UAE Insurance Regulatory Round-up 2023
Transport & Insurance Focus
Anand Singh Senior Counsel,Transport & Insurance
Veena Shankar Paralegal,Transport & Insurance
In the year 2023, the Central Bank of the UAE (CBUAE), acting as the unified regulator for banking and insurance sector in UAE issued multiple new regulations, guidelines and also drafts which we suspect will come into play in the coming months.
Our compendium of the regulatory developments aims to provide a comprehensive overview of these changes, shedding light on the implication for insurers, policyholders, and other stakeholders. These have been arranged in a chronological order and also include some of the important changes that came from the health authorities in the respective emirates.
Implementation of Risk Management and Internal Controls Regulation for insurance companies
On 30 December 2022, the CBUAE under circular number 25/2022 issued regulation concerning Risk Management and Internal Controls Regulation and Standards for Insurance Companies (Risk Management Regulation) and this became effective from1 February 2023.
The Risk Management Regulation establishes an overreaching prudential framework for risk management and internal control standards for insurers. Among other requirements, this regulation mandates the insurer to secure CBUAE’s prior approval for outsourcing material business activity and requires the insurer to maintain the register for all material and non-material business activity which is outsourced.
Issuance of Circular No. CBUAE/BIS/2023/575 (re) Clarification on Escrow Account requirements
The CBUAE issued Notice No. 4775/2022 on 28 November 2022 and No. 4708/2022 on 22 November 2022 mandating insurance entities such as TPAs, agents and brokers, to activate escrow accounts to receive insurance premium. The CBUAE further issued the above referenced circular on 3 February 2023, clarifying the escrow account requirement and providing a detailed guidelines on maintenance of escrow accounts. It was issued to banks as well, who were mandated to establish procedures to support compliance with this requirement.
This guideline requires the intermediaries such as agents, brokers and TPAs to execute escrow agreement with the UAE banks and that the escrow account should be opened based on this legal arrangement.
The circular further clarifies that the insurance brokers or agent who do not handle insurance fund such as insurance premium or claim fund are not required to comply with the requirement to open escrow bank account.
Implementation of Ombudsman Regulation
The CBUAE implemented Regulation for Establishment of an Ombudsman Unit (Ombudsman Regulation) which is applicable to all licensed financial institutions like bank and insurance companies operating in UAE. The Ombudsman Regulation establishes an Ombudsman Unit which would act as a financially and administratively independent unit, with the power to receive, handle, and resolve complaints in a legally sound manner. The fundamental criteria for complaints/ grievance to fall with the Ombudsman Regulation amongst other requirement is that the consumers should have either obtained or potentially could have obtained services, products, or policies from the insurance company. Therefore, the Ombudsman Regulation not only applies to the consumers to whom insurance policies are issued but also extends to potential or prospective consumers who receive offers or insurance quotations from or on behalf of insurance companies such as insurance brokers, agents.
The Ombudsman Regulation was published in official gazette in March 2023 and regulation confirms that the Ombudsman Unit will be operational within 1 year from the date of publication in the official gazette i.e., on and from March 2024.
Issuance of GC (1) of 2023 (re) Health Insurance Data compliance by health insurance companies licensed by the Dubai Health Authority (DHA)
DHA issued circular No. GC 1 of 2023 directing the insurers to provide the health insurance data requested by Dubai Health Insurance Corporation (DHIC) in such manner and within such timeline requested by the DHIC. The insurers are further directed to ensure the data related to insured members such as premium, claims, fees, reinsurance allocation etc are stored in an efficient electronic system. The insurers are permitted to archive these data only after the expiry of 5 years.
Similarly, the Department of Health, Abu Dhabi (the health regulator in Abu Dhabi) in September 2022 issued guidelines on processes and procedures to be adopted in terms of cyber security while dealing with personal and protected information. It extends its application to the insurance providers (i.e. insurers). The guidelines state that the department or the officer carrying out the role of information and cyber security should have the authority to report directly to the management of the entity. It sets out the key role to be maintained within the information and cyber security function which includes the Chief Information Security office, information security officer, Information and Cyber Security Project Manager, etc. It defines the key functions, and responsibilities including the qualification of such personnel.
Issuance of GC Circular No. 3 of 2023 issued by the Dubai Health Authority (DHA)
DHA issued GC Circular No. 3 of 2023 to notify the insurer and market participants to ensure that they comply with the following requirements:
Comply with the requirement under Administrative Resolution No. (78) of 2022 concerning the implementing bylaw of Law No. (11) of 2013 concerning health insurance in the Emirate of Dubai and execute contractual agreement in compliance with the requirement set out in this regulation.
