The Central Bank of the UAE (CBUAE) has issued the new "Insurance Brokerage Regulation 2024" that will come into force on 15 February 2025. Several new provisions are introduced to improve governance in areas like claims settlements, brokers' remuneration and the collection of premiums. The new Regulation repeals Insurance Brokerage Regulation 2013.
Ahead of the implementation of the Regulation, the international law firm HFW posted a briefing note on its website about the implications of the new rules.
Among new requirements, insurance brokers will be prohibited from collecting claims settlements; these must be paid directly by the insurance companies to the policyholders. This prohibition only applies to primary (direct) insurance operations; reinsurance operations are exempt and are subject to the terms of any reinsurance brokerage agreement.
Insurance companies will pay remuneration to insurance brokers directly rather than the latter deducting this from premium. Insurance companies may not communicate directly or indirectly with policyholders who are clients of the insurance broker (whether at inception or renewal) to deprive insurance brokers of remuneration.
Insurance companies must pay the agreed remuneration to the insurance broker within the deadline specific in the applicable Insurance Brokerage Agreement, which must not exceed 10 business days from receipt by the insurance companies of premium payments.
The Regulation expressly provides that premium collection is the responsibility of insurance companies, not insurance brokers. Indeed, the Regulation provides that insurance brokers are now prohibited from collecting insurance premiums from clients under any circumstances; premiums must now be paid directly by clients to insurance companies. [The UAE Maritime law requires policyholders to transfer premium to brokers (if a broker is involved) with the broker responsible for transfer to the insurer. The Regulation does not specifically repeal these provisions and further clarification may be required from the CBUAE in due course.]
Likewise, insurance brokers are prohibited from collecting premium refunds, these must be paid directly to policyholders by insurance companies.
HFW says that in implementing the Regulation, the CBUAE is moving to an objectives-based approach, being: (i) “fair treatment of clients“; (ii) “ensuring the safety, soundness and efficiency of the insurance industry”; and (iii) “promoting the reliability and efficiency of Insurance Brokerage operations, as well as public confidence in the insurance industry“.
Given the focus on objectives, the CBUAE recognises that there needs to be a degree of flexibility in interpretation. The Regulation expressly provides that the CBUAE will “apply the principle of proportionality in the application of the Regulation“, taking into account factors such as the nature, scale, and complexity of the business of the particular insurance broker. As a result, the CBUAE may determine that objectives have been met even if all of the specifics of the Regulation are not complied with. However, this will be determined on a case-by-case basis.
HFW said, “Notwithstanding this flexible approach, given the changes to the previous regulatory position, several of which will likely have significant impact on the way in which insurance broking business in the UAE is carried out, insurance brokers and insurers alike should familiarise themselves with the key elements of the Regulation.”
HFW provides several other highlights of the new Regulation:
Licences
The Regulation provides for three categories of Insurance Brokerage licence:
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Primary insurance operations;
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Reinsurance operations; and
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Composite insurance operations i.e. primary insurance operations and reinsurance operations.
Capital
Minimum capital requirements to apply for a licence to operate in the onshore UAE remain unchanged at:
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AED3m ($816,770) for Insurance Brokers established in the UAE; and
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AED10m for an onshore UAE branch of brokers that are either established in financial free zones or are foreign brokers. The CBUAE retains the power to impose greater requirements.
Aside from the first year of licensing, insurance brokers must always ensure to keep their net equity at 100% of paid capital at a minimum. Further, liquid assets must also not be less than 100% of current liabilities and cash must not be less than 25% of net liabilities. The bank guarantee does not form part of the assets that can be used to satisfy capital requirements.
Insurance brokers must notify the CBUAE immediately if their net equity position falls below 100%. A plan to re-establish the net equity position to the required levels within 15 days from the breach must also be submitted to the CBUAE. Until the required net equity position is re-established, an insurance broker is prohibited from carrying out any new business but must continue to service its existing clients throughout this period.
Bank guarantee
Bank guarantee requirements to apply for a licence to operate in the onshore UAE remain unchanged at:
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AED3m for insurance brokers established in the UAE plus AED1m for each additional branch; or
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AED5m for insurance brokers established in Financial Free Zones or as branches of foreign brokers plus AED3m for each additional branch. The CBUAE retains the power to revise the amount required.
Role
Insurance brokers may not combine their role as insurance brokers with the role of any other insurance related profession (as-defined within the Regula ion), nor may insurance brokers be partners or agents of any other insurance broker.
Click here to read HFW’s briefing notes and here for Insurance Brokerage Regulation 2024.