This country-specific Q&A gives a pragmatic overview of the law and practice of insurance & reinsurance law in the United Arab Emirates (UAE).
It addresses topics such as contract regulation, licensing, penalties, policyholder protection, alternative dispute resolution as well as personal insight and opinion as to the future of the insurance market over the next five years.
This Q&A is part of the global guide to Insurance & Reinsurance. For a full list of jurisdictional Insurance & Reinsurance Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/insurance-reinsurance
How is the writing of insurance contracts regulated in the jurisdiction?
Compared to many mature markets, the regulation of specific policy language in the UAE is somewhat limited. Firstly, it must be understood that the UAE is a federal entity, with both a central government, and the governments of the several Emirates that comprise the UAE, exercising concurrent regulatory authority. Additionally, there are various “free zones” in the UAE that operate pursuant to different laws, with the discussion regarding such beginning under Query 3.
Insurance Law in “onshore” UAE – that being the UAE exclusive of certain free zones - is primarily regulated pursuant to UAE Federal Law No. 6 of 2007, known and referred to as the Insurance Law, but greater specifics of the differing classes of insurance and required contractual language are found in Insurance Authority (hereinafter, the “IA”) Resolution No 2 of 2009 and Resolution No. 3 of 2010.
Resolution No. 2 of 2009 establishes, among other things, the different classes of insurance cover that may be offered, and specify which classes are denominated as life insurance and fund accumulation operations on one hand, and property and liability insurance on the other.
Resolution No. 3 of 2010 sets forth requirements as to clarity of language, terms, policy period, and any exclusionary clauses. All policies must be drafted in the Arabic language, although an insurer may provide translations into other languages; however, the Arabic text will prevail in the case of any inconsistency. All insurance policies issued in the UAE must also be first submitted to the IA, who has the discretion to refuse to permit such to go to market, as per both Article 38 of the Insurance Law and Article 11 of Resolution No. 3 of 2010.
Certain lines of business, however, such as motor insurance, have greater levels of required specificity as to the extent of cover and allowable rates set forth by the IA from time to time. Note that health insurance is mandatory in both Abu Dhabi and Dubai, and these Emirates each have separate governmental health authorities that also strictly regulate the contents and set mandatory elements of included care provided under the health cover issued within those Emirates. These agencies are the Health Authority of Abu Dhabi (HAAD) and Dubai Health Authority (DHA).
Are types of insurers regulated differently (i.e. life companies, reinsurers)?
As noted above, insurers writing different lines of business, particularly in the motor and life/health lines, are subject to differing sets of rules. Life insurers face certain restrictions pursuant to Resolution No. 3 of 2010 regarding their specific offerings, must adhere to additional prudential regulations with respect to funds that they accumulate on behalf of their policy holders, and are further regulated by the Federal Securities and Commodities Authority Resolution No. 9, of 2016 Concerning the Regulation of Mutual Funds, to the extent that they invest in funds related to their VUL products. Pursuant to the Insurance Law, no insurer may participate in both the life insurance and property insurance markets, but in practice this law has been suspended by IA resolution, and the current regulations in force (IA Resolution No. 10 of 2016) allow the joint practice, as long as separate business units are established that completely segregate these business lines, although composite financial statements are still required.
By contrast, reinsurers face little direct regulation of their product offerings, although they are required to comply with the IA prudential regulations as to their financial and data keeping matters.
Are insurance brokers and other types of market intermediary subject to regulation?
Brokers are specially regulated pursuant to IA Resolution No. 15 of 2013 and IA Decision No. 58 of 2013, which collectively set forth the licensing and capital requirements for brokers, as well as restrictions upon their activities. Brokers are not permitted to combine their role as a broker with the role of insurance agent, consultant, loss adjuster, or actuary. Likewise, while brokers may engage in personal insurance and funds accumulation on one hand, and property and liability insurance on the other, they must have separate employees and systems for each business unit.
