Thursday, July 3, 2014
As part of preparations to adopt changes by the end of November 2014,
The Insurance Authority organizes an awareness seminar on the subject of insurance brokerage regulations
Abu Dhabi on July 2, 2014
The Insurance Authority organized an awareness seminar on the resolution concerning insurance brokerage regulations and the regulation of insurance brokers' works (number 15) issued by the IA at the end of 2013. The seminar was held in the IA’s office in Dubai and was attended by many brokers and other people interested in the business of insurance.
This seminar comes as part of the seminars and induction workshops held by the IA to inform insurance brokers and the market of the new regulations and the requirements listed therein. All workshops are held in preparation of making these rules effective on November 28th, 2014.
The seminar involved instructors drawn from the IA’s specialized experts and featured constructive dialogue and discussions. The seminar began by presenting an overview of the general terms stated in the regulations, which are applicable to all insurance brokers working in the UAE. The opening remarks noted that nobody is allowed to practice insurance brokerage in the UAE without having a license from the IA that is renewable every year.
The insurance broker may combine brokerage business in personal insurance and funds accumulation operations on the one hand, and brokerage of property and liability insurance on the other hand, provided that both classes of business are completely separated. An insurance broker may be specialized in any one insurance type or insurance class, and may practice insurance brokerage and reinsurance brokerage, provided that separation is maintained between both capacities (insurance broker/reinsurance broker) for the same operation and entity one is working for. An insurance broker may not combine his role as an insurance broker on the one hand and the role of an insurance agent, insurance consultant, loss inspector and adjustor, or actuary on the other hand. Furthermore, an insurance broker may not be a partner or an agent of any other insurance broker.
The attendants asserted that the issuing of these regulations represented an advanced step toward regulating the insurance brokerage profession in the UAE. Regulations help to develop the performance and work of the role in accordance with the best competitive standards and the standards used to control professional practice. This can lead to the thriving of the insurance brokerage profession and the improvement of brokers’ working environments, in a manner that ensures having qualified brokers and protects the interests of all relevant parties.
The seminar addressed the requirements of licensing an insurance brokerage practice. The requirements state that the insurance broker should be a corporate person that takes the form of a company incorporated in the UAE (in accordance with the Commercial Companies Law), and that company must have the objective of practicing insurance brokerage activity. The corporate person may also be a branch of a company incorporated in a financial free zone in the UAE, or may be a branch of a foreign company (provided that that company is licensed to practice this activity in the aforementioned financial free zone or in their country of origin in the same insurance type and class). All companies should be subject to the control of a counterpart supervisory authority, and have a minimum of five years of practice in insurance brokerage.
According to the regulations, the capital paid may not be less than three million Dirhams (AED 3,000,000) for an insurance company incorporated in the UAE and ten million Dirhams (AED 10,000,000) for a branch of a company incorporated in a financial free zone or the branch of a foreign company. The insurance broker must submit a letter of guarantee to the IA for their approval, showing that they have no less than three million Dirhams (AED 3,000,000), plus one million Dirhams (AED 1,000,000) for each affiliated branch for the company incorporated in the UAE. Any other branch in the UAE controlled by a foreign company or a company branch incorporated in a financial free zone must demonstrate that they have five million Dirhams (AED 5,000,000) and three million Dirhams (AED 3,000,000) respectively.
Licensing requires the submission of a professional liability insurance policy that covers [D1] the IA. The policy must be issued by a company licensed and registered in the UAE, and must be in the name of the insurance brokers. These measures are necessary to gain the approval of the IA's chairman in his capacity, and thus guarantee the civil liability arising from the practice of insurance activity. Approval will be effective throughout the license term. The insured sum under the policy may not be less than two million Dirhams (AED 2,000,000) for companies incorporated in the UAE, provided that the deductible amount does not exceed thirty thousand Dirhams (AED 30,000) for each accident. For the branch of a foreign company or companies incorporated in any financial free zone, the insured sum under the policy may not be less than three million Dirhams (AED 3,000,000), provided that the deductible amount does not exceed fifty thousand Dirhams (AED 50,000) for each accident.
As per license requirements, an internal control system must be in place to ensure the sound application of laws, regulations, instructions, resolutions and circulars issued thereunder. Technical and administrative staff are required and must be appointed when practicing insurance activity. The insurance broker must at least appoint a General Manager or a Chief Executive Officer, an Operations Manager, an Internal Auditor, and at least one specialized employee for each licensed insurance type or class.
