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Insurance Regulation and COVID-19 in the United Arab Emirates

  • Market Insight 13 May 2020 13 May 2020
  • Middle East

  • Coronavirus

Insurance Regulation and COVID-19 in the United Arab Emirates

The impact of COVID-19 will affect the regional GCC insurance industry, and accentuate the issues that already existed in the market prior to the onset of the pandemic.

The United Arab Emirates (UAE) has implemented a range of measures to combat the spread of COVID-19 at both the Federal level and through the governments of each of the seven Emirates. In Dubai, for example, all individuals other than those in critical sectors have been required to remain at home since 23 March 2020 and require permits to leave their homes to purchase essentials and seek medical treatment. Commercial passenger flights were suspended on 25 March 2020 and, save for flights to a limited number of countries for the purposes of repatriating expatriates, have yet to be recommenced. Guidelines have been published in the last few days regarding the reopening of the private sector. These plans envisage that not more than 30% of an employer's staff will be present in the work place at any one time. However, the date on which the 'lock down' is scheduled to end remains to be confirmed. Further details of these measures can be found at our Coronavirus Information Hub.

Response by insurance regulators

Whilst the overall measures taken in the UAE have been stringent, there has been relatively limited regulatory intervention specific to the insurance sector. Initial guidelines from the Insurance Authority were focused on insurance sector entities' readiness to work remotely, including the through the identification of business critical roles and the allocation of funds to ensure that the necessary systems and equipment was in place to facilitate this. Similarly, the Insurance Authority has also sought to reassure the public that the mandatory medical insurance will respond to COVID-19 claims.  There has been no regulatory announcement in relation to policy cover for particular losses – e.g. business interruption losses, nor any legislation mandating any particular coverage issues, as seen in other jurisdictions.

The Insurance Authority has implemented some measures designed to ease the financial burden of regulatory compliance, particularly for insurance intermediaries (see further below) and is currently gathering data with a view to assessing the impact of the crisis. In particular, the Insurance Authority is requiring insurers to conduct stress testing in order to understand the impact of COVID-19 on their businesses. The tests initially looked at the impact on premiums and claims and now are focused on the P&L / solvency of insurers.

Effect of COVID-19 related measures

The peculiarities of the insurance sector in the UAE, and to some degree the broader region, mean that it is difficult to assume that measures taken in other markets are apposite for the UAE. A particular issue arises from the highly competitive nature of the market (there are 67 licensed insurers in a market with an estimated premium volume of circa. US$11 billion) and lack of scale of many insurers due to the dominant position of a handful of players. This is coupled with an untested insolvency regime and no policyholder protection schemes available in the event of a financial failure of an insurer. As a result of these factors the Insurance Authority has previously sought to encourage consolidation in the industry, particularly in cases involving the potential insolvency of an insurer. These efforts are likely to be redoubled in circumstances where the investment portfolios of insurers (comprising substantial exposures to local equities and real estate) are impacted by the general economic uncertainty and, in particular, declining oil prices.

It nevertheless remains to be seen if these economic pressures are offset by the fact that:

  • The largest lines of business by premium volume are the mandatory insurances – medical and motor – which, we anticipate, will have improved profitability during this period as a result of declining claims.
  • The industry has a heavy reliance upon the reinsurance of risks, especially for commercial lines, and therefore many of the local insurers will have limited exposure to the full burden of the substantial business interruption claims which are anticipated.

Postponement of implementation of regulatory changes

The Insurance Authority announced earlier this month that the implementation of its long-awaiting regulations for the life insurance sector has been postponed until mid-October 2020. The regulations will cap the amount of commission payable on both protection and savings life insurance products and restrict the use of indemnity commission. It is inevitable that the new regulations will materially impact on the cash-flow of intermediaries and, for the broking industry in particular, the postponement is to be welcomed.

The decision by the International Accounting Standrards Board (IASB) to defer the implementation date for IFRS 17 Insurance Contracts by a year to 2023 will also be a welcome development for UAE insurers.

Capital relief for intermediaries

Insurance Authority Board of Directors’ Resolution No. (14) of 2020 permits insurance brokers to apply to reduce the amount of the bank guarantee required to be provided to the regulator as condition of their licence. The guarantee, which is designed a security for the good conduct of the broker, has to be issued in the sum of AED3 million. This figure may now be reduced by AED1 million provided that:

  • The broker submits it annual and quarter financial reports and accounts to the Insurance Authority in a timely manner.
  • The broker's net equity exceeds the minimum capital requirement (AED3 million); and
  • There are no adverse court rulings against the broker.

Looking to the Future

We anticipate further intervention by the Insurance Authority as the effects of COVID-19  and its longer-term economic ramifications become known. This will likely involve some of the following steps:

  • Amendment to the Financial Regulations governing the solvency requirements of insurers and the minimum capital requirements for other insurance sector entities and/or other steps to reduce the licensing costs of these entities.
  • An acceleration of the forthcoming Electronic Insurance Regulations (hopefully incorporating a more flexible approach to digital distribution).
  • An acceleration of decisions by the Insurance Disputes Committees with regard to the interpretation of insurance policies with COVID-19  exposures.
  • The exercise of powers by the Insurance Authority to intervene in the management of insurance companies and, potentially, to compel the merger of insurers.
  • Consideration of the thresholds for  foreign ownership of market participants in order to encourage international investment in the sector.


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