Law provides that it is not permissible for insurers based outside the UAE to write insurance on property or on liabilities within the state. In addition, it is not permissible to carry out broking activities except with a company registered with the IA. The DIFC and ADGM also prohibit non-licensed insurers operating within their jurisdictions. However, it should be noted that an insurer may reinsure both in and outside of the UAE.
What penalty is available for those who operate in your jurisdiction without appropriate permission?
In accordance with the recent Cabinet Resolution No. 7 of 2019 Concerning the Administrative Fines Imposed by the IA, any person carrying out insurance or reinsurance activities within the UAE, without obtaining a licence from the IA is liable to a fine of 250,000 Dirhams.
How rigorous is the supervisory and enforcement environment?
Since its inception in 2007, the IA has made huge strides in bringing the regulation of the UAE insurance market in line with international best practices. With regard to the IA, there has been a progressive increase in regulation (particularly since 2014), creating a robust legal framework in which insurers must operate. As the scope of IA governance includes insurance and reinsurance companies and licensed insurance intermediaries located or operating in the UAE it is evident that the supervisory environment is both wide-reaching and rigorous. In addition, the UAE has also witnessed an increase in regulators working cohesively, in order to strengthen confidence in the insurance market. Both the IA and the Emirates Securities and Commodities Authority (ESCA) recently launched the Middle East’s first financial advisory aggregator site (whichfinancialadviser.com (WFA)) which lists insurance advisory firms licensed and approved by the IA, the aim of which is to protect consumers from cold calling advisers and scammers.
Not only has the regulatory landscape increased but so has the enforcement of such regulations. Much of the enhanced scrutiny by the IA in relation to insurers and insurance intermediates has resulted in increased cooperation between the regulators and insurers and insurance intermediaries, which in turn provides both a strong and stable market providing conditions in which the market can thrive.
How is the solvency of insurers (and reinsurers where relevant) supervised?
The Insurance Law introduced the requirement for insurers to guarantee sufficient insurance coverage for the protection of policyholders or their beneficiaries. Both the Board of Directors’ Decision No. 25 of 2014 on the Financial Regulation of Insurance Companies and the Board of Directors’ Decision No. 26 of 2014 on the Financial Regulation of Takaful Insurance Companies (together the 'Financial Regulations') establish the regulations insurers must adhere to in relation to their solvency and minimum capital requirements.
In addition to the provisions outlining minimum capital requirements for insurers and reinsurers (as discussed in detail below), the Financial Regulations impose the need for insurers to ensure that their assets are diversified with new limits in respect of aggregate exposures in individual asset classes and sub-limits for exposures to a single counterparty being imposed. The maximum limits for aggregate exposure in a particular asset class include 30 percent in real estate, 80 percent in government securities issued by A rated countries, 100 percent in UAE government securities and 30 percent for loans secured by life policies. It should be noted that the Financial Regulations also impose a minimum 5 percent to be invested in cash deposits with a UAE state bank.
In relation to the governance and enforcement of the Financial Regulations, an insurer is required to provide the IA with quarterly reports in relation to its investment portfolio and annual risk analysis reports in respect of investments, to be submitted with the insurer’s annual audited financial accounts. The Financial Regulations impose extensive obligations on insurers in relation to the maintenance of books and records, which must be made available for inspection to the IA at all times.
What are the minimum capital requirements?
The Financial Regulations dictate that the minimum capital requirements are 100million Dirhams for insurers and 250million Dirhams for reinsurers. In addition, the Financial Regulations now require that:
• Insurers maintain a minimum guarantee fund, which is not less than one third of the Solvency Capital Requirement;
• Insurers calculate their solvency margin using the template developed and amended by the IA;
• An insurer’s Solvency Capital Requirement must take into account underwriting risk, market and liquidity (investment) risk, credit risk and operational risk;
• The Financial Regulations require insurers to notify the IA immediately in the event of non-compliance with the Minimum Capital, Solvency Capital Requirement or Minimum Guarantee Fund.
