Insurance companies and brokers in the UAE enter a new era this month as a list of 204 prohibited ‘activities’, for which they can be hit with heavy fines by the Insurance Authority, comes into practice.
The penalties became law on 6 April but those regulated by the IA have had around six weeks to correct their regulatory position and get their activities in order, making mid-May a key point in the calendar.
The 204 fines arguably provide the regulator with greater incentive to start going after firms that don’t follow the rules, rather than pursuing regulatory infringements through the courts.
International Adviser spoke to industry experts about the move, which they saw as very much complementary to the efforts the IA has pursued over the past couple of years to tighten up the regulatory environment around the insurance industry and its brokers in the UAE.
“This is now the real teeth behind it,” said Tom Bicknell, a partner at international law firm Pinsent Masons in Dubai.
“They are saying if you don’t comply with the rules there will be financial repercussions.”
There is also a view in Dubai that the move is a further attempt by the regulator to prompt a bit more consolidation across the market, by making it clear that the compliance burden is real and firms may find it easier if they had bigger capital bases and more people with the right expertise.
Big fines for non-compliance
A look through the list of the 204 different activities flags up that some of the biggest fines will be levied on familiar issues.
For example, there is a AED250,000 (€61,000, $68,000, £52,000) fine for any representative of a foreign insurance company that carries out any business in the UAE, or opens a branch, before obtaining a license from the IA.
This one appears to address a long-held bug bear of some of the IA-licensed insurance companies operating in the UAE that they have to compete in the domestic market with rivals that do not have an appropriate licence.
The regulator goes further with a fine for any company which sells insurance products without being licensed and registered with the Insurance Authority.
This fine of AED50,000 is payable for each point of sale.
Clarity call
And, as a basic requirement, any insurer will face a fine of AED30,000 for failing to provide a claimant with reasons in writing for any rejection of a claim, as well as a copy of the documents it has in support of its decision.
There’s a AED20,000 fine if a company fails to comply with the doctrine of disclosure and transparency in their dealing with clients in respect of all the documents, papers, bulletins, advertisements, propaganda and essays and scientific materials used.
The new rules can also be quite specific as, for example, insurers face a fine if they fail to write the policy’s articles exempting the company from any liability in bold letters, using a different colour and featuring an endorsement by the insured.
Branches of foreign insurance companies are also required to publish their consolidated final accounts in two widely circulated daily newspapers issued in both Arabic and English or else there will be AED100,000 fine.
All these fines can be doubled if a violation is repeated within one year of the date of the last violation with a maximum fine amount of AED2m.
Brokers in the cross hairs
For those selling insurance products, the IA will levy one of its heaviest fines of AED250,000 on any person carrying out the operations of any insurance-related profession without obtaining a license and registration from the authority.
And a further one which may ring a bell with existing insurance brokers is the IA’s plan to hit any broker or agent who charges any further amounts or expenses to the net insurance premium specified by an insurance company with a AED250,000 fine .
In these instances, an insurance-related professional is defined as any entity or person that is licensed by the IA to practice as an insurance agent, actuary, insurance broker, loss and damage adjuster, insurance consultant, health insurance TPA or any other insurance-related profession regulated by the Insurance Authority.
And for any insurance company which contracts with a person who is not registered in authority’s Register of Insurance Agents, there’s a AED100,000 fine.
For the life companies offering savings products, there’s also a AED25,000 levy for issuing saving bonds for a period of 25 years or more where the surrender value after the 25th year is less than the full amount of the mathematical reserve.
There are also stiff fines for not providing the Insurance Authority with the required data, documentation, reports and notifications within specified periods of time.
And for any failure to comply with the various regulations applicable to insurance providers and decisions issued by the Insurance Authority, including the UAE Financial Regulations.
Enforcement key
However, the fines will not apply to businesses functioning in the free zones; such as the DIFC, ADGM, DMCC and others within the state, as they are regulated by their own authority.
But the IA does state that if any of those businesses practice their insurance activities outside these zones, then mainland insurance law will be applicable.
Though largely it remains up to the regulators of the free zones to police any onshore activity.
Enforcement is a key issue for the industry though, as the new rules have not been accompanied by any news of greater policing resources for the IA and in the past it’s been this lack of enforcement of existing regulations – which has often annoyed the industry
And on this front, observers told International Adviser that the DFSA’s new head of enforcement Patrick Meaney, who looks over the activities of companies based in the DIFC, has appeared at a few industry events across town in recent weeks to deliver the message the regulator intends to take more action against anyone breaking the rules.