The insurers shall be solely liable for all the claims arising under the health insurance policies issued by it, irrespective of whether it executes agreement with the TPA.
Insurers, brokers, TPAs, health service providers who do not provide volume rebate or any form of commission or concession for the providers to be included within the insurer list of provider network.
Issuance of Circular No. CBUAE/BIS/N/2023/3162 (re) Implementing Corporate Governance Regulations and Standards on 17 June 2023
The CBUAE issued the above referenced circular directing the insurer to comply with the requirements set out under Corporate Governance Regulation and Standard issued in 2022 (CG Regulation). Article 16.2 of the CG Regulation requires the insurer to provide detailed plan for complying with the requirement set out in the regulation for a minimum period of 3 years. The Circular states that based on the plan received, the CBUAE has observed that it is not clear if insurers have performed a full and complete gap analysis for designing the plan.
In response to this observation, the CBUAE required the insurers to submit a completed template as per CBUAE guidance on or before 24 July 2023 and provide required CG plan latest by 30 April 2024.
Issuance of Circular No. CBUAE/BIS/2023/4075 (re) Cancellation of 50% Discount on Vehicle Insurance Tariffs Granted to Certain Categories
The CBUAE issued the above referenced circular on 10 August 2023 to cancel the permit provided to grant 50% discount on minimum premium for accident-free record when renewing or issuing new insurance policies. This circular amended the provision of Article 1 of Board Resolution No. (17) of 2020 on amendment of some provision of the Insurance Authority Board of Directors’ Resolution No. (30) of 2016 Concerning issuing Regulation for Motor Vehicle Insurance Tariffs.
Following the implementation of this circular, based on the legislations in force, for the individual motor insurance premium, the insurers are permitted to grant reduction with accident/claim free record to the following extent:
10% of the minimum premium to the owner of the vehicle that did not cause an accident leading to a claim during the previous insurance year.
15% of the minimum premium to the owner of the vehicle that did not cause an accident leading to a claim during the previous two years.
20% of the minimum premium to the owner of the vehicle that did not cause an accident leading to a claim during the previous three years.
10% of the minimum premium as a loyalty reduction to the company’s customers. The reduction shall be granted to the owner of the vehicle at the time of renewing his policy with the same insurance company, provided that the insurance is not transferred to another person.
Implementation of Recovery Planning Regulation issued by the CBUAE
On 31 October 2023, the CBUAE issued under Circular No. 4 of 2023 the Recovery Planning Regulation which extends its application to the insurance companies, banks, and other license financial institutions. This regulation requires the insurance companies including the foreign branches incorporated in the UAE to maintain recovery plan which should be designed with a view to its implementation in distressed situation and should not be treated as a compliance exercise.
This regulation sets out the scope and requirements to be mandatorily included in the recovery plan of an insurer in the UAE. At the outset, the recovery plan designed by the insurer should amongst other requirement include (a) a framework of recovery indicators, trigger threshold along with the associated governance and escalation procedures, (b) range of recovery options that can be implemented to restore the violability of the insurer, (c) recovery capacity of the insurer in general and for certain specific circumstances, and (d) business continuity arrangements.
Issuance of Circulars GC (6) of 2023 and GC (7) of 2023 by the DHA
Under circular No. GC 6 of 2023, DHA announced the implementation of new e-claim system which will be rolled out in 2024 and directed the insurers, brokers, TPAs, health service providers to ensure that their electronic system remains compatible with the new e-claim system.
Further, under GC 7 of 2023, DHA announced the implementation of a new electronic platform for health insurance complaints.
Implementation of the New Insurance Law – Federal Law No.48 of 2023
UAE introduced the new insurance law, Federal Law No. (48) of 2023 (New Insurance Law) which expressly repeal the Federal Law No. (6) of 2007 concerning the organizing of insurance operation in the UAE (2007 Law). UAE Insurance Authority merged with the CBUAE in 2020 and since then the insurance operations were primarily governed under 2007 Law. The primary objective for issuance of the New Insurance Law is to formalise the shift of insurance regulation from the UAE Insurance Authority to the CBUAE. The New Insurance Law expressly states that the secondary legislation / regulations / instructions issued under 2007 Law remains valid and enforceable unless it contradicts the provision of the New Insurance Law, until the superseding regulations /circulars/ instructions are issued by the CBUAE.
The New Insurance Law extends its application to not only the insurance companies, related professionals, but also entities that hold controlling in interest in the insurance companies and other related professions. Notably, under the New Insurance Law, the CBUAE gains authority to intervene in lawsuits involving insurers and related professionals, and all entities subject to the law, are required to inform the CBUAE of any investigations or measures taken against insurers or related professionals. There are several changes under the New Insurance Law, such as the requirement for foreign branches of insurance companies to maintain a minimum AED 100 million bank guarantee with a local bank, and insurance entities to carry out a gap analysis to check compliance with the New Insurance Law.
