United Arab Emirates: Country Comparative Legal Guides UAE: Insurance & Reinsurance

Last Updated: 29 August 2017
Article by BSA Ahmad Bin Hezeem & Associates LLP
Most Read Contributor in United Arab Emirates, September 2017

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

1. 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).

2. 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.

3. 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.

4. 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.

5. 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.

6. 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).

To view the full article please click here.

Previously published in inhouselawyer

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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