As per the Cabinet Resolution No. 7 of 2019 Concerning the Administrative Fines Imposed by the Insurance Authority, the failure of an insurer to comply with the Solvency Margin and the Minimum Guarantee Fund in accordance with the provisions of the Financial Regulations will result in a fine of 150,000 Dirhams.
Is there a policyholder protection scheme in your jurisdiction?
Currently, there is no Policy Protection Scheme in the UAE that protects policyholders in the event of a failure of an insurer. Nevertheless, prudential regulations are focused on minimising risk. As discussed above, the IA published the Financial Regulations for Insurance Companies and Takaful Insurance Companies (Board of Directors' Decision Number 25 of 2014 and the Board of Directors' Decision Number 26 of 2014 for Takaful, respectively). These regulations impose broad obligations on insurers to ensure that all assets, in particular those covering Minimum Capital Requirements, Minimum Guarantee Funds and the Solvency Capital Requirements, be invested in such a manner to ensure the security, quality, liquidity and profitability of the insurer's portfolio. The underlying principle of these regulations is to ensure that an insurer is able to meet its exposures within the UAE at all times, thereby protecting the policyholder.
How are groups supervised if at all?
In practice insurers are not regulated on a group-wide level. The regulator (for example, the IA), will have regard to the particular activities of the entity in determining its regulatory requirements (for example, capital and solvency requirements). Further, if activities are outsourced to third-party providers then they too may come within the regulatory purview of the applicable regulator.
Do senior managers have to meet fit and proper requirements and/or be approved?
As per article 5 of IA Board Resolution No. 15 of 2013, the IA must approve individuals working as technical staff such as Chief Executive Officers, General Managers and Operations Managers. Such technical staff must have no criminal record and never have been the subject of bankruptcy proceedings.
Further, article 3(12) of Board Resolution No. 3 of 2010 makes provisions for an insurer regulated by the IA to circulate the Instructions concerning the Code of Conduct and Ethics to be observed by Insurance Companies operating in the UAE to its employees, as well as develop internal professional codes of conduct for the company and its employees.
Are there restrictions on outsourcing parts of the business?
There are no express legal provisions restricting insurance fronting transactions in the UAE. There are no legal requirements preventing an insurer from ceding 100 per cent of a written risk (i.e., fronting the risk), either to a local reinsurer or a foreign reinsurer as long as the insurer is in compliance with applicable prudential limitations in the UAE. In practice, however, reinsurers may impose stricter terms and conditions.
How are sales of insurance supervised or controlled?
Insurance products can only be sold in the UAE by insurers and insurance brokers and consultants licensed by the IA (Board of Decision No. 12 of 2018 Concerning the Regulation on Licensing and Registration of Insurance Consultants and Organization of their Operations). In addition, the sale of bancassurance is permitted in the UAE under Board of Directors Decision No. 13 of 2018 whereby there are bancassurance arrangements between a locally licensed insurer and a UAE-based bank.
In relation to policy pricing, article 5 of the Board Decision No. 3 of 2010 states that insurers must not add any excessive surcharges to the net premium or offer prices lower than the technical level, which may (i) put the insurer's financial position at risk; (ii) expose the insured interest to loss; and (iii) constitute uncontrolled competition in the insurance market.
In relation to the incorporation of terms within an insurance policy, an insurance policy must contain all of the terms and conditions that pertain to it (article 7 of the Board Resolution No. 3 of 2010). In addition, article 28 of the Insurance Law stipulates that clauses contained within the policy that exempt the insurer from liability must be written in bold characters, in a different print colour and be initialled by the insured. Failure to comply with this requirement can lead to a fine of 50,000 Dirhams (Cabinet Resolution No. 7 of 2019 Concerning the Administrative Fines Imposed by the Insurance Authority).
