Regulations Governing Insurance Brokers

Insurance is one of the leading industries in the United Arab Emirates (UAE). It generally comprises the Insurance Companies, Insurance Brokers and the customers who avail their services. Insurance Brokers are individuals who specialize in insurance and risk management. Insurance brokers act as a link between clients and insurance companies, with an aim to find the best deal to suit their clients’ needs. In the UAE, the insurance sector is mainly regulated and supervised by the Insurance Authority established in 2007 in accordance with Federal Law No. 6 of 2007. To practice insurance brokerage in the UAE a company needs to obtain a license from the Insurance Authority which is valid for one year and is renewed on a yearly basis. As per the Insurance Authority, in order to obtain a license, a company has to fulfill certain requirements:

1. The applicant must be a company incorporated in the UAE under the Commercial Companies Law or a branch of a company incorporated in a foreign country or in a financial free zone in the UAE.
2. It should also be subject to the same level of regulatory authority and have been in practice for a period not less than five years.
3. provision of a suitable headquarters, technical systems and software required to practice the activity.
4. An internal control system for ensuring proper application of the regulations, laws, circulars and resolutions issued by the IA from time to time. The agreement between the license applicant and a bank operating in the UAE concerning the account designated to the practice of Insurance Brokerage must be submitted.
5. The prescribed fees must be fully paid, and the company must comply with any additional requirements or conditions determined by the IA.
6. The insurance broker has to submit an unconditional bank guarantee (Letter of Guarantee) payable on demand to the Insurance Authority chairman of the board of directors that can be liquidated fully or partially at any time in order to guarantee the settlement of the broker’s transactions, obligations and issues arising from his practice toward the insurance companies and his customers.
7. The insurance broker must obtain an insurance policy in favor of the Insurance Authority chairman of the board of directors covering the broker’s professional liability. The value of this policy must be at least AED 2 million for companies incorporated in the UAE and AED 3 million for a branch of a company incorporated in a foreign country or in a financial free zone in the UAE.

Furthermore, the technical staff of the insurance broker firm also has to abide by certain requirements of the Insurance Authority:

1. The insurance Broker must have at least a general manager, operation manager, internal auditor and at least one specialized employee for each type of insurance.
2. The insurance authority further stipulates specific requirements for each of the said employees and the person responsible for the branch.

 

Interestingly, Insurance brokers can not be held responsible for the default of either the insurance companies or the clients when it comes to meeting their financial obligations. The brokers are only liable when they fault in delivering the premiums paid by the clients to the insurance providers. In 2020, Insurance Authority released new Draft Regulations (The Draft Law) regarding the Insurance brokerage and introduced new electronic procedures.

 

Major modifications include: 

General Provisions– 

The insurance brokerage is obliged to fulfill and maintain its financial solvency requirements in accordance with the conditions specified in the Draft Law, throughout the entire period in which it is licensed, guaranteeing its continued fulfillment of obligations in accordance with the rules and regulations enforced by the IA. Letter of Guarantee (LOG)- This Draft Law has also changed the definition and significance of LOG and the extent of its necessity. A new policy has introduced an alternative to LOG, under the name Guarantee Insurance Policy (“GIP”). Now the LOG can be described as, “ value may not be less than (AED 3,000,000) three million Dirhams for companies incorporated in the UAE and (AED 1,000,000) one million Dirhams for any branch thereof. For the branch of a foreign company or companies incorporated in any financial free zone, its value may not be less than (AED 5,000,000) five million Dirhams for the branch and (AED 3,000,000) three million Dirhams for any additional branch thereof in the UAE.” 

