Federal Law No. (48) 2023 on the Regulation of Insurance Activities governs the insurance sector in UAE. This law provides complete guidelines and regulations for the insurance industry. In this article, we will discuss the new insurance law and its important elements, including the application of licensing requirements to guarantee governance and compliance among the nation's insurance companies.
According to the new insurance law, the Board of Directors of the Central Bank has the authority to establish regulations regarding companies’ operations within the insurance industry. However, the companies operating in Financial Free Zones are not regulated by this decree-law, except for what is explicitly provided.
The insurance companies, insurance-related professionals, and holding companies that comply with certain requirements, such as controlling or acquiring 15% of the insurance activity in the UAE or having more than 50% of revenues from insurance activity and other related services, are outlined in Article 2. It grants the Board of Authority to establish and impose rules that regulate how these businesses operate in the insurance industry. Article 3 states that insurance is considered a contractual arrangement between the insurer and the policyholder. Therefore, the insurer is obligated to provide financial compensation to the policyholder or beneficiary if a specified event occurs, depending on the payment of premiums by the policyholder to the insurer.
Individuals and capitalization and property and liability insurance are the two different categories that divide insurance businesses as outlined under Article 4. The Central Bank has the power to specify each category and may authorise it to impose compulsory insurance against particular risks by creating regulations for it. Under Articles 6 and 7 of the new insurance law, the Central Bank has the power to conduct the inspections, monitor and impose the penalties, and the process for appealing decisions and penalties issued by the CBUAE. The Central Bank acts as an independent body with legal personalities to protect policyholders, beneficiaries, and injured parties whose formation, objectives, finances, and liquidation procedures shall be determined by the Board.
Article 9 explains the responsibilities of the Central Bank regarding regulating insurance companies, including solvency margins, technical reserves, reinsurance criteria, asset investment, accounting policies, licensing controls, minimum capital requirements, customer protection, and prevention against financial crimes. It also deals with Takaful insurance, Emiratization targets in the sector controlling the financial reporting, and appointing an external audit. The Central Bank Governor is entitled to implement these provisions, issuing necessary policies, regulations, and instructions and allowing the assignment of competencies when required.
The local insurance companies and branches of foreign insurance companies are permitted to engage in the insurance business in the UAE. Additionally, the new insurance law allows separate operations for both individual and capitalization insurance, as well as property and liability insurance, as outlined under Article 10.
Chapter 5 of the New Insurance Law states that the Central Bank will establish the general regulations for the governance of companies, as well as the procedures and guidelines governing the activities of their Board of Directors and the qualifications that candidates for membership on their Boards of Directors must meet. Additionally, the central bank will determine the requirements for the appointment of their key employees.
Chapter 6 elaborates on the responsibilities of insurance companies in the UAE, including the prompt payment of compensation per the terms of insurance policies, particularly in the event of accidents or insured risks. Insurance coverage is mandatory for all vehicles in the UAE, and the Board determines the rates based on the severity of the risk. Companies are permitted to submit comprehensive annual reports and financial statements, go through inspections and audits, and provide the Central Bank with the necessary data. It also establishes regulations for the appointment of auditors, the submission of insurance policy forms, and adherence to disclosure principles.
Chapter 7 deals with the grievance procedures, penalties, and measures that insurance companies in the UAE are required to implement. Inspections for financial stability and compliance may be conducted by the Central Bank, and violations may lead to penalties, remedial measures, or warnings, such as the appointment of a temporary independent committee to replace the board. Fines may be imposed as penalties, with a maximum of AED 100 million. Furthermore, the Central Bank has the authority to suspend, cancel, restructure, or liquidate a company in the event of severe violations. The Supervisory Board specifies fines for violations, and a grievance committee is responsible for resolving disputes regarding Central Bank decisions. The Central Bank has the power to inspect and evaluate companies, and companies are obligated to comply. Penalties may result from any attempts to prevent these investigations.
Chapter 8 stipulates insurance companies deposit a specific amount of cash in a local bank as a guarantee to fulfill their obligations. The deposit amount will vary depending on the type of insurance. The bank deposit may only be used to settle debts associated with the insurance business with written consent.