Third party claims administrators (TPA) of medical insurance claims are also separately regulated pursuant to IA Resolution No. 9 of 2011, as amended by Resolution No. 7 of 2015. This regulation sets forth minimum capital requirements, management requirements, and limitations upon the extent of a TPA business. For example, a TPA is limited in the scope of its activities, and may not sell or market insurance products or have any ownership or managerial interest in a medical provider.
In order to establish a brokerage, TPA, or other insurance industry provider (other than insurer, as discussed below), in “onshore” UAE, a commercial license must also be obtained from the relevant Emirate’s department of economic development. Ownership of such an entity must be held at least 51% by a UAE or GCC national or juristic person, as per the UAE Commercial Companies Law.
The IA has also issued regulations relating to the licensing and conduct of Insurance Agents (Resolution No. 8 of 2011), Actuaries (Resolution No. 22. of 1985, and expanded draft Regulations proposed in 2016) and Surveyors and Loss Adjusters (Resolution No. 6 of 2010).
As noted under Query 1, the UAE has, in addition to those “onshore” entities established pursuant to its Commercial Companies Laws, various “free zones”, where companies engaged in certain insurance industry activities may be established under separate free zone regulatory schemes. These are the Dubai International Financial Centre (DIFC) and the newer Abu Dhabi Global Market (ADGM), which was established in late 2015. An advantage of these free zones is that they allow 100% foreign ownership of corporate entities, unlike an “onshore” UAE set-up which requires a majority of local ownership. The big disadvantage, however, is that a free zone entity is generally prohibited from conducting business outside of the free zone in which it is located, which greatly limits the services that it can provide in the UAE.
Nevertheless, many intermediaries that primarily deal in the reinsurance market have established themselves in the DIFC, where they have gained valuable exposure to the overall UAE market. Additionally, reinsurers may establish themselves directly within the DIFC. Establishment of a primary insurer in the DIFC is more problematic, as unlike reinsurers, primary insurers doing business in the UAE require an IA license (see query 6 below) and the market for primary insurance products within the confines of that permitted by the DIFC is very limited.
Is authorisation or a licence required and if so, how long does it take on average to obtain such permission?
It is mandatory for those who intend to engage in any insurance related activity in the UAE (other than reinsurance) to apply for and obtain a license from the IA. There are also other regulatory steps that must be taken before the entity is fully licensed to carry on its activities, including obtaining a commercial license from the Emirate in which it is located. Those companies offering medical insurance products will also require a permit from HAAD and/or DHA, depending on if they operate in Abu Dhabi or Dubai.
In practice, the IA is not presently granting any new insurance company licenses, for the reasons discussed in Query 19 below.
With regard to brokers, as per IA Regulation No. 15 of 2013, the IA will consider the license application and make its determination within twenty working days from submission. For agents, the assessment period is fifteen days, as per IA Regulation No. 8 of 2011, and for loss adjusters and surveyors the assessment period is thirty days, as per IA Regulation No. 6 of 2010; however, the stated periods only account for the assessment of the license application and do not guarantee final approval within these timeframes.
In practice, the actual timeframes needed to obtain a license are measured in months, and will depend upon the quality of the application and whether the initial application contained all of the required elements. Because obtaining final operational authority for all of the relevant ministries and other regulators involves multiple steps that may need to be taken in serial, a delay in obtaining one document will create a delay in the processing of the entire application. An example of this can be found, infra, at Query 13. It is not uncommon for a broker or TPA license to take between 8 and 12 months, or greater, to be approved by all of the regulators to whom application must be made.
In the DIFC, approval is needed from its financial services regulator - the Dubai Financial Services Authority (DFSA) - before a license is granted. This can take from between 3 and 6 months for a broker or TPA license. A license to issue reinsurance is more complex and will likely take longer.
Are there restrictions over who owns or controls insurers (including restrictions on foreign ownership)?
