Regulatory Update for the UAE Insurance Authority

Simply put, regulatory compliance is when a business follows state, federal, and international laws and regulations relevant to its operations. The specific requirements can vary, depending largely on the industry and type of business.

The United Arab Emirates Insurance Authority has recently published new regulatory directions on their website. Sharing a summary of the regulatory guidance.

a. Insurance Authority Resolution No. (49) of 2019 Concerning the Regulations for Life Insurance and Family Takaful Business

Previous editions have highlighted the irregularity in both commissions and payments, particularly in relation to pay-out to intermediaries.

It was noted in the previous draft, that the commission cap for pure protection policies would be 10% of the annual premium for each year of the term of the policy. This continues to be retained, with the overall cap of 160% of the annualised premium.

As for single premium policies, it remains to be limited to a maximum of 10% of the premium. With any premium changes, the pricing actuary must consider non-recurring changes in the annualised premium, due to add-on coverages, riders or similar options, by using the same method and restrictions as the first-year annualised premiums.

With regards to indemnity commission, the commission paid must be based on the annualised premium collected. In circumstances where the mode of premium payment is semi-annually, quarterly or monthly, the commissions paid can be based on the annualised premium.

However, this must be financed by the company and not by the policyholder. Affirmed by the previous draft, the first year of commissions paid on the annualised premium must be capped at 50% of the annualised premium or at 50% of the total commissions payable under the product, depending on whichever is less.

In circumstances where it is found that the premium payment is of 20 years or more, the pricing actuary may propose a non-fixed payment plan, subject to prior approval.

b. Insurance Authority Board of Directors’ Decision No. (40) of 2019 Concerning the Amendment of Certain Provisions of the Insurance Authority Board Decision No. (3) of 2010 On the Instructions Concerning the Code of Conduct and Ethics to be Observed by Insurance Companies Operating in the United Arab Emirates.

This decision extends the applicability of the Insurance Authority’s Code of Conduct to “insurance-related professions”.

The Code of Conduct provides the various terms and conditions that must be complied with by any entity licensed by the Insurance Authority, including but not limited to guidance on operations, publicity and advertisement, pricing, proposal form, policy wording, claims and renewal.

In its original form, the application of the Code of Conduct was limited to only the insurance companies licensed by the Insurance Authority, but following this amendment, the Code of Conduct also applies to all professionals licensed by the Insurance Authority, such as Insurance Agent, Actuary, Insurance Broker, Surveyor or Loss Assessor, Insurance Consultant or any other insurance-related profession regulated by the Insurance Authority.

c. The Insurance Authority Board of Directors’ Decision No. (41) of 2019 Concerning the Supervisory Rules for the Experimental Environment of Financial Technology in the Insurance Industry

The decision is aimed at supporting the Emirati FinTech companies and transforming the UAE insurance market into a smart insurance market. The decision identifies Innovative Solution Owners, FinTech companies licensed in free zones and financial free zones, National fintech companies and Foreign FinTech companies.

If the applying entity fulfils all the requirements laid down by the Insurance Authority, they shall be accepted for the pilot phase, which will run between 6 to 12 months, aimed at testing the feasibility of the business.

This is a great forward-looking step by the Insurance Authority, which will likely result in the development of indigenous solutions in the insurance sector, and has set a high benchmark for other insurance regulators in the region.

d. The Insurance Authority Board of Directors’ Decision No. (42) of 2019 On the Amendment of Certain Provisions of the Insurance Authority Board of Directors’ Decision No. (13) of 2018 Instructions Concerning Marketing Insurance Policies through Banks

This decision amends certain provisions of the Bancassurance Regulations. The Bancassurance Regulations currently require the Designated Officer of the bank to acquire practical training of no less than two months at any insurance company, which has now been replaced by a training requirement of 30 hours.

The requirement for an insurance company to have a branch in the Emirate in which the bank is selling the insurance policies has now been replaced by a requirement to have a “Point of Sale” in such Emirate or “electronic services” that enable customers to communicate with the company to receive their feedback, inquiries and complaints, subject to the terms in the revised provision.

This implies that insurance companies can utilise the Bancassurance channel for distribution even in the Emirates where they do not have an Insurance Authority licensed “Branch” if they have either a “Point of Sale” in such Emirate or provide insurance services through electronic means.

e. Administrative Decision No. (140) of 2019 Concerning Exemption of Some Insurance Policies from Arabic Language Drafting Condition

The Administrative Decision issued by the Insurance Authority dated 14 October 2019 has now been published on the Authority’s website. The Decision follows the Administrative Circular No 7 of 2019 relating to Administrative Fine, which laid down the fines applicable if an insurer does not comply with the requirement of issuing the insurance policy in Arabic.

Following multiple requests from the Insurers who expressed their inability in translating policies of international nature to Arabic language, the Decision lists down the polices which have been exempted from translation to Arabic, such as marine and aircraft policies, oil and gas related insurance policies, space related insurance policies and other insurance policies of international nature.

The Decision further provides a list of documents that need to be submitted to the Authority for approval of the policy wordings, in relation to each life insurance policies and those in relation to general insurance policies.

In addition, there is a requirement to provide an undertaking that the product complies with applicable legislations.