Circular No 48 for registration of insurance brokers

Article (23)

Dispute Settlements

In case of dispute arising from the brokerage operations in insurance between the insurance company and the insurance broker or between the insurance broker and the client, the dispute shall be referred before seeking judicial ruling to the Insurance Authority to attempt to find a compromise.

Article (24)

Final Provisions

1. 
   Each entity carrying out brokerage operations in insurance upon putting the provisions of the Regulation herein into effect shall adjust its status according to the provisions of the Regulation herein within a period not to exceed one calendar year as from date of putting the Regulation herein into effect.
   

2. 
   The Insurance Authority shall charge the prescribed fees against any of the procedures the Insurance Authority is making according to the provisions of the Law and the regulations issued by its virtue.
   

3. 
   The provisions on the insurance broker issued by the Minister of Economy’s decree No (543) of 2006 on Organization of Practicing the Insurance Brokerage Profession shall be annulled.
   

4. 
   The Director General shall issue the necessary decisions to put the provisions of the Regulation herein into effect.
   

Article (25)

Publication in the Official Gazette

The Regulation herein shall be published in the Official Gazette and put into effect as from date of publication.

Minister of Economy

Chairman of the Board of the Insurance Authority

Issued in Abu Dhabi on 00/00/2012

Explanatory Note

on

Regulation No ( ) of 2012

on

Registration of the insurance brokers and organization of their operations

Introduction:

The profession of brokerage in insurance was subject to the provisions of the Decree of H.E. the Minister of Economy and Commerce No 11 of 2000 on Organization of the Profession of Insurance Brokers. Then, the Ministerial Decree No 543 of 2006 on Organization of the Profession of Insurance Brokers was issued to replace the said Decree. Following the issue of the Federal Law No 6 of 2007 on Establishment of the Insurance Authority and Organization of the Insurance Operations and as a result of the development witnessed by UAE insurance market, there was a need to reconsider the status of insurance brokerage operations in order to protect interests of all concerned parties i.e., firstly, the insurance applicants, the policyholders and the beneficiaries of these policies, secondly; the insurance companies and thirdly, the insurance brokers themselves. This is what the draft of the new regulation is tackling.

First: Insurance brokers (their number and decisions made in their respect):

In 2009, the number of the insurance brokers reached 303. And since a considerable number of the insurance brokers did not adjust their status according to the new requirements of the Ministerial Decree No 543 of 2006 as to increasing the minimum required capital of the insurance broker and the amount of bank guarantee should be presented to the Insurance Authority. Thus, due to expiration of the period given to the brokers to adjust their status in 2009, a process of a wide writing off the registrations of the insurance brokers who failed to adjust their status was conducted. Accordingly, the number of the insurance brokers decreased as indicated here below.

On July 2 2009, the Insurance Authority advised all the insurance companies and brokers operating in UAE insurance market that the Insurance Authority’s Board of Directors made a resolution ceased granting the insurance brokers new licenses and as well stopped issuing any licenses to open new branches for the insurance brokers registered in the register. The said Resolution is still in force today.

The brokers are categorized according to nationality as of February 20, 2012 as follows:

Nationality	Number
National brokers	163
Non-national brokers	7
Total	170

As for categorizing the brokers according to Emirates where their main offices are located is as follows

Emirates	Number
Abu Dhabi	49
Dubai	106
Sharjah	12
Ras Al Khaimah	3
Total	170

Secondly: New directives introduced by the new draft regulation as compared with the existing regulation:

1. 
   The new Regulation organizes operations of the insurance brokers only. As in respect of the Re-insurance brokers, a new draft regulation will be prepared for the purpose due to the different nature of their operations and the entities those re-insurance brokers are dealing with.
   

2. 
   The insurance broker should carry out brokerage operations by way of specialization and thus the broker has no right to cumulate the broker’s present profession with any other profession related to insurance except re-insurance brokerage operations.
   

3. 
   The broker shall be in a form of a limited liability company or private stock company. Accordingly, the broker shall not be a natural person or an individual establishment. Though there are no more than 11 brokers carrying out insurance brokerage operations through other formations (a joint liability company or an establishment), it is preferable to close this issue completely.
   