Article 24 of the Federal Law No. 6 of 2007 provides that only (i) public stock companies established in the UAE, or (ii) branches of foreign insurances companies, or (iii) insurance agents are allowed to carry out insurance and re-insurance operations in the UAE. Additionally, as per IA Resolution No. 42 of 2009, it is mandatory that insurance companies incorporated in the UAE have at least seventy-five percent (75%) of their capital owned by UAE or GCC nationals or by juristic entities wholly owned by them.
For other entities engaged in onshore UAE insurance related activities, such as brokering and third party claims administration, the UAE Commercial Companies Law requires that the LLC that holds the license must be at least 51% owned by a UAE or GCC National or juristic entity wholly owned by such nationals.
The DIFC does allow 100% foreign ownership, but the activities of free zone entities are limited as set forth above.
Is it possible to insure risks without a licence or authorisation? (i.e. on a non-admitted basis)?
As per Article 28 of the Insurance Law, it is not permitted to insure risks in the UAE with an insurer that is not licensed within onshore UAE. However, insurers may contract for reinsurance with a reinsurer that is not licensed in the UAE. Thus, a reinsurer licensed within a free zone such as the DIFC, may provide its cover to an onshore licensed primary insurer (Insurance Law Article 68).
What penalty is available for those who operate without appropriate permission?
The Insurance Law provides that anyone who engages in insurance activity in the UAE without the appropriate license may be punished by a fine of between 250,000 Dirhams and 1,000,000 Dirhams.
Additionally, HAAD and DHA may issue fines to its permit holders for conducting insurance related business with an unlicensed entity. For example, a HAAD fine can be up to 20,000 Dirhams, and it is not unheard of for these fines to be assessed on a per transactional occurrence basis. Thus, the fines can reach extremely high levels in cases where the licensee has a pattern of engaging in market activities with unlicensed entities.
How rigorous is the supervisory and enforcement environment?
Until recently, the UAE regulatory atmosphere has been lax when compared with that prevalent in more developed jurisdictions. However, the regulators with jurisdiction over the market have in the last several years, significantly increased both the number and scope of applicable regulations. Additionally, not only have the regulations themselves increased, but the enforcement thereof has also become much more rigorous. The regulatory schemes for brokers, claims administrators, and insurers have each been recently altered, with the IA promulgating much more stringent requirements for the licensing, reporting obligations, and financial solvency, of the various market participants. The result of this an increase in the interaction between the regulators and the industry participants, as well as a concomitant increase in the expectations and standards that the regulators require that market participants adhere to.
Certain Emirate level regulators also have developed frameworks that have resulted in greater scrutiny. For example, and as noted in Query 7, HAAD, which regulates medical insurers and TPA’s in Abu Dhabi, has ramped up its oversight in recent years, and its licensees are thus now on notice that they can expect frequent inspections of both their records and offices, as well as fines should anything be out of compliance.
Regulation within the DIFC is generally more strenuous than in onshore UAE, at least with respect to issues of corporate governance and compliance - with the DFSA being considered a very proactive regulator which has modeled its regulatory framework upon that of established English speaking jurisdictions such as the UK and US.
How is the solvency of insurers (and reinsurers where relevant) supervised?
IA Regulations No. 25 and 26 of 2014 (the “Prudential Regulations”) establish rules to be followed by insurance companies in order to ensure their solvency.
The Prudential Regulations can be divided into several primary areas of concern, which are capital adequacy, policyholder fund requirements, reporting requirements, and data keeping. From a strategic viewpoint, the focus of these rules collectively represents a move towards establishing a risk based approach, wherein insurers are required to maintain certain levels of capital in specified, diversified investment categories, as well as maintaining accurate and consistent data keeping and reporting protocols.
The provisions dealing with capital adequacy contain three modules: Solvency, Asset Liability Management, and Technical Provisions. Insurers now are strictly limited in what investments they make on a percentage basis. These limits broadly include the following: 30% in real estate, 30% in equities of UAE companies, 20% in equities in non-UAE companies, 100% in UAE government instruments, 80% in highly rated foreign government instruments, 30% in various classes of secured loans, 1% in derivatives or complex financial instruments, and 10% in other investments. Additionally, there are sub-limits set forth which constrict the amount that may be invested with any one particular sub-class within each investment class. Notably, the regulations require a minimum of 5% be invested in cash deposits with a UAE bank.
