The chief executives of some of the largest financial intermediaries operating in the United Arab Emirates are predicting a huge reduction in the number of intermediary firms based there, following the introduction of new regulations last month.
On the 28 November, the Emirates Insurance Authority introduced new legislation increasing the capital adequacy requirements for all firms selling insurance to consumers. It also brought in a raft of other measures which will make it much less viable for small firms to operate, such as the requirement to have a distinct chief executive, internal auditor and branch head.
Furthermore, the new laws mean the Insurance Authority can make
inspections at any time, without warning.
The prediction was made during a chief executive roundtable held during last month’s Gulf Expert Investor Forum at the Conrad Hotel in Dubai.
Market consolidation
Chaired by online editor Simon Danaher, the representatives from the intermediary community were: Sam Instone, AES International; Tarun Khanna, Nexus Insurance Brokers; Sean Kelleher, Mondial; Ashok Sardana, Continental; Sarah Lord, Killik & Co; and Tim Searle, Globaleye.
Speaking in front of an audience of around 200 delegates, both Instone and Khanna predicted the number of firms operating in the insurance brokerage space in the UAE would shrink from around 160 as of last month, to 40 or 50 in the coming months due to the changes.
“I would have thought that most of the businesses here have already put aside the capital” said Instone. “However, on the 28 [of November] the rules come into force and so all the licensing is being renewed and we suspect out of about 160 existing companies that will probably shrink, the market will be consolidated, down to about 40.”
An inspector calls
The panel also said there was evidence the Insurance Authority is taking its role as a regulatory enforcer more seriously, with inspections having been made to a number of firms.
Searle, whose company Globaleye has operated in the Middle East since 1999, said in the past 15 years he had not had one proper inspection, but in the past six months had been subject to six.
Continental’s Sardana said he had also had a recent inspection and that while there may not be any more new regulations in the near future “[the Insurance Authority] will keep on tightening and they will keep on monitoring the brokers more regularly, unlike before”.
Lord, who heads up Killik & Co’s Dubai International Financial Centre-based team added: “To be honest, that’s needed, because they haven’t really monitored brokers.
“They’ve issued licences and they haven’t done much monitoring to date so I think the best impact of this is the Insurance Authority starting to follow through with what they’re saying they want to see from brokers.”
A wider issue was picked up here by Kelleher, who suggested a more joined-up approach between the two main financial regulators, the Insurance Authority and the Emirates Securities and Commodities Authority, is needed and is likely.
“There are two central issues,” said Kelleher. “One is that the UAE legal environment, the regulatory environment is there to protect the UAE.
“You’ve just got to walk into ESCA or the Insurance Authority, their mission and vision statement says, ‘We’re here to protect the UAE.’ So that’s number one.
“Number two is that there isn’t any law for financial planning and wealth management, so when I see this Insurance Authority law and speak to the regulators, it’s quite clear that their intention is to plug that gap. There are ESCA rules and there are Insurance Authority rules and the people in this room generally do something that is not related to either of those rules. It’s quite clear that the regulators want to fix it and I think that’s what we should be focusing on. What they do next.”
Lord, however, said she did not feel there was cohesion between the various regulatory bodies operating in the UAE.
“You’ve essentially got too many different authorities trying to regulate the same thing in a different way. You’ve got the DFSA and DIFC which, obviously, we’re licensed and regulated by. You’ve got the Insurance Authority and you’ve got ESCA now from the investment side.
“None of them seem to really be talking and, actually, from what we all do in the room, we cover every aspect that they’re looking at. There doesn’t seem to be a joined up approach. We’ve seen that in the past in other jurisdictions in other countries where ultimately it’s all come under one umbrella but is it ever going to come under one umbrella out here? I doubt it.”
Exit strategies
Moving away from the impact of the new regulations on the advisory portion of the market, the panel was asked whether it expected to see any further providers withdraw, following Standard Life International’s decision to exit last month.
Sardana thought this was unlikely: “I don’t think any other providers are planning to leave the market, they’ve been here for some time and, well, Standard Life left.
“The clients are happy because they are able to get the money with some extra dividends and the consultants are happy that they’re able to make a repeat sale, so from that point everyone’s happy. I don’t think any of the other companies are planning to leave, they’re well established out there.”
In contrast Khanna, representing the biggest insurance broker in the UAE, Nexus, said he did expect to see further providers leave.
“I think you will see other providers leave because the insurance regulator has made it very clear that they only want licensed companies to deal with licensed providers and I think it’s going to become more obvious over the next two years.
“In fact when you submit your annual returns or your annual report they always ask you, you know, ‘Where’s the income coming from?’ They’ll go line by line and I think it’s just a matter of time where, if you don’t have a proper insurance authority license you either get a fronting arrangement with someone else or, over time, you’ll have to exit or you are going to be operating in this grey market. I think the grey market’s probably going to close in the long term.”