Historically, a governing law and jurisdiction clause, which provides for arbitration as the method of dispute resolution, is void unless it is contained within a special agreement, separate from the general printed conditions of the policy (Article 1028(d) of the Civil Code; Article 7(2) of the Insurance Authority’s Board Resolution No. 3 of 2010). This position may have changed following the issuance of the UAE Arbitration Law which relaxes some of the general formalities for arbitration agreements and expressly provides that arbitration agreements can be set out within a contract or incorporated by reference. However, it is not entirely clear how the UAE Courts will interpret the potential conflict between these provisions.
Are consumer policies subject to restrictions? If so briefly describe the range of protections offered to consumer policyholders
The IA grants further protection to any policyholder (including consumers), whereby any arbitrary terms, breach of which would have had no effect on the cause of the incident insured against, are void.
There IA also provides policyholders with further rights of recourse, should the insurance claim be rejected. Should a policyholder have any complaints in relation to a claim, the insurer is required to investigate each complaint within 15 days of the date of its submission. Each complainant (whether it is the insured or the beneficiary), may appeal the insurer's decision to the IA. An insurer may be fined 50,000 Dirhams if it is found to have delayed or failed to provide clarifications on the complaints.
Are the courts adept at handling complex commercial claims?
There has been a recent shift in the handling of insurance claims arising out of policies written in the UAE. Previously, the Court of First Instance was the default court for bringing claims arising out of an insurance dispute. However, the IA now has a mandate to form specialised dispute resolution committees to settle disputes arising out of insurance contracts (as per 110(2) of Federal Law No. 6 of 2007 on Establishing the Insurance Authority and the Regulation of its Operations as amended by Federal Law No. 3 of 2018).
The IA has granted extensive powers to the new dispute resolution committees, including the power to compel the production of documentation where necessary, to seek the assistance of experts and witnesses and to adopt any alternative measures required for the settlement of disputes. As the IA has recently issued its final consultation with the Ministry of Justice and local courts to establish said committee, we envisage that the specialised committee will launch in the coming months.
The introduction of the new insurance disputes committee means that the handling of complex claims will be dealt with by specialists for the sole purpose of advising on insurance disputes.
Is alternative dispute resolution well established in your jurisdictions?
Methods of alternative dispute resolution have been well established and utilised in the UAE for many years. Mediation is a voluntary process and as such, parties can opt to mediate disputes with several centres offering mediation services within the UAE such as the Abu Dhabi Commercial Conciliation and Arbitration Centre, and the Centre for Amicable Settlement of Disputes in Dubai.
What are the primary challenges to new market entrants?
The UAE market has developed in a considerably short period of time and the classes of business and products which are written reflect business in any sophisticated market. That being said the market suffers from the cyclical nature of the insurance market; for example softening of rates caused by competition, liquidity flows in terms of remittance of insurance premiums. In addition, whilst new products are being developed in connection with "electronic/connectivity" risks globally, the penetration in the UAE market is less marked, despite there being significant and quantifiable losses.
To what extent is the market being challenged by digital innovation?
Digital innovation will impact the insurance market in many ways from policy wording to the electronic sale of policies. However, the main effects of digital innovation on the UAE insurance market are twofold.
Firstly, it will heavily influence the types of insurance products that are sold. Developments in FinTech, digital innovation and cybercrime may cause the insurance market to experience an increase in the need for cyber insurance policies in order to meet these risks. Digital innovation is therefore key to winning new business streams.
Secondly, not only will digital innovation influence the types of insurance products that are sold, but also the way in which policies are sold. As digital innovation increases, it is expected that contracts between parties can be executed electronically; for example, contracting by ‘click-to-accept’ (where an insurer indicates their consent to the insurance contract by ticking a box online), will overtake the sale of policies by physical channels.
Over the next five years what type of business do you see taking a market lead?
The marginal growth in premium in the UAE insurance market in 2018 was primarily due to almost full penetration achieved for mandatory health insurance in Abu Dhabi and Dubai. Over the next five years, there is scope for the remaining Emirates, including Sharjah, to follow suit and implement the requirement for mandatory health insurance. Should the remaining five Emirates do so, we may witness exponential growth across the UAE for health insurance.