Fatima Al Awadi Deputy Director General of the Insurance Authority said in an Interview with Al-Bayan Al-iqtisadi: Regulation on Insurance Brokers, Consultants and Re-insurance Operation Prepared
Fatima Al Awadi Deputy Director General of the Insurance Authority said that the year 2012 will witness preparation of many rules and regulations among them a new regulation on organization of the insurance brokers’ operations and another on the insurance consultants and a third on re-insurance standards.
Al Awadi said to Al-Bayan Al-Iqtisadi that the Insurance Authority is closely monitoring the insurance companies departing from the approved technical principles and undertaking to adopt price burning policy, drawing the attention that the Insurance Authority will ask these companies to increase their technical provisions as application of the standard principles of calculating these provisions became insufficient considering the price decrease below the technical level-a matter that means these provisions are insufficient.
Al Awadi assured the necessity that these companies adopting price burning policy to amend it in order not to lose the remaining re-insurance lot whether in the local market or regionally and be forced to go for re-insurers lacking international guarantee.
Al Awadi said that great number of the national and foreign insurance companies in UAE market lead to weaken business and increase competition and thus small insurance companies turn to be unable to attract excellent technical capacities, revealing that the Insurance Authority Board made a decision in previous days stopped granting licenses to new insurance companies except those companies owned by the local governments, assuring that the decision is valid still and at the same time the Insurance Authority is encouraging and urging small insurance companies to merge to create companies capable to go on and develop.
Meanwhile, Fatima Al Awadi assured that Emiratization in insurance sector is on top of the Insurance Authority’s tasks and strategic plans in this respect, drawing the attention that the Insurance Authority’s has been working during the last phase to alleviate Emiratization rate by scientific planning and methodology that assist to secure job stability and enhance attractively of the insurance sector. Here below contents of the discussion;
The Federal National Council discussed draft to amend the law of the Insurance Authority establishment… What are the most important amendments contained in the draft and its complications on insurance sector?
The positive and negative aspects of any laws and regulations could be seen only after being put into effect- Around five years has lapsed since the issue of the Federal Law No (6) 0f 2007 on Establishment of the Insurance Authority and Organization of the Insurance Operations and naturally some legal aspects or the other needed amendment particularly, in an advance field such as the insurance domain.
What are these important rules and regulations under process or review or preparation by the Insurance Authority? When do you expect that to be issued? What are their complications on the sector?
The year 2011 witnessed issuance of many rules, regulations and resolutions aimed at reorganizing UAE insurance market. The said year as well, witnessed preparation of draft rules and regulations to organize the financial aspects of the insurance companies operations as several meetings with insurance company officials were held to discuss these rules and regulations. These rules and regulations will find their way to the Insurance Authority’s Board for sanction. However, the year 2012 will witness preparation of other rules and regulations to organize operations of the insurance brokers and insurance consultants, standards of reinsurance and others.
Some warned against the going on price burning policy and their negative implications on the insurance sector and the relations with the international re-insurance companies. How do you in the Insurance Authority perceive this phenomenon and to what extend that Insurance Authority would work or contribute to find them solutions?
Price burning policy or selling lesser than the cost is a policy surrounded by risks and would lead to put the company in financial troubles. In case corrective procedures are not made at the suitable time, the matter would lead to default and thus the rights of the policyholder would not only be exposed to loss but the most risky would be the rights of the policyholders will be lost.
As for the reason behind the insurance companies adopting such policy, perhaps due to misconception or lack of knowledge which is a dangerous matter and possibly the action is being intentional and this is the most dangerous of all.
The problem in insurance operation as financial service is the actual cost unlike that of goods cannot be known except after consumption i.e. the insurance company sells the guarantee at first and then waits for the insurance term at the end to know the losses - the basic constituents of companies. For that, the company is forced to determine the prices on basis of statistical figures of preceding periods and amend the statistical outcomes by futuristic forecasts.
During the investment peak period which preceded the international financial crisis, the prevailing language is adopting price burning in certain insurance classes which forms stream for the cash flow to be directed towards investments and then attain high investment rates to cover the technical losses and produce rewarding surplus, incidents proved that such policy was wrong when the investment returns evaporate and at the same time insurance operations attained painful losses due to such policy.
Whether adoption of the policy was intentional or unintentional, serious results emerged due to that and we have already referred to some.
The Board Responsibility:
Concerning the second part of the question which is the optimal solution, the first responsibility in this respect lies on the shoulders of the company management then on the company’s board of directors and then follows the general assembly of the company as the rules of corporate governance require incorporation of an internal supervision committee. The committee is supposed to verify loss ratio in each class of insurance separately and file its reports to the company’s board. The board in its turn should follow up this important issue on quarterly basis and instruct the company to correct the path. Rather, the general assembly of the company has the right to discuss the issue in case there are indicators that the path is leading to a halt. Therefore, I find no excuse to waive all these bodies from the responsibility.
As for the Insurance Authority, the official body responsible for stability of the market and protection of interests of the insurance consumers and policyholders and the beneficiaries of these companies departing from the approved technical principles. The Insurance Authority will first question the company management about their loss ratios and in case the graph goes up greatly and continuously, the management of the company should provide the Insurance Authority with the reasons and procedures it will make to correct the situation and perhaps, the matter might be drawn to the attention of the board.
The Insurance Authority as well, will ask these companies practicing price burning to increase the technical provisions because applying the standard basis to calculate these provision is no more sufficient considering the price decrease below the technical limit which means these provisions are insufficient.