4. 
   The Minimum Capital required for an insurance broker is increased as follows:
   

Broker__Paid-up_capital__according_to_the_draft_regulation__Current_regulatory_capital'>Broker	Paid-up capital according to the draft regulation	Current regulatory capital
Local broker	AED 5 million	AED 1 million
Foreign broker	AED 10 million	AED 1 million

5. 
   The new draft Regulation focused on the manager in charge and the specialists working for the broker instead of focusing on the companies’ shareholders as the shareholders are the financiers but the insurance operation is carried out by the manager in charge or the technical expertise. Accordingly, new requisites have been introduced as to education and technical experience. Further, each one of the specialists should pass the test conducted by the Insurance Authority in the legal, technical and financial aspects of the insurance operations and insurance brokerage. Since, those specialists deserve remunerations that suit their qualifications, the insurance broker should be financially solid to attract them and this is the reason behind increasing the minimum capital required for a broker.
   

6. 
   In the field of financial warranties, material changes have been introduced in the new draft regulation as follows:
   

First - Financial Guarantee:

Broker	Amount of financial guarantee according to the draft regulation	Current regulatory financial guarantee
Local broker	AED 2 million for main office in the State	AED 1 million for main office in the State
	AED 1 million for each branch in the State	AED 500 thousand for each branch in the State
Foreign broker	AED 3 million for main office in the State	AED 1 million for main office in the State
	AED 2 million for each branch in the State	AED 500 thousand for each branch in the State

Secondly - Professional Liability insurance:

Further, other changes have been introduced in the field of professional liability insurance as follows:

Broker	Insurance amount according to the draft regulation	Current regulatory insurance amount
Local broker	AED 3 million	AED 1.5 million
Foreign broker	AED 5 million	AED 1.5 million

7. 
   In the draft regulation a new principle has been introduced related to the rules governing the relation of the insurance company and the insurance broker where it’s provided that a written agreement to determine the broker’s powers and organize the financial and technical matters of the two parties has to be included. Though the new regulation did not arrive at designing a model agreement for the relation of the company and the broker and obliging the parties to comply with the provisions stated therein (a matter left to the parties to decide), it handled those aspects influencing the rights of the insurance applicants and the policyholders. The draft regulation did not decide on the amount of commission entitled to the broker from the insurance company against the broker’s services as it opted to leave such matter for the parties to decide.
   

8. 
   Another innovation in the new draft regulation is the act of setting down some of the rules governing the relation between the broker and the client as the broker has been obliged in order to initiate the brokerage procedures to obtain a written authorization from the insurance applicant. Further, the broker has to prepare the text of the authorization and present it to the insurance Authority for consideration, sanction and introduce any amendments in order to protect interests of the insurance applicant.
   

9. 
   The major innovation introduced by the new draft regulation is in the field of the financial relation between the insurance company, the broker, and the client. This is the area where most of the problems are found in UAE insurance market; same as the case with the clients and the insurance companies. Therefore, it’s necessary for the new draft regulation to handle organization of this matter by way of radical solutions as follows:
   

1. 
   The premiums due to the insurance companies should be paid directly to these companies except those premiums related to only one single class of insurance owing to its special nature. Accordingly, payment by the client to other than the insurance company will not lead to discharge the client from his liability towards the insurance company.
   

It’s worth mentioning that the Insurance Authority issued a circular indicating that cheques written by the clients to settle the insurance premiums have to be in the insurance companies’ name.

However, the notion established by the new draft regulation is considered a radical solution not for this problem alone but also for the problems the insurance market are facing. Thus, there is no room to express one’s displeasure of such a notion as long as the broker receives the due commission within seven days as from date of receiving the premium by the insurance company and these are the fees for the services rendered by the broker. This being the case, supposedly no other fees for the broker’s services.

2. 
   The due indemnities should be paid to the stakeholders and not to the broker and in case the insurance company paid to other than those, the companies’ liability will not be discharged unless they actually receive their compensations.
   

10. 
    Penalties imposed on the brokers when they commit violations have been tightened in a way that would lead to write the broker off the register if the broker commits a violation for the third time. This procedure was forced by the circumstances of some insurance brokers who committed serious and repetitive violations.
    

11. 
    An indication has been given in the draft regulation to the importance of referring disputes may arise due to operations of insurance brokerage to the Insurance Authority to attempt to find a compromise before seeking a Court ruling.
    

12. 
    One year grace period was granted to those brokers currently registered in the Insurance Authority’s register to adjust their status according to the provisions of the new regulation. The given period is suitable and sufficient and forms an incentive for the brokers not having the required technical and financial capabilities to merge.