Insurance Broker Regulations 2024 issued – What You Need To Know

The Central Bank of the UAE (“CBUAE”) has issued the new “Insurance Brokerage Regulation” on 25 July 2024 (the “Regulation”), which repeals previously issued regulations and guidance for insurance brokers.

The Regulation will be effective six months from the date of publication in the UAE gazette, and we expect this to come into force by the end of January or February, depending on when it is published. The CBUAE has instructed all insurance brokers and insurers to adjust their operations to comply with the Regulation within this six-month period.

The Regulation brings significant changes in the way insurance brokerage is set up and currently operated. “Insurance Brokerage” is now defined as an activity that involves soliciting, negotiating, or selling insurance or reinsurance contracts, thereby attempting to remove the otherwise grey area in which some non-regulated entities operated, as referral/introducer etc. Here are some noteworthy changes:

1. Categorisation of brokerage license – The Regulation has segregated the insurance broking license into three categories, one for primary insurance, the second for reinsurance, and third for composite insurance. This opens the door for those looking to carry out only reinsurance activities, as they would presumably not have the same level of regulatory requirement as those carrying out primary insurance.
2. Prohibition on collection of insurance premium – The Regulation states the premium collection from the insured remains the responsibility of the insurance company and not insurance broker. Moreover, insurance brokers are no longer able to collect premium for any line of business. In view of this prohibition, the application of escrow requirements to insurance brokers, which were issued by the CBUAE in 2022, may be in question.
3. Payment of commission – Insurers must make commission payments to the insurance brokers within 10 business days from the receipt of the premium. Where premium is paid in instalments, the broker’s share of proportionate commissions must be paid in a similar manner.
4. Minimum Capital/Bank Guarantee – These two requirements have now been separated. While the minimum capital and bank guarantee requirements for insurance brokers and foreign branches remain unchanged, it has been clarified that the bank guarantee is in addition to the minimum capital requirements. This raises the question of whether brokers will now need to maintain these two separately and how this will impact the balance sheet of the existing brokers. This is yet to be fully clarified.
5. Appointment of external auditors – All insurance brokers are required to appoint external auditors who are listed and approved by the CBUAE.
6. Not to issue policies or endorsements – All insurance policies, amendments, as well as endorsements, must only be issued by insurance companies, which will impact the way pre-underwritten products are currently issued by some of the market stakeholders. The only exception is regarding insurance certificates for motor insurance, if mutually agreed.
7. Corporate Governance Policy – Insurance brokers are now required to implement a comprehensive corporate governance policy. This policy must detail the internal structure, management practices, and procedures to ensure transparency, accountability, and ethical behavior within the organisation. This new requirement expands on the previous obligation to maintain risk management and internal control policies and mandates that brokers establish a Corporate Governance Policy covering all aspects of management, control, and operations.
8. Financial Soundness – If the net equity of an insurance broker falls below 100%, it must inform the CBUAE immediately along with a plan to re-establish it, within 15 days of falling below the required level. Additionally, an insurance broker is not allowed to do any new business until it re-establishes the required net equity position but must continue to service its existing clients throughout this period.
9. Outsourcing Requirement – The Regulation requires insurance brokers to seek CBUAE’s no objection for outsourcing material business activities. What is considered a material business activity has not been defined, but arguably, this would include any activity which negatively impacts the brokers if disrupted. In addition to this, insurance brokers are prohibited to outsource any of their activities outside of the UAE. It is not clear how this will affect overseas brokers who would often rely on their head office for shared services.
10. Offering Discounts – Insurance brokers are prohibited from offering any form of discount to their customer from their commission/remuneration received from the relevant insurance company. They are required to implement the insurer’s underwriting guidelines, and any discounts offered to their customers should come directly from the relevant insurer.
11. Cyber security and data retention – Under the Regulation, the insurance brokers are required to maintain adequate policies and procedures to identify, prevent and resolve any data security breaches and protect personal data of their customers. All personal data must be stored in the UAE and such data should be backed up safely and retained for a minimum period 10 years.

The changes introduced under the Regulation highlight the CBUAE’s commitment to enhancing the stability, transparency, and fairness of the insurance brokerage sector. Interestingly, these regulations state that the CBUAE may take a prudential approach on certain matters i.e., will apply the principle of proportionality in the application of the regulation.  The CBUAE will decide on the extent to which an insurance broker is expected to meet the requirements, i.e., lesser requirements may apply, if the insurance brokers are able to demonstrate based on the nature, scale, and complexity of their business, that the overall objectives of the regulations are met without necessarily addressing all of the specifics cited therein.

How can we help?

The Insurance team at Al Tamimi & Company is well-prepared to provide guidance on the new requirements introduced under the Regulations. We can conduct impact analysis and assist in developing systems to manage ongoing legal and compliance requirements, including those related to corporate governance, cyber security and data privacy. For more information or assistance, please contact Anand Singh or Veena Shankar.