All insurers are required to establish detailed investment strategies conforming to a view fulfilling of insurance and capital adequacy obligations, as are impacted by key risks, including market, credit, and liquidity risks. Each insurer’s Board of Directors is charged with establishing, implementing, and monitoring their company investment strategies and regulatory systems. Additionally, every insurer is now required to conduct a stress test as to all of its investments on an annual basis.
The reporting requirements set forth a high level of active managerial oversight and also require actuarial monitoring, with actuarial certification of the adequacy of the mathematical reserving practices required at least annually. The metrics to be identified in these reports are set forth in the Regulation with a high degree of specificity. Insurers must also maintain standardized accounting and data recording procedures, appoint internal and external auditors and a compliance officer, and file both quarterly and annual reports with the IA.
What are the minimum capital requirements?
As per IA Resolution No. 42 of 2009, a UAE licensed Insurer must have paid up capital of at least 100,000,000 Dirhams. A UAE licensed Reinsurer must have paid up capital of no less than 250,000,000 Dirhams.
Minimum capital requirements for an insurance brokerage, as per Resolution No. 15 of 2013 are 3,000,000 dirhams. It is noted that foreign companies or free zone entities can establish branches within onshore UAE, but the capital requirements for this option are 10,000,000 Dirhams. Additionally, a broker must obtain a bank guarantee in favor of the IA in an amount of at least 3,000,000 Dirhams.
The capital requirements for DIFC establishments are quite variable, and depend on the specific activity that the entity is engaged in. The relevant capital adequacy regulations, set by the DFSA, are risk based and require analysis on a case by case basis. Having said this, a general rule of thumb is that an initial investment of US $1,000,000 is required to obtain a DIFC/DFSA Category 4 license, which will permit the licensee to engage in the insurance intermediary activity.
Is there a policyholder protection scheme?
There currently is no Policy Protection Scheme in the UAE, which would protect policyholders in the event of a failure of their insurer.
How are groups supervised, if at all?
Groups are generally not supervised in the UAE at the group-wide level. Each licensed entity is supervised by the relevant regulator, and is expected to meet the regulatory requirements pursuant to its own available resources, notwithstanding that certain functions may be allowed to be either outsourced or are facilitated at the group level. In this event, the regulator may request that the licensee provide evidence that the outsourced or group allocated functions are being fulfilled according to regulations, thus extending the regulators’ purview beyond the entities’ individual structure, and permitting some inquiry into group functions.
In the DIFC, there is greater scrutiny of group structures, particularly at the licensing stage. The DFSA will inquire into the activities of a prospective licensee’s ultimate controlling owner, notwithstanding that the DFSA does not have actual regulatory jurisdiction over the group if such is located outside of the DIFC. The DFSA also reserves the right to investigate its licensees’ activities, and this may extend to their group structures should the DFSA believe that the licensees’ activities may be in breach of applicable regulation.
Do senior managers have to meet fit and proper requirements and/or be approved?
The IA does require that the senior officers of its licensees meet certain requirements, as per Article 32 of the Insurance Law and IA Resolution 2 of 2009. For insurers, this includes the General Manager who must meet set educational and experiential requirements. As per this Resolution, various “key employees” must also be qualified, but the regulation does not set out these specifics at length; the IA license application and renewal process does however, require submission of the credentials of the “management team” for each separate line of business, which will be scrutinized by the IA.
The relevant controlling regulations also specify that a TPA must have its senior manager, professional medical officer, and consulting doctor meet specified educational and experiential levels. Likewise, brokers must appoint employees and technical staff qualified to perform their functions. There are also set requirements for agents, actuaries, and loss adjusters.
