TMT focus
Commentary
Anand Singh Senior Counsel, Transport & Insurance
Ushered by Covid 19 and the rise of digital as the media to fulfil one’s basic requirements, from groceries to online doctors all the way up to university degrees, use of online as the primary mode of sale and distribution has become common, and insurance is no exception. For most sectors, the UAE is at the forefront of any change; time and again the UAE brought progressive changes to its laws and guidance accompanying the respective change. For insurance, the UAE issued the Insurance Authority Board of Directors’ Resolution No. 18 of 2020 Concerning the Electronic Insurance Regulations (the ‘Electronic Regulations’) on 27 April 2020, which came to force on 15 May 2020 and became fully effective on 15 November 2020, following the 6-month implementation period. In this article we discuss the overall change in the consumer behaviour and whether the evolving regulatory framework sufficiently caters to the change.
The Electronic Regulations have defined the term “electronic” widely to include anything relating to technology having electrical, digital, magnetic, wireless, visual, electromagnetic, automated, optical or similar capabilities. The scope of the Electronic Regulations extend to all electronic and smart insurance operations carried out on the internet address of the company, social media such as Facebook, LinkedIn, multimedia such as YouTube, Instagram, blogs, Google doc, Wiki, AI-based systems, text messages, instant chat channels, smart applications, and the like. The extent of the coverage is not limited to insurance distribution only, but it extends to other functions such as marketing of insurance policies, collection of premiums, receipt of claims, receipt and handling of complaints, and the aforementioned list is non-exhaustive. Any entity carrying out electronic insurance activities must seek the approval of the UAE Central Bank (‘Authority’) in the form and manner prescribed in the Electronic Regulations.
The Electronic Regulations have defined the term “electronic” widely to include anything relating to technology having electrical, digital, magnetic, wireless, visual, electromagnetic, automated, optical or similar capabilities.”
For most part, use of electronic means in insurance is considered synonymous to the use of digital as mode of insurance distribution, through websites of insurers and brokers, and the asset light model of “web aggregators” or the “price comparison websites”. The Electronic Regulations recognise, for the first time, the “Price Comparison Websites” (‘PCW’) and interestingly state that only an insurance broker can deal with a PCW. The Regulations also require PCWs to be registered with the Authority and a copy of the agreement signed between Insurance Broker and Price Comparison Websites must be shared with the Authority. Subsequently, a detailed application form was made available by the Authority on request, which sets out the requirement relating to the registration of a PCW. Any entity, whether onshore in the UAE or in a freezone within the UAE can act as a PCW as long as they have fulfilled the requirements under the Electronic Regulations, and no registration fee currently applies.
The Electronic Regulations recognise, for the first time, the “Price Comparison Websites” (‘PCW’) and interestingly state that only an insurance broker can deal with a PCW.”
UAE saw the rise of PCWs much later, but PCWs as a mode of distribution have been common in most jurisdictions and the regulations in these jurisdictions have evolved to now provide an independent regulatory framework for them. While the Electronic Regulations is a step in the right direction by recognising PCWs, other than that, it provides very little added value. PCWs as a medium for distribution of retail insurance has been successful for its ability to provide the convenience and access to customers to information for which they would otherwise have had to make rounds of traditional brokers and to be able to complete purchase of insurance, all on the same platform. In its current form, the PCWs are dependent on insurance brokers, and the Electronic Regulation does not appear to recognise PCWs as an independent distribution channel, to allow them to be able to complete the sale on the PCW platforms, failing which they are currently only acting as a “referral partners”, which might not assist the PCW structure to achieve its aim.
As the regulatory framework evolves it would be good if the Authority perhaps also specifies the role an outsourced third party can play in the insurance value chain. For instance, the use of wearable devices in case of individual policies and use of electronic means for use-based motor policy for policy underwriting; and how such third party entities carrying out these services which enhance insurance value proposition can be paid by the insurance and reinsurance companies. Similarly the use of AI and technology in the claims assessment, processing and settlement, are the aspects that the Authority must also address.
The growing digital world has also led to emergence of what is called “bite size insurance”, which are very small ticket insurance covers designed for small transactions, such as an insurance to cover the damage during a taxi ride, when using the ride hailing platforms. Cyber insurance meant to cover online transactions, add-on insurance when purchasing electronic devices and so on. Given the low cost of these products, a number of them need to be distributed by online-only non-regulated e-commerce entities and under the current regulatory framework – insurance must only be sold through a registered insurer or insurance broker. Arguably, a regulator cannot be expected to devise guidance for each such new product, but it would be helpful if they can bridge this wide gap in the market, between what a customer needs versus what an insurer can sell.
For further information, please contact Anand Singh.
Published in June 2022
