In May 2012, the UAE Insurance Authority issued a consultation paper outlining proposed revisions to the 2006 Insurance Broking Regulations. Following consultation over the draft regulations, the Insurance Authority issued revised regulations and they were published in The Gazette in November 2013, meaning they will become law in November this year.
Friends Provident International has reviewed the regulations and undertaken a detailed rules mapping exercise, to understand the implications for both our own business and for our distribution partners. The new regulations are a step in the right direction and address several aspects of broker operations.
The regulations are designed to allow the insurance industry to function smoothly, through modernised regulation and licensing procedures, with the ultimate aim to build regulation that is appropriate for the needs of the entire UAE insurance market. At the same time, conduct of business standards – in relation to the delivery of suitable financial advice – are being introduced.
The following is a summary of the most significant changes implicit in the new regulations.
Financials
The regulations stipulate a requirement for significant increases in the paid up share capital, solvency requirements and professional liability insurance for all licensed brokerage firms.
Local companies have to maintain minimum paid up share capital of AED3m, a bank guarantee of AED3m for the head office and AED1m for each branch and minimum professional liability insurance of AED2m for each event.
For foreign or free zone based brokerages, the requirements are paid up share capital of AED10m, bank guarantee of AED5m for the head office and AED3m for each branch and professional liability insurance of AED3m for each event.
Further solvency requirements have been introduced where ‘available capital’ (excess of assets over liabilities) is at any point more than the minimum paid up share capital requirement.
Brokerages will have to maintain separate bank accounts for holding clients’ premiums and their other activities. In addition, there is a new quarterly and annual reporting requirement for audited financial information to be submitted within 20 days of completion of the quarter and within 60 days of the end of the fiscal year.
People
A new requirement for each brokerage to have specific mandatory positions has been introduced. All companies will need to have people performing the following explicit roles; chief executive or managing director, operations manager, internal auditor, a head for each line of business and a branch official/head. No one person can perform more than one of these roles.
For each role, the incumbent must be suitably qualified, with minimum prescribed years of experience and is required to pass an Insurance Authority examination, which has been introduced as a pre-requisite.
Procedures
Another new mandate is the need for brokerages to have comprehensive risk management procedures in place for all their functions. All risks and controls must be clearly documented.
Each brokerage must have Terms of Business – in Arabic – with each insurer they transact business with. These Terms of Business must be notarised and filed with the Insurance Authority.
The new regulations are aimed at encouraging consolidation within the UAE broker community.
Taher Fakhri is regional compliance and risk officer for FPI’s Middle East operations