The regulations require differing levels of staffing for each type of insurance business. For example, pursuant to IA Resolution No. 15 of 2013, as amended, a brokerage must have at least the following staffing levels: General Manager (or CEO), Operations Manager, Internal Auditor (Controller), and a specialized professional for each type of insurance the broker handles. These positions may not be combined into one role; each role must be held by a separate individual on a full time basis. Furthermore, each of these persons must meet strict educational and experiential requirements, which generally consist of a University Degree or equivalent educational credentials depending on the role, and a minimal set amount of practical experience, again varying depending on the specific role and whether or not the person is a UAE national.
All such licensees must also meet standards of good conduct and may be required to submit a good conduct letter from the relevant Emirate’s law enforcement body to demonstrate the absence of any impediment.
Demonstrating the proper educational and experiential requirements is often a time consuming task, especially for those employees who are not UAE nationals. The employee must first obtain a Certificate of Equivalence from the Ministry of Higher Education, and the Ministry of Education as well for certain educational degrees, demonstrating that the foreign educational qualifications meet the requisite standards. These documents must be attested from their source through the level of the UAE Embassy in the foreign jurisdiction where such were initially granted, and then stamped by the UAE Ministry of Foreign Affairs. Only at the point that the Certificate of Equivalence is issued by the Ministry of Higher Education can the educational credentials be submitted to the IA for their approval. Likewise, the IA requires submission of Certificates of Experience demonstrating the employees’ practical experience, which will require attestation if issued by a foreign source.
Are there restrictions on outsourcing parts of the business?
Outsourcing, while not technically prohibited, is becoming a riskier proposition as the various regulators have increased their diligence. While outsourcing some back-office functions may be acceptable, as noted above certain executive and technical functions must be handled by dedicated personnel. This is an area where market participants need to be aware that the regulatory landscape changes may result in certain outsourcing practices that were heretofore tolerated, being ruled to now be improper with minimal notice.
One function that insurers may specifically outsource are its investment activities, pursuant to Article 1 of IA Resolution No. 25 of 2015. However, this does not relieve the insurer of the oversight of, and ultimate responsibility for, any actions taken on its behalf.
The DIFC/DFSA has regulations permitting outsourcing of certain compliance functions for smaller entities, but these must be brought in-house once the size of the relevant entity increases.
How are sales of insurance supervised or controlled?
As previously mentioned, IA Resolution No. 3 of 2010, entitled the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the UAE, sets forth certain standards regarding the conduct of insurers with regard to their customers.
Pricing is controlled by Article 5, which requires the insurer to price in accordance with generally accepted technical rules on a risk based manner and to file these rates with the IA. Article 6 requires that the application for insurance be set forth in a clear manner and request only pertinent information. It is required that the applicant complete the application, and the information may not be inputted by an employee of the company.
Article 7 controls the policy requirement, which must generally be set forth in a clear and accurate manner. One specific requirement is that any provision which invalidates coverage must be printed in a conspicuous manner (i.e. different font or color). Another requires that any Arbitration Clause be contained in a “special agreement, separate from the general terms and conditions incorporated in the Policy.”
As per Article 11, publicity and advertisement of insurance policies is regulated to prohibit dissemination of any inaccurate information or other misleading statements with regard to the contents of any cover that is marketed, including the benefits and pricing thereof. Additionally, it is unlawful to publish any false information concerning the financial position of the company. Article 12 provides some additional requirements as to the advertisement of life policies, which generally prohibit any statement exaggerating the financial benefits that such polices may offer.
Sale of compulsory medical cover is further regulated at the Emirate level by HAAD and DHA, in accordance with their respective regulations, which generally impose a duty upon employers to provide such medical cover for their employees.
Are consumer policies subject to restrictions? If so, briefly describe the range of protections offered to consumer policyholders.
In addition to the consumer protection provisions discussed above in Query 15, IA Resolution No. 3 of 2010 sets forth rules as to steps the insurer must take upon policy renewal, claims procedures, and maintenance of company complaint registers.
HAAD and DHA also maintain consumer complaint processes relating to medical cover in the respective Emirates.
