03 May 2010

NEW RULES ON THE PROFESSIONAL PRACTICE AND ETHICS OF INSURANCE COMPANIES ISSUED

Authored by: Dina Mahdi

NEW RULES ON THE PROFESSIONAL PRACTICE AND ETHICS OF INSURANCE COMPANIES ISSUED

Following the promulgation of Federal Law No.6, Establishing the Insurance Authority and Regulations of Insurance Operations in 2007, the regulation of the insurance sector became vested in the Emirates Insurance Authority. Dina Mahdi explains the main changes for the insurance sector.
 
In brief:

  • The Board of Directors of the Insurance Authority has been working to update current legislation, as well as implementing new regulations to meet the evolving needs of the insurance sector.
  • Resolution No. 3 of 2010 on the Rules of Professional Practice and Code of Ethics introduces new obligations on insurance companies operating in the UAE, mainly in relation to transparency and access to information.
  • Cabinet Resolution No. 42 of 2009 changed the minimum capital requirement for insurance companies and provides insurance companies three years to rectify their status in line with the new requirements.

Introduction
Article 23 of Federal Law 6 provides that the Board of Directors of the Insurance Authority, under the direction of its Director General, is to issue instructions related to insurance operations, including in such matters as: setting a minimum guarantee amount; setting reinsurance standards; combating money laundering and terrorism financing; as well as setting out the rules and ethics of the profession. Under this mandate, the Board of Directors of the Insurance Authority has been working to update current legislation, as well as implementing new regulations to meet the evolving needs of the insurance sector.
 
Cabinet Resolution No. 3 of 2010        
In accordance with its mandate under Article 23 to monitor the rules and ethics guiding the profession, the Authority has issued Resolution No. 3 of 2010 (“Resolution 3”) on the Rules of Professional Practice and Code of Ethics that must be observed by Insurance Companies operating in the UAE. The new rules are set to replace the existing rules on professional practice and code of ethics stipulated under Ministerial Decision No. 296 of 2004.
 
While not fundamentally different in content from the existing Ministerial Decision No. 296 of 2004, the new Resolution 3 does introduce various new obligations on insurance companies operating in the UAE. These obligations largely focus on ensuring greater transparency and clarity in the information relayed to clients, as well as the activities and involvement of insurance companies.
 
New provisions have also been introduced in line with a series of initiatives aimed at combating anti-money laundering and terrorism financing. Resolution 3 imposes a greater onus on insurance companies to become familiar, and ensure that they are complying, with laws and regulations on money laundering and terrorism financing.
 
There are also increased reporting obligations to clients. Clients must now be provided with technical and accurate statistics detailing their transactions with the insurance company, at their request.
 
In an effort to provide clients with greater clarity, insurance applications must now contain warning clauses alerting those insured of the legal implications of providing incomplete or, untrue information. Further, application questions must be strictly confined to the context of insurance. Also, insurance applications must only be completed by applicants, or their designated legal representative. Insurance agents are prohibited from completing applications for clients. Finally, an arbitration clause must be drafted in the form of a special agreement separate from the general provisions of the insurance policy.
 
Cabinet Resolution No. 42 of 2009
Recent efforts to strengthen the UAE insurance sector include the issuance of Cabinet Resolution No. 42 of 2009, which came into force on 31 January 2010. This resolution changed the minimum capital requirements for insurance companies to AED100 million. At least 75% of this capital must be owned by a UAE or GCC national or legal entities wholly owned by a UAE or GCC national. All insurance companies operating at the time of the issuance of this resolution have been given three years to rectify their status in line with the new requirements.
 
Conclusion
Following the new responsibilities of the Insurance Authority as outlined in Article 23, it is likely, that recent changes to legislation will be supplemented by further new laws and regulations to address the evolving needs of the sector.