29 Mar 2017

Insurance Update

Authored by: Hadef & Partners, Sector Groups

For many participants in the UAE insurance sector, the UAE market continues to represent a medium-term growth prospect notwithstanding the poor economic conditions prevailing in the GCC caused by low oil prices. It is a clearly and repeatedly stated aim of the UAE Insurance Authority to grow the insurance market and to enhance the reputation and competiveness of the UAE insurance market.

Several regulatory initiatives intended to ‘raise the bar’ have already been put in place, including:

  • Unifying motor insurance policies (and setting minimum rates);
  • Financial regulations; and
  • Mandatory actuarial validation,

and further such initiatives are expected soon in relation to bancassurance and streamlining dispute resolution procedures. 

Albeit well intentioned, the pace and breadth of regulatory change calls for significant implementation of new systems, processes and reporting procedures to ensure compliance, all at a cost. This burden of financial and technical regulations is being more keenly felt by those providers who have suffered losses as a result of fierce competition in the market and price-undercutting at a time when obtaining fresh capital injection is challenging.

Since it is understood that the UAE  Insurance Authority is enforcing solvency requirements strictly, there is an expectation that some providers may face being squeezed out of the market or will be forced to consider consolidation. Hence the market could see a drop in the number of insurance companies operating in the UAE in the coming years.

Focus on life insurance

In the second half of 2016 a key public consultation paper was issued by the UAE Insurance Authority (Insurance Authority Circular No. 33 of 2016) proposing some draft regulations in relation to life insurance and family takaful business (“Proposed Regulations”).

The Proposed Regulations have a particular focus on:

  • Sales/ distribution channel compensation, seeking to ban outright upfront commissions based on the life of the policy and capping certain commissions; and
  • Consumer protection:
    • requiring detailed disclosure of all charges, fees and commissions;
    • a 20 day cooling-off period during which the policyholder can cancel the policy for a full refund; and
    • calculation of surrender charges by actuaries.

While few commentators could deny the merits in seeking to ‘clean up’ the UAE life insurance industry to bring it towards international best practice, the legislative proposals (if enacted) could dramatically change how life products are sold, with potentially quite severe consequences for some operators and distributors.  Further news on the final form of and timing of the Proposed Regulations is therefore eagerly awaited. 

For more information, please contact us on sectors@hadefpartners.com