There is another entity which is concerned indirectly with the issue of pricing i.e. the international re-insurance companies which are normally studying the pricing policies adopted by the insurance companies and present proposals to amend the policy or impose certain limitations in the re-insurance agreements and this might lead them to withdraw from dealing with the insurance companies.
Price Burning Policy:
Some officials in insurance sector spoke about severity of re-insurance companies in their 2012 contractual terms due to the ongoing price burning policy and thus increased the size of risk…How do you see validity of this and its implication on the insurance market performance in 2012?
Severity sometimes and flexibility some other times is normal phenomenon in the international market of re-insurance. The reasons are many and are not limited to price burning. This, however, stands as warning for the insurance companies adopting such policy as re-insurance companies are commercial companies aiming at realizing profits as the case with the conventional re-insurance companies are ready to bear losses with the insurance companies for a year or a couple of years . If the graph of the loss ratio is escalating from a year to another, the companies are not expected to support the insurance companies unless they amended their pricing policies.
Did the Insurance Authority make sure of the withdrawal of many re-insurance companies from UAE market and what the consequences if such withdrawal is true on UAE insurance sector and its reputation and who are those happened to withdraw in fact?
Increase or decrease of the number of the international re-insurance market depend upon these companies’ strategies, plans and interests and not necessary for reason of the issue of prices. For example, its noted during the past period that some re-insurance companies withdrawal from Gulf and Arab insurance markets due to multiple reasons; some related to losses because of natural disasters in non-Arab countries and some related to their wish to put certain limitation in insurance.
However, there are other international re-insurance companies filled the gap happened due to such withdrawal in the manner that it’s possible to say it never come to our knowledge that some insurance companies remained coverless after January 1, 2012.
If the matter as so, the management of the companies adopting price burning policy need to adjust their policies in order not to lose the remaining portion of the re-insurance whether locally or regionally or be forced to insure with companies have no international guarantees.
Non-Licensing new insurance companies:
Experts warn against the excessive going on policy of establishing new insurance companies in a relatively small market such as that of UAE. What is your policy in this respect?
The number of the national and foreign insurance companies in UAE insurance market amount to 61 companies and this is big number in comparison to the insurance market size and this means fragmenting the business, increasing competitively, and inability of small insurance companies to attract excellent technical capacities; a matter that would lead the companies to make some mistakes.
For that, the Insurance Authority’s Board at previous times made a resolution stopped granting new insurances companies (national or foreign) licenses except the companies of the local government is in force still. On the other hand, the Insurance Authority is encouraging and urging small insurance companies to merge in order to create companies able to life and develop.
It’s noted that unlicensed insurance brokers are in existence and carrying out insurance activities in the local market. How many brokers being written off by the Insurance Authority during the last period? And what is the arrangement or procedures made by the Insurance Authority against the violators?
The number of the insurance brokers is currently in the market 170 brokers after writing off 74 brokers registered with the Insurance Authority because they failed to adjust with the terms and conditions provided for in the Ministerial Decree of December 25, 2009. As for these individuals carrying out insurance brokerage operations without obtaining licenses from the Insurance Authority, the Insurance Authority’s inspectors watched over them and make the necessary procedures against them.
We call the public to make sure that the brokers they intended to deal with are licensed by the Insurance Authority because dealing with unlicensed brokers might expose their interests to risk. The insurance companies from their side are unauthorized to deal with unlicensed brokers.
To what extend the brokers are complying with the regulations on organization of the complaints field against some of them if available?
The local market encompasses number of excellent insurance brokers whether technically or financially and maintains good relations with both the public and the insurance companies.
However, considering the great number of the insurance brokers operating in the market these are many remarks available with us about some broker far away from insurance business. This matter is a negative sign mismatching with UAE insurance market reputation.
For that, the Insurance Authority is currently working to prepare new draft regulations to organize the insurance brokers operations in order to alleviate the level of this profession which represent an important marketing stream to the benefit of the public from one side and the interests of the insurance companies from the other side.
Emiratization is a priority:
Some say UAE national are refraining from work in insurance sector for two reason some belief insurance violates Sharia teaching and the second related to the working hours, salaries and difficulty of work… what’s your comment?
In the beginning we would like to indicate that Emiratization of local insurance sector is on top of the Insurance Authority’s work priorities and its strategic plans during the next year in a manner that is in line with the decision of the judicious leadership and the government strategy in this respect. Starting off these priorities the Insurance Authority worked during the last period to alleviate and change Emiratization rate through planning and scientific methodologies that assist to secure job stability and enhance attractively of work in the local insurance market by issuing different laws and regulations to aid in increasing the number of UAE nationals working for the insurance companies in UAE and contribute to expand the platform of training and rehabilitation and provide the national employee with the most modern scientific and professional methods and means adopted worldwide in a manner that raises the professional and educational level of the national cadres working for the insurance companies.
In respect of the reasons you mentioned concerning refrainment of the national from joining insurance sector these are three categories:
First: in respect of the noble Sharia stand concerning insurance operations: we say there takaful insurance companies operating in compliance with sharia teachings and thus the road is open ti join them and the problem is solved for those refraining for such cause.
Second: Salaries issue: we would like to indicate in this respect that there is special scale for the employee with certain features and that 2012-2014 Emiratization plan might contain some other incentives we hope they might stand encouraging factors for the nationals to join the insurance sector.
Third: Working hours and difficulty of work: We would like to indicate that UAE male and female youth have joined fields more difficult than insurance and proved to be efficient and capable. As for searching for short working hours and work without difficulties, I hope this is not the end goal of our brothers and sisters, as difficult fields should place challenge for the nationals and an incentives to prove they are capable.