 

Guarantee Insurance Policy-

As mentioned above, the GIP has been introduced in the new Draft Law providing an alternative to the LOG, with the following conditions that shall apply to the policy:

1. issued by a licensed and registered insurance company with the Insurance authority, and after its conditions have been approved by the IA; and
2. issued in the name of the insurance broker in favor of the Chairman of the insurance authority or a Board of Directors in his capacity; and
3. unconditional, unrestricted, payable on demand, by the IA, at any time and may only be canceled under a written consent of the IA; and
4. issued for the purpose of guaranteeing the settlement of the Insurance Broker’s transactions and meeting their obligations arising from practicing Insurance Brokerage towards companies, clients or beneficiaries, or in implementation of the IA’s decisions; and
5. valid throughout the license term and applicable to the annual renewal of the license. The Insurance Brokerage activity may not be practiced unless such policy is available and valid; and
6. that the sum insured may not be less than (AED 3,000,000) three million Dirhams for companies incorporated in the UAE and (AED 1,000,000) one million Dirhams for any branch thereof. For the branch of a foreign company or companies incorporated in any financial free zone, its value may not be less than (AED 5,000,000) five million Dirhams for the branch and (AED 3,000,000) three million Dirhams for any addition branch thereof in the UAE; and
7. that the sum insured is proportional to the size of the business risks carried by the broker, so that it is in no way less than 10% of the previous year’s turnover, for the company incorporated in the UAE, and 10% of the turnover by each branch that belongs to it. As for the branch of the foreign company or the branch of the company established in a financial free zone, the sum insured shall not be less than 20% of the previous year’s turnover in Emirati dirham and 20% of the previous year’s turnover for any other additional branch within the UAE

 

Electronic Procedures-

The implementation of the electronic procedures has also been introduced in the Draft Law. As per the aforementioned modification, broker is required to develop and operate its website or smart application by setting standard technical interfaces through (Web Services) to ensure the:

1. electronic exchange of basic customer information with the insurance company’s technical systems,
2. provide the customer with an offer for the insurance policy, the payment mechanism, and the policy information once issued by the insurance company.

 

Organizational Structure– 

Even the organizational structure of the insurance brokerage firms has been modified, in terms of qualification and expertise:

1. The Director General or CEO should hold a university degree in insurance, financial sciences, law or insurance-related sciences or equivalent, or the ACII certificate accredited by the Chartered Insurance Institute of London, or a certificate accredited by a similar professional institute.
2. The Operations Manager should hold a university degree or equivalent in financial sciences, accounting management sciences banking or law, as a minimum or the ACII certificate accredited by the Chartered Insurance Institute of London, or a certificate accredited by a similar professional institute.
3. The Compliance Officer should hold a professional certificate in auditing or equivalent as a minimum or a university degree in financial sciences, accounting, management, or law and have a minimum of three (3) years’ experience in insurance or insurance brokerage.
4. The broker must have at least one specialized professional for each licensed insurance type / class who shall meet the requirement of an accredited university degree or the Dip CII certificate from the Chartered Insurance Institute of London, or a certificate accredited by a similar professional institute.
5. The insurance product sales employee must have a high school diploma, as a minimum, hold the Cert CII from the Chartered Insurance Institute in London or a certificate accredited by a similar professional institute and must not have previously terminated his services with any control authority for disciplinary reasons.

 

Penalties that can be imposed on the Insurance broker:

The insurance agency may cancel the Insurance Broker’s license in any of the following cases:

1. Losing any of the license conditions as stipulated in the Regulations.
2. Gross breach of any of the obligations and duties.
3. Failure in renewing the license, or in paying the annual renewal fees or prescribed delay fines.
4. Issuance of a final court judgment declaring the Insurance Broker bankrupt.
5. The liquidation and dissolution of the Insurance Broker.
6. When the Insurance Broker fails to practice the licensed activity within six months from the date of obtaining the license.
7. When the Insurance Broker fails to practice the activity after a suspension period.
8. When it is found that the license was granted on the basis of invalid information or data, or based on an undertaking that has not been implemented as determined by the IA.

Moreover, if the insurance brokers further violate the law, regulations, instructions, resolutions or circulars issued by the Insurance Authority, a warning can be issued to the broker asking him to take necessary actions to rectify the breach and prevent recurrence or the insurance broker may be suspended from practicing for a maximum period of one year. To get assistance in registering for a broker license, you could connect with our legal team at Fotis.