Chapter 9 defines the licensing requirements for insurance companies. Article 41 stipulates that the Central Bank must provide approval for the establishment of any insurance company or the opening of foreign branches. The Board establishes licensing controls and requirements, and it has the authority to suspend a license if the information provided is inaccurate. The following articles provide a comprehensive examination of reinsurance controls, fiscal year specifications, and other regulations. The regulations for foreign insurance companies and representation offices, as well as the procedures for the suspension and revocation of licenses, are specified in Article 44. The guidelines on savings bonds and the calculation of policy values fall under the specific rules that govern individuals and capitalization insurance companies.
Chapter 12 emphasizes individuals and capitalization insurance companies, indicating the significance of treating all policies fairly, without discrimination, unless there are valid reasons and the Central Bank can approve lower prices in specific situations. The periodic examination of financial positions through an expert is cited in Articles 55 and 56, which also mandate the submission of the mandatory reports to the Central Bank within specific time frames.
Article 66 of the new insurance law, Chapter 13, allows a company to transfer insurance policies, along with all associated rights and obligations, to another company that specializes in the same type of insurance. The procedure includes the submission of a transfer application to the Central Bank, which also requires the publication of the transfer in local newspapers. The Central Bank grants approval and publishes the decision in the Official Gazette if no objections are raised within the designated period. The transfer is resolved through an agreement or a final judgment in the event of objections, with the Central Bank's approval subject to specific conditions. Article 68 specifies that the provisions of Articles 66 and 67 apply to the suspension of insurance operations. A company could submit proof of meeting obligations for all policies in the country affected by the suspension.
Chapter 14 establishes regulations for Takaful insurance companies to guarantee that they adhere to Islamic Sharia principles. According to Article 69, the Memorandum of Association of the company may include adherence to Sharia principles. The Board establishes specific conditions and regulations for these companies and requires the establishment of a Takaful Insurance Fund that is supervised by the Central Bank. The Higher Sharia Authority is included in Article 71 to supervise internal Sharia control committees, whose decisions are legally binding. It also establishes committees for Sharia compliance, with disputes being referred to the Higher Sharia Authority. Additionally, it stipulates the publication of an annual report on Sharia compliance, which needs to be approved by the Higher Sharia Authority before submission to the general assembly.
Articles 74-76 emphasize the fact that any individual, either independently or in association with connected parties, can acquire or increase a controlling interest in an insurance company without obtaining approval from the Central Bank. Violations may lead to various kinds of consequences, such as the suspension or revocation of board membership, the restriction of profits, and the imposition of voting restrictions. In addition, warnings may be issued. The definition of ownership ratios and related parties is the responsibility of the Board. The Board's controls and instructions must be adhered to by insurance companies and connected individuals to own shares in another insurance company or convertible bonds, as stipulated in Article 75. Furthermore, Article 76 imposes restrictions on the transfer of obligations, mergers, and acquisitions, which require prior approval from the Central Bank. Furthermore, the Board has the authority to establish supplementary regulations and instructions.
Chapter 16 of the Decree-Law establishes the procedures for restructuring and liquidation and addresses the unstable financial position of companies. The Board is granted the authority to establish a restructuring agenda under Article 77, which permits the Central Bank to seize the assets of an insolvent business. A restructuring committee may be established to facilitate negotiations with creditors and to suggest a restructuring method. The procedure includes the publication of reports, the suspension of legal actions, and the notification of creditors. In the event that restructuring is unsuccessful, the Board may suspend procedures or declare bankruptcy. Article 82 defines the appointment of a liquidator and the consequences of the liquidation decision, including the addition of under liquidation to the company's name. The liquidator is accountable for the settlement of debts, and creditors are advised to submit claims. Preliminary and final accounts are included in the liquidation process, and notifications are sent to the appropriate parties through a different method. It also refers to the cancellation of mortgages and guarantees within specific time frames and conditions.
The decree-law's final Chapter 17 includes provisions that grant the Emirates Insurance Federation the legal authority to engage in activities that are in accordance with its objectives. It is mandatory for all insurance-related companies and professionals to become members of this federation. The federation's activities are regulated by the Central Bank, which authorizes its statute, tasks, responsibilities, and relationships. It also replaces the Emirates Insurance Association, transferring its contracts, rights, and obligations to the Emirates Insurance Federation.
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