The disruption caused by COVID-19 has had a wide-ranging effect on the world economy and the overall economic slowdown and disruption in the market has impacted the insurance sector as well, but the UAE insurance market seems to have emerged resilient and is continuing to grow year on year. Market reports state that Loss Ratios continue to present a positive outlook and the total comprehensive income for the first quarter of 2021 shows an increase of 200 per cent for the corresponding period from the year 2020.
Insurance in the UAE is primarily regulated under the Federal Law no. 6 of 2007 concerning the Establishment of the Insurance Authority and Regulation of Insurance Operations (the Insurance Law). The Insurance Law sets out the requirement for an entity to be able to carry out insurance business in UAE and sets out that such entity must be either a UAE public stock company, with at least 51 per cent of capital held by UAE or GCC Nationals, or legal entities fully controlled by UAE or GCC Nationals; or a branch of a foreign insurer. While no official announcements have been made, there has been a moratorium on issuance of new licenses, whether for a locally incorporated company or a branch for the last few years.
The Insurance Law established the UAE Insurance Authority which was the Federal regulator for insurance across the different Emirates in the UAE. This has recently changed, with the insurance regulator merging with the UAE Central Bank (the Authority), creating a unified regulator for entities across the financial sector, banks, financial institutions, and insurance sector. There are currently 62 registered and regulated insurance companies, of which 35 are national and 27 are branches of foreign insurance companies. Within the 62 companies, 17 companies (15 national and 2 foreign companies) are licensed to carry out all insurance activities (including life, property, and liability insurance); 32 companies (15 national and 17 foreign) are licensed for property and liability only; and 12 companies (3 national and 9 foreign) are licensed to provide life insurance only. With the population of country at around 9 to 10 million, there are way too many insurance companies and the Authority has now and again stated the need for consolidation in the market.
Within UAE there are also financial freezones, Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which allow insurance/reinsurance intermediaries and companies to be set up, but these freezones are considered as foreign jurisdiction and as such, entities based in DIFC and ADGM are not allowed to carry out any direct insurance business in the UAE. DIFC and ADGM have their own Insurance framework and regulator - the Dubai Financial Services Authority (DFSA) and Financial Services Regulatory Authority (FSRA). The regulations in these jurisdictions are modelled on the previous United Kingdom Financial regulator, the Financial Services Authority, and the insurers and reinsurers operating in these financial freezones must be authorised by the home regulator. Such insurers can only write (directly) insurance for entities situated or risks arising within the financial freezone and/or outside the UAE. The reinsurers based in these freezones are allowed to provide reinsurance capacity for UAE onshore risk as is the case for the overseas reinsurance market.
As with the trend across the region, the UAE insurance market is led by the compulsory classes of insurance, motor, and health, the latter of which is compulsory across Dubai and Abu Dhabi and the former compulsory in all UAE. Health insurance is also regulated by the health regulator of the respective Emirate, the Dubai Health Authority (DHA) and the Department of Health Abu Dhabi (DOH), which set out its own regulatory regime which every insurer and insurance intermediary must adhere to when dealing with health insurance in these Emirates. As a COVID relief measure, the insurance regulator instructed insurers to offer discount on motor insurance premiums, specifically to those belonging to critical sectors and who continued to serve the wider population even during the lockdown. In spite of the discounted premiums, the lockdown resulted in a lower number of accidents on the road, thus increasing profitability of the motor insurance book. Similarly, during the lockdown, except for COVID related cases, only emergency cases were allowed to visit or be admitted to hospitals and clinics, leading to lower utilisation of the medical policies and increased overall profitability.
Life insurance remains a largely untapped market. A lot of blame for this is generally attributed to the population demography, more than 90 per cent of the population being expatriates who are, by and large, considered a transient population with little appetite for long term insurance contracts. However, the international life insurance market has more recently seen a number of new products being developed, some specifically for expatriates who move between countries, and the demand for life insurance both from the international markets and from the local UAE based insurers is growing. What has, however, hampered the otherwise traditional life and investment insurance market are the spate of regulatory changes in the recent couple of years, focused on the life insurance market. We are setting out below a brief summary of some of these important changes, in a chronological order:
Unlike other mature markets, the products currently being offered in UAE by the local insurance companies are the traditional products which are structured with heavy pay-outs for the intermediaries at the beginning of the policy itself; the customer feels the repercussion of this practice as such commissions undermine the performance of the product. The UAE Law provides that UAE-based risks must be insured only by a locally licensed insurer, but it is common practice in UAE for international life insurance companies licensed in overseas markets to sell life insurance/investment in the UAE. While they continue to operate in the grey area, the bigger question to be asked is: can the locally licensed insurers step up and provide similar products/pricing to the customers?
There is a need for a complete overhaul of the current offerings in the market and the manner in which these products are sold. The regulatory changes are a step in the right direction for driving this change, but the market forces need to come together to make UAE a destination for attractive investment and life insurance products.
Anand is a Senior Associate in the Insurance & Reinsurance Practice of BSA Ahmad Bin Hezeem & Associates. He is a corporate lawyer with over 10 years of experience within the insurance domain, focused on non-contentious advisory and transactional work across the Middle East. Anand is ranked as Notable Practitioner in Chambers and Partners for Fintech Practice and Insurance & Reinsurance; and is consistently recognised as one of the go-to lawyers for India related work by India Business Law Journal. He is regularly featured in magazines and newspapers in the UAE on insurance related publications.