The second solution comes from the Insurance Authority, which encourages competition between the companies and other professions associated with insurance. By competition, we refer to that which is based on the sound technical principles of underwriting, placing new insurance products in the market, and providing the best customer service.
Companies practicing price war policies are subject to the supervision of the IA. When indicators suggest that a company is deteriorating, the IA interferes to protect the rights of policyholders and beneficiaries, as well as shareholders. In this framework, the IA has issued the financial regulations for the activities of traditional and Takaful insurance companies. Abiding by the rules and terms of these regulations is the optimum solution for the price war phenomenon.
Directions and responsibility
Is the IA planning to set new laws to overcome the price war?
The financial regulations have been issued for traditional and Takaful insurance companies. These regulations are directed to the insurance companies to address the provisions that need to be taken in order to face the future responsibilities of the insurance company, as well as the insurance company’s investment policy, solvency margin, and other financial aspects.
We believe that if companies take provisions (including those related to the solvency margin) as per the new financial regulations, it will force the companies that practice price wars to adjust their underwriting policy. Otherwise, precautionary actions will be taken against them to protect the interests and rights of policyholders.
More than 60 companies operate in the Emirati insurance market; do you think that such a large number requires mergers?
The IA encourages the insurance companies operating in the local market (especially small companies) to merge together but it cannot enforce mergers; such decisions are usually made by the companies’ shareholders. However, the financial regulations issued by the IA may encourage the small companies to merge if they can provide the required solvency, as per the regulations.
At this point, I would like to mention that the Board of the IA made a recent decision to suspend the issuing of new licenses that incorporate national insurance companies. The issuing of new licenses for establishing foreign insurance company branches was also suspended.
Many insurance companies sustain losses in health insurance activities due to the very high prices they impose.
I repeat, the company’s Management and Board are the parties to be blamed when losses occur. The results should be studied and the underwriting policy should be adjusted so that they are consistent with the loss rates made by the insurance branch. Furthermore, the company’s insurance portfolio is supposed to include various risks, unless it is specialized in a specific insurance type. Companies which have an insurance portfolio that comprises vehicle and health insurance must calculate the costs accurately; otherwise they will be in trouble.
However, communication will continue with the relevant health agencies in the UAE to control health treatment costs.
How do you evaluate the role of brokerage companies? And to what extent have the decisions contributed to the regulation of the profession?
Decision number (15) of 2013 concerning the insurance brokerage law (and the obligations stated therein) came into effect on 28/11/2014. This law organizes the insurance brokerage profession in the UAE, especially by improving the standard of service provided to the public by technical staff. Basic standards were required for brokerage professionals. At the same time, the decision defined the liabilities related to the required capital, banking guarantees, client negotiation agreements and forms , the document cycle, and the manual of company’s items. In sum, these constituted advanced legal foundations with which to organize insurance brokerage activity.
It is worth mentioning that the IA has recently taken a positive and specific initiative that facilitates procedures allowing companies to adopt the law. It gives brokerage companies the facilities necessary to regularize their status and make certain adjustments to the law. This enables the brokerage companies operating in the UAE to easily regularize their status in accordance with the law’s provisions.
The facilities include granting the operating insurance brokerage companies a grace period in which to complete the prerequisites and provide the documents required to practice the profession (in terms of capital, banking guarantee, professional liability insurance policy, and technical staff) until 31/12/2014. At the same time, a grace period was granted so that companies can complete the supplementary requirements and provide the documents required to practice their profession (in terms of the appropriate office, electronic and technical systems, full separation between the broker’s private accounts and accounts related to the practice, provision of an internal control system, and some items related to the insurance broker’s liabilities toward the IA, insurance companies, clients, and internal statutes) until 31/3/2015.
The Insurance Authority seeks to establish a highly professional and competitive insurance sector
Ebrahim Obaid Al Zaabi asserted that the IA seeks to establish a highly professional and competitive insurance business model, thereby developing the status of the Emirati insurance market as a role model at the regional and international levels. It is thus important to establish insurance activities in the Emirati market on sound legal, technical, and supervisory foundations. Therefore, in 2014, the IA issued financial regulations that organize the financial, investment, technical, and accounting activities undertaken by traditional and Takaful insurance companies. This is considered the most important current step in the field of regulating the work and insurance activities of companies in the local market.
In 2014 the IA also issued the insurance brokerage law, which regulates the activity of insurance brokerage companies as per the legal standards applicable worldwide.
Currently, the IA is working on developing the work of professions associated with insurance by developing a law for licensing and registering the organizations and work of actuaries. It is also working on another law for insurance consultants, and is also working on regulations concerning the licensing of health insurance claims management companies and the organization and control of their businesses. The IA is also designing draft regulations concerning the licensing of foreign insurance companies’ representative offices and the organization of their businesses. Finally, the IA is working on a disclosure manual for insurance companies and other associated professions, draft regulations concerning the insurance policy marketing control through the banks, and others. The IA is currently considering a project to upgrade the legal system governing mandatory vehicle insurance policies.
New controls to organize the companies’ businesses and capital adequacy
The financial regulations that organize the financial, investment, technical, and accounting activities of insurance companies represent an advanced and key step toward organizing the work of traditional and Takaful insurance companies operating in the UAE. Regulations can develop their performance in accordance with the best competitive standards worldwide. They can also boost the legislative and regulatory foundation of the Emirati insurance market, and thus contribute to upgrading its performance and activity in a sound and strong manner. Consequently, the contribution made by the insurance sector to the UAE’s gross domestic product will increase.
Al Zaabi believes that regulations like these aim to regulate the investment, financial, technical, and accounting activity of the traditional and Takaful insurance companies operating in the UAE market. Consequently, this will boost the UAE’s economic growth and protect the rights of Emirati insurance companies’ policyholders and shareholders.
The financial regulations were issued in a compendium of legislation in the form of a single document. This single document included seven key sections that address financial, technical, investment, and accounting aspects. These are: the principles of investing policyholders’ rights, the solvency margin and the minimum guaranteed amount, the rules of calculating technical allocations, how to determine the company’s assets against the insurance liabilities that arise, the instructions concerning the records that the company should create and maintain, the data and records that should be presented to the Insurance Authority, the rules for drafting the accounting books and records held by companies, agents, and brokers, how to determine the data that should be listed in these books and records, and the accounting policies and procedures that should be adopted by insurance companies.
Al Zaabi asserted the importance of increasing the number of Emirati citizens working in this sector, and the importance of training national staff (as well as qualifying them scientifically and technically at all levels). He affirmed the role of initiatives that qualify the staff working in the insurance sector by enabling Emirati personnel working in the sector to receive the highest professional insurance certificate: the London Chartered Insurance Institute fellowship certificate (ACII). The first group of Emirati citizens working in insurance (amounting to 36 employees) was trained. A new version of similar courses will be released soon.