Introducing Federal Law, No. 43 of 2023 concerning Maritime Law in the UAE (the “New Maritime Law”)
The New Maritime Law shall be effective on and from 29 March 2024 and will replace the current legislation, Federal Law No. 26 of 1981 Concerning Commercial Maritime Law. In relation to the insurance operations, the New Maritime Law introduces amendments affecting the operations of Protection and Indemnity (P&I) clubs in the UAE. Article 335 of this pivotal legislation enables cooperative insurance entities, notably P & I Clubs, to establish branches in the UAE. These entities are also presented with the alternative to form partnerships or representation agreements with local insurance providers. Presumably, P&I clubs opting to function as foreign branches must conform to the insurance laws of the UAE, including the obligation of securing a bank guarantee amounting to AED 100 million for foreign branches involved in insurance activities.
The maritime industry is currently awaiting further details, expected to be come through executive regulations and specific resolutions, which will clarify the provisions of the New Maritime Law more comprehensively.
The CBUAE has shared with the market participants the Draft Broker Regulation, set to replace the existing legislation governing insurance brokers in the UAE. The draft regulation aims to standardize operations, introducing key changes such as stringent financial soundness requirements, oversight on outsourcing arrangements, increased powers for the CBUAE, and mandatory approvals for certain broker changes. For instance, the broker is required to secure prior written approval from the CBUAE for any change in the ownership / shareholder of the broker, legal status or office premises. Also, the broker is required to obtain the CBUAE’s no-objection for all the outsourcing arrangement it has in place. The implementation of this regulation is anticipated to enhance governance, promote financial stability, and regularize insurance broker operations in the UAE.
CBUAE is yet to announce the implementation date of this draft regulation, but the final version is expected to be issued in 2024.
The DHA has shared the draft regulation for governing the operations of the health insurance third party administrators (Draft TPA Regulation) and we understand from the market that it has scheduled multiple meetings with healthcare providers, TPAs and insurers to discuss the overall change in the regulatory landscape of health insurance business in Dubai in relation to these regulations.
Subject to the issuance of these regulations, based on the information available from the market the role of insurer, TPA and provider under the health insurance system could be diluted to some extent. Also, with the issuance of these regulations, the requirement for the TPAs to maintain escrow account may not potentially apply, as the TPAs are not permitted to receive any insurance claim fund.
The CBUAE has released a draft standard outlining fitness and propriety criteria applicable to insurers and other professionals in the insurance industry. This regulation aims to establish standardized requirements for approving key professionals in designated and mandatory functions. Currently, professionals in insurers and related fields operate under specific operating regulations. For instance, insurance brokers are primary governed under Resolution No. 15 of 2013 Concerning Insurance Brokerage Regulations. This, along with its executive regulation i.e. Resolution No. 58 of 2013, outlines the prerequisites for appointing the key professionals for mandatory roles in an insurance broker company. However, the introduction of this draft regulation signifies the CBUAE's intention to standardize and unify these requirements across the industry.
The CBUAE is working on Open Finance Regulation and has issued the draft regulation to the market participants for their feedback. From an insuretech perspective, this regulation could be a game changer as it would allow third party tech entities to integrate into the insurance ecosystem and access information through open APIs. This would potentially open new avenues of income for insurers and the other stakeholders of the industry, and also increase insurance penetration.
While the laws regarding the electronic know your customer (e-KYC) regulation is prevalent under various regulations, the CBUAE is working on comprehensive regulation governing the e-KYC protocol to be observed by the financial institutions, banks, and insurance sector.
E-KYC Regulation will regulate the process for identifying and verifying the identity of customers using electronic methods, such as through video calls, digital signatures, and biometric authentication.
With the changes introduced including the legislations which will be introduced during the course of 2024, the regulatory landscape of the UAE’s insurance sector is poised for a significant transformation. The evolving regulatory framework and impending legal adjustments are expected to usher the UAE insurance sector into a new era, reshaping the industry's dynamics and influencing the way insurance entities operate, comply with regulations, and cater to the diverse needs of policyholders. Apart from the above, there are several other initiatives within the sector that the regulators are working on and these will bring about a comprehensive reevaluation of practices, ensuring that the insurance landscape aligns seamlessly with the economic growth of UAE.
If you have any questions or require legal support, please don’t hesitate to contact our team of expert insurance lawyers. We’re here to assist you with tailored advice and solutions for your specific needs in this evolving sector.
For further information,please contact Omar N. Omar, Anand Singh and Veena Shankar.
Published in March 2024