One area where consumer protection regulations are notably lacking is the Bankassurance field. Banks that engage in the offer of insurance cover are not regulated by the IA. This leads to a regulatory gap that has been problematic in the life insurance market, as certain banks have been reported to engage in deceptive marketing and sales of their life products, in a manner inconsistent with the consumer protection provisions set forth in IA Resolution No. 3 of 2010.
Are the courts adept at handling complex commercial claims?
While this is a matter of some relative analysis, the UAE Courts are arguably not a favorable venue for the adjudication of complex commercial disputes. The Court procedures, relying on a civil law model, are conducted in Arabic, rely on mostly written submissions and referral to court appointed experts for analysis, and do not generally provide for disclosure or witness examination. Should the dispute at bar involve extensive non-Arabic language documents of a technical nature, a need for live witness testimony and rights to cross-examination, or any probing of the adversary’s records, the downside of the UAE court procedures is evident.
The DIFC has established its own Court, with rules modeled after those of England and Wales. To the extent that the DIFC Court permits a higher level of disclosure and live witness testimony, it can be said to present a more favorable venue, particularly if the dispute is based upon English language documents. However, the DIFC Court has only been in operation since the mid 2000’s, and thus may suffer from a lack of an extended track record.
Is alternative dispute resolution well established in the jurisdiction?
There are several well established arbitral organizations in the UAE that operate pursuant to international standards, including the Dubai International Arbitration Centre (DIAC), DIFC-LCIA, and the Abu Dhabi Commercial Conciliation and Arbitration Center (ADCCAC). Many legal practitioners thus choose to insert arbitration clauses into their contracts, referencing a preferred arbitral organization therein.
One hurdle to effective arbitration must be taken into account, however, and that is whether such an award will be enforceable. UAE Courts have in the past shown a tendency to reject enforcement of arbitration awards on the highly technical grounds that the parties to the underlying agreement did not have the requisite authority to enter into a binding arbitration document, or that the clause itself was defective or vague. While the judicial trend has been heading away from such hyper-technical analysis and rejection of otherwise valid arbitration awards, this is a factor that should be considered before proceeding to arbitration, or better, at the stage that the arbitration clause is drafted and the underlying agreement is executed.
What are the primary challenges to new market entrants?
The UAE insurance market is currently conflicted in two divergent aspects. On one hand, there is a currently some over-capacity in the licensed insurance market, which has led to an unsustainable pricing structure which has thereby created solvency risks to some insurers.
This has resulted in the IA essentially indicating that it will not grant any new insurance company licenses until the capacity issue is resolved. Any new market entrant wishing to write business in onshore UAE should thus consider other options, including engaging in reinsurance, entering into a strategic alliance with an existing licensee, or the outright acquisition of an existing license, to the extent that it can overcome the hurdles imposed by the requirement of maintaining 75% local ownership.
On the other hand, the market penetration rate is significantly below what it should be for a wealthy and rapidly developing nation. This presents opportunity for those market participants who believe that they offer a proposition that can be successful in such a growth-oriented and wealthy underpenetrated market, but one that is not without its challenges.
To what extent is the market being challenged by digital innovation?
Pursuant to IA Circular No. 45 of 2014, all insurance companies are required to maintain “electronic copies of all company (paper) documents easily accessible in the event of hazardous incidents...”. This has resulted in implementation challenges for the affected companies. Likewise, the speedy development and rollout of ever increasing methods of marketing and distribution of insurance material through digital means has created challenges not dissimilar to those faced by insurers in other jurisdictions.
Over the next five years what type of business do you see taking a market lead?
Because of its compulsory mandate, medical insurance will always be a hot topic. The carriers that can properly develop underwriting guidelines to properly price this cover, given the uncertainties of securing the necessary health care data to rate a constantly shifting expatriate workforce, while at the same time developing - in conjunction with the health care providers - a stable cost control protocol, have the opportunity for long term success.
Similarly, given the constant development of infrastructure throughout the UAE, the need for general liability, contractors, PI, and specialty lines cover will continue to increase.