The insurance brokerage in the UAE, like the rest of the insurance sector, is regulated by the UAE Insurance Authority. This has merged with the UAE Central Bank, which is now the unified regulator for the banking and the insurance sector. The regulation currently providing statutory guidance on licensing and functioning of insurance brokers in the UAE is the Insurance Authority Board of Directors Resolution No. 15 of 2013 Concerning Insurance Brokerage Regulations (Brokers Regulation). Issued in 2013 and later amended several times, clarifying the requirements for each of the mandatory roles and increasing the capital requirement to AED 3million for insurance brokers, the Brokers Regulation has stood the test of time. However, with digitalization of the insurance sector and disruption of the insurance industry globally by the insuretechs, an overhaul of these regulations is greatly needed.
With this background, in December 2020, the Insurance Authority (now Central Bank) issued the Draft Regulations Concerning the Regulations of Insurance Brokerage and Electronic Transactions (Draft Broker Regulations). These Draft Broker Regulations consolidate many of the changes made over the years into one single document, but also specifically extend the regulatory supervision to electronic operations and brings price comparison websites within its purview.
Below we summarise some of the key changes under the Draft Broker Regulations, in its current form:
- With the exception of existing insurance brokers who have the license to carry out both life and general lines of business, no new brokers would be licensed to carry out both lines of business under the same license. For the existing brokers, the same would be allowed only if the insurance broker is able to demonstrate that they maintain complete segregation of the business lines in terms of operations, books, records and personnel operating in both classes of insurance, including sales staff.
- Similarly, for those insurance brokers carrying out insurance and reinsurance business, the broker must be able to demonstrate complete segregation of the business lines in terms of operations, books, records, and personnel operating in both classes of insurance, including sales staff.
- The capital requirement remains unchanged at AED 3million for a locally incorporated entity, and AED 10million for a branch of a foreign company (or that incorporated in any financial freezone). The word “financial freezone” indicates that brokerages incorporated in non-financial freezones in the UAE would not be recognized under the new regulations.
- Further, the Draft Broker Regulations provides that the capital requirement may be fulfilled by either a bank guarantee for the capital amount or a “Guarantee Insurance Policy”. A Guarantee Insurance Policy, to be used as a means to fulfil the statutory minimum capital, is something that has been introduced for the first time. The Draft Broker Regulations also state the conditions that the Guarantee Insurance Policy must fulfil, such as:
- the policy must be issued by a UAE insurer,
- be in favour of the Chairman of the Authority,
- be annually renewable with license,
- be non-deductible and,
- have the sum assured for minimum capital or the threshold specified by the Authority.
- The Draft Broker Regulations puts emphasis on the solvency requirement and provides guidance on what mitigation steps need to be taken if a brokerage is not fulfilling the required solvency, including punitive action by the Authority for failure to fulfil the requirements.
- The Draft Broker Regulation has also introduced additional mandatory roles, that the broker needs to fulfil, such as that of compliance officer, sales executive etc, emphasizing the requirements for these employees to have insurance qualifications, such as from the Chartered Insurance Institute of London. For instance, even the sales executive must have a secondary education and hold a Certificate Degree from the Chartered Insurance Institute of London or an accredited certificate from an equivalent professional institute. They must also not have been terminated previously at any supervisory authority for disciplinary reasons.
- The Draft Broker Regulation states that when an insurance broker carries out electronic operations, especially through a price comparison website, it must always ensure compliance with the Electronic Regulation during its operation. The Insurance Broker must ensure that the digital infrastructure developed by them:
- enables electronic exchange of basic customer information with the insurance company’s technical system,
- enables the Insurance companies to assess the risk efficiently and,
- provides the insured easy access to quotation, payment mechanism and policy information.
- The Draft Broker Regulation requires brokers to have detailed internal bylaws, which need to be updated on occasion and provides detailed guidance on obligations of the insurance brokers towards the Authority, insurance companies, the client and other brokers. In relation to obligations towards insurance companies, the Draft Broker Regulation provides that insurance brokers must not receive premiums, except for motor insurance, and must transfer the premium received to insurance companies within two working days without withholding any amount payable towards interests or commission due on such premium.
- In terms of disclosures, the Draft Broker Regulations specify that the annual and interim financial statements must be accompanied with, among other information, financial disclosure made under IFRS standard, compliance officer’s report and a statement of total premiums and commissions distributed as per the two types of insurance “property and liability insurance and persons and funds accumulation insurance” as per class of insurance, whether brokerage in direct insurance or reinsurance.
The Draft Broker Regulations have not yet been finalized and even when finalized, they, in their current form, provide that the existing insurance brokers would have 6 months to correct their position in accordance with the new guidance. While a positive step for the market and the evolving regulatory landscape of UAE insurance sector, the instructions, resolutions and circulars required for the implementation of these Regulations will only be issued in due course.
Authored by Anand Singh, Senior Associate.