New UAE insurance law

New UAE insurance law

The long-awaited new insurance law to revamp the regulation of the UAE’s insurance sector was issued in February 2007. Federal Law 6 of 2007 (the New Insurance Law) will replace the ageing Law 9 of 1984 (the Old Insurance Law), and hopefully usher in a new era of regulation for the UAE insurance industry.

The main purpose of the New Insurance Law is to establish an Insurance Commission which will be responsible for the ongoing regulation of the insurance industry in the UAE, which will include having responsibility for the licensing and supervision of all insurance companies, insurance brokers, insurance agents, insurance consultants operating in the UAE, along with other experts in the insurance service industry, such as loss adjusters and actuaries.

The Commission replaces the UAE’s Ministry of Economy, whose insurance section has until now been tasked with the responsibility of regulation of this sector. It has been a widely-held view for some time by those in the industry that the Ministry’s regulation of the sector has been sporadic and inadequate, and that the insurance section has been under-staffed and under-skilled. In an era where regulation has come to the fore worldwide it is widely perceived that regulation of the UAE insurance industry has historically fallen well wide of the mark.

It is certainly hoped that the Commission will introduce a modern and up to date approach to the regulation of this vital pillar of the economy. Much will depend in due course on the quality and calibre of the staff employed by the Commission. The Director-General of the Commission has not yet been named.

Effective date and transition periods
The New Insurance law will come into effect six months after its issue (i.e. August 2007). Although the new law provides that it will replace the Old Insurance Law, the old law and its regulations will remain in place until new regulations are issued under the New Insurance Law.

Furthermore, the New Insurance Law provides for a transition period of up to two years for those governed by it to adjust their status and practices, and introduces specific transition periods in respect of specific changes.

The model for the Insurance Commission
The New Insurance Law and the model for the Commission appears to be based on the Jordanian Insurance Commission, which was put in place in 1999 and has had complimentary reviews in the region to date. The Jordanian Insurance Commission maintains an up to date website with laws and regulations published in English and Arabic.

Structure of the UAE Insurance Commission
The Commission does not appear to be intended to form part of a wider financial services regulatory body. Responsibility for the Commission still falls to the Ministry of Economy, although the Commission will have its own legal status. The Commission will have a board of directors comprising five Government appointees, including one appointee from the UAE Central bank, and five nominees from the private sector, including one nominee from the Emirates Insurance Association. The Commission will be headed up by a Director-General, whose appointment has not yet been announced.

The Commission’s responsibilities are set out in the New Insurance Law and include:

• Formulating and issuing regulations for the insurance industry;
• Implementing a code of conduct for the industry;
• Approval and processing for licensing of insurance companies and other entities in the industry;
• Determining policies and procedures, including solvency margins, accounting policies, investment rules, reinsurance standards and other matters affecting the regulation of the industry.

There is no indication as to when the Commission will be formed, but we understand the Ministry of Economy is keen to see its legal formation by September 2007. It is certainly hoped that the Commission will employ well-qualified staff to ensure that the standard of regulation that it introduces is in keeping with international standards. It is also hoped that the Commission will liaise with international bodies such as the International Association of Insurance Supervisors (IAIS).

Specific provisions of the New Insurance Law
Some of the specific provisions, including certain changes introduced by the New Insurance law are the following:

• The new law retains provisions requiring “property and funds located in the State or liabilities arising therefrom” to be insured by UAE-registered insurers;
• There are no restrictions that apply to the reinsurance of risks in or from the UAE;
• The new law reduces the number of categories of insurance from six to three (property, liability and life);
• The activities of entities registered in the ‘free zones’ are restricted to reinsurance (presumably a reference to DIFC);
• The new law prohibits the sale of both life and general insurance by the same insurance company, subject to a five-year grace period;
• The new law does not specify any minimum percentage UAE shareholding required in national insurers (presently 75%);
• Representative offices for foreign insurers are to be allowed;
• Security deposits for insurers have been increased with a maximum cap of AED6m;
• All insurance policies are required to be issued in Arabic – translations into other languages are permitted;
• Liquidation and insolvency provisions in the new law have been substantially widened, along with provisions relating to the restructuring, merger and acquisition and run-off of insurance businesses.

Comment
The issue of the New Insurance Law is certainly a welcome event for the local UAE insurance market. The model that appears to have been adopted does not follow that of a unified financial services body of which insurance is regarded as a type of financial service, which is the current trend in worldwide regulation and has been adopted elsewhere in the GCC such as Bahrain, Saudi Arabia, the DIFC and QFC.

The New Insurance Law does not provide much by way of detail as to what form the regulation of the industry will take. There appear to be a number of confusing and unhelpful provisions in the new law. However, how far the regulation of the industry is able to raise the bar from the current inadequate standards will depend to a very large degree on the quality of the staff and management of the new Insurance Commission.