Obligations of the Insurance Broker toward the IA
The insurance brokerage regulations define the obligations of the insurance broker toward the IA. Most importantly, each broker must open a separate bank account with one of the banks operating in the UAE, and full separation must be maintained between private accounts and accounts related to the insurance brokerage practice. The requirements include refraining from receiving any interest on the funds deposited in the insurance brokerage business account, maintaining the financial solvency required to practice insurance activity, abiding by the limits of the insurance types and classes licensed, and refraining from management or bearing any insurance risks.
The obligations include concluding at least two insurance brokerage agreements with companies within 60 working days after the license date. Insurance brokers must not depend only on one company, and must maintain their records, documents, accounts and financial statements for a period of 10 years. The IA must be provided with signed quarterly and annual reports. All brokers must abide by the laws and any resolution or instructions concerning anti money-laundering and the prevention of terrorism financing, as well as all other rules, procedures, and regulatory requirements.
Obligations of the Insurance Broker toward the Company
The insurance broker’s obligations towards the insurance companies include the signing of an insurance brokerage agreement with each company it deals with, to guarantee the rights and obligations of each party without prejudice to the terms of these regulations. Each agreement must include a provision authorizing the Insurance Broker to issue insurance policies on vehicles and allowing them to receive due compensation.
Brokers are obligated to provide customer information and data to the company and must follow up on the collection of insurance premiums in all types and classes of insurance licensed to be practiced by the insurance broker. All insurance premiums must be received from the customers, except for the insurance premiums related to insurance types and classes (which should be paid directly by customers to the company before depositing them in the company's account). Brokers are obligated to deposit the received insurance premiums into the designated account and must transfer the received insurance premiums to the company. The letterhead of the company must not be used for one’s own correspondence, and one should refrain from seeking the cancellation of an insurance policy issued by the company through another insurance broker with the aim of re-issuing it again themselves.
The Insurance Broker’s Obligations towards the Clients
The insurance brokerage regulations set many obligations for insurance broker toward their clients. A written authorization must be signed with all its clients to authorize the broker to perform their insurance brokerage business, the client’s freedom to withdraw or cancel the authorization must not be restricted, technical advice and consultation must be provided, the interests of the client must be observed when selecting the insurance company, clients must be informed of all the details of the insurance policy, and the importance of disclosing essential and fundamental information must be explained when submitting an application for insurance. Any subsequent changes must be disclosed during the term of insurance policy and the insurance premium payment mechanism must be explained.
Rights of the Insurance Brokers
The insurance brokerage regulations set the rights of insurance brokers. Most importantly, the company may not directly communicate with the client that authorized the insurance broker, unless this is the client’s written desire. Furthermore, the company may not offer different conditions and rates for the same insurance transaction to another insurance broker, unless the other insurance broker provides different information that influences the company’s decision regarding their conditions and rates.
As part of the IA's endeavors to create strong and competitive insurance entities, the insurance brokerage regulations designated special provisions concerning mergers which can be carried out by means of annexation or combination. A merger may only be carried out after obtaining the approval of the IA and the competent authority as stipulated in the Commercial Companies Law, according to the form resulting from the merger. The regulations set certain obligations of the merger itself and the merged insurance brokers.
When they were issued, the regulations awarded the insurance brokers that were registered in the IA's records a grace period of one year to adjust their status to meet the terms stated in the new regulations. The term was judged to be an adequate and suitable period in which to adjust one’s status. The term also represents an incentive for brokers who do not have the technical and financial capabilities required for a merger.
The regulations set a series of penalties in case the insurance broker violates the terms of the law, along with relevant regulations, instructions, resolutions or circulars issued thereunder. Furthermore, the regulations set the procedures and conditions relevant to complaints.
In the conclusion of the seminar, the brokers and attendants delivered their thanks and appreciation to the IA, as it had given them the opportunity to develop their knowledge and experience of the new regulations governing insurance brokers.
They pointed out that the seminar deepened awareness on the terms of the new regulations and explained many points and items. Attendants noted that the idea of organizing awareness seminars on the laws and regulations issued by the IA is a new and good way to boost awareness, as it optimizes one’s application of the issued law and regulation items.