The new UAE insurance law: the who, what, when, why and how?

An introduction to Federal Decree-Law No. 48 of 2023 that is seeking to change the regulatory landscape for the UAE insurance sector.

It is fair to say that Federal Decree Law No. 48 of 2023 regarding the Regulation of Insurance Activities (the New Insurance Law) is an evolution, rather than a revolution, in the regulation of the insurance sector in the United Arab Emirates (UAE). Compared to its predecessor, Federal Law No. 6 of 2007 (as amended) (the Old Insurance Law), it is relatively streamlined (translated being 25 pages in length) and covers much of the same subject matter. The implication of streamlining the law is that much of the detail regarding the principles and matters noted in the New Insurance Law will be dealt with in subsidiary regulations.  

The New Insurance Law was necessitated by the transfer of responsibility for the supervision of the insurance sector to the Central Bank of the UAE (CBUAE) following its merger with the UAE Insurance Authority pursuant to Federal Decree Law No. 25 of 2020 and the broader changes to the UAE legislation in respect of commercial companies and insolvency. It also provides significant enhancements to the supervisory and enforcement powers of the CBUAE and an updated dispute resolution mechanism for insurance claims. 

Scope of the New Insurance Law 

Perhaps unsurprisingly, the New Insurance Law covers many of the same topics as the Old Insurance Law, including: 

• The role of the CBUAE as the primary regulator for the insurance sector to supervise and regulate the conduct of insurance business in the UAE. 
• Licensing requirements for locally incorporated insurers and the branches of foreign insurers (Insurers), representative offices of foreign insurers and other “insurance-related professions” in the UAE. 
• Corporate governance for Insurers. 
• Conduct of business requirements for Insurers. 
• Prudential requirements for Insurers. 
• The supervision and enforcement powers of the CBUAE, including powers to conduct inspections, issue penalties and the process for appealing decisions and penalties issued by the CBUAE. 
• The transfer of insurance portfolios.
• Mergers, acquisitions, and the restructuring of Insurers. 
• The resolution of disputes in respect of insurance claims. 

Chapter 14 of the New Insurance Law also expressly addresses the Takaful (Islamic insurance) sector. The New Insurance Law along with the decisions and circulars issued by the CBUAE will apply to the Takaful sector to the extent that they do not contradict the nature of the business.¹ All data and information related to insurance operations is expressly recognised as being confidential in nature.² The CBUAE is specifically authorised to further regulate such data, and information. 

The New Insurance Law came into force on 30 November 2023, thereby repealing the Old Insurance Law. All persons subject to the provisions of the New Insurance Law have until 29 May 2024 to comply with its provisions. Materially, Article 114 provides that the decisions and circulars issued pursuant to the provisions of the Old Insurance Law shall remain in force unless they contradict with the New Insurance Law or are superseded by decisions and circulars issued by the CBUAE. 

Notwithstanding the continued effect of the decisions and circulars issued under the Old Insurance Law, there are several provisions of the New Insurance Law that are material for the industry, or which appear to foreshadow future developments.

Application of the New Insurance Law

Insurers

The New Insurance Law is expressed to apply to Insurers and “insurance-related professions” in the UAE. The ambit of the legislation has been extended to also apply to holding companies which acquire or control a 15% stake of the “insurance activity” in the UAE or where the holding company’s revenue from “insurance activity and related services” exceeds 50% of the holding company’s revenues. It is not presently clear if this extension of the jurisdiction of the CBUAE is intended to relate solely to Insurers, or if it will apply to the other types of entities falling within the ambit of “insurance-related professionals”. It is also not clear as to how the “volume” threshold of 15% of the “insurance activity” in the UAE will be calculated. 

Article 2(2) of the New Insurance Law states that it will not apply to companies operating in the Financial Free Zones established pursuant to Federal Law No. 8 of 2004 (currently the Dubai International Financial (DIFC) and the Abu Dhabi Global Market (ADGM)). This corrects an ambiguity in Article 2(2) of the Old Insurance Law which provided that it did not apply in the Free Zones generally and at Article 68 provided that “insurance companies licensed to operate in the free zones shall not carry on any activity outside these zones other than the activity of re-insurance.” As none of the Free Zones, other than the DIFC or ADGM, has express legislation for insurance sector entities, this created a lacuna whereby insurance sector entities could operate in the (non-Financial Free Zones) without any meaningful regulatory supervision or oversight. The New Insurance Law therefore makes it clear that, aside from entities in the DIFC and ADGM, all other insurance sector entities whether incorporated “onshore” or in the Free Zones are required to be licensed by the CBUAE and are subject to the requirements of the New Insurance Law. 

Representative Offices 

Chapter 11 of the New Insurance Law refers to the licensing of representative offices of foreign insurers and requires that such entities be licensed by the CBUAE. There is currently limited regulatory guidance as to the process for the licensing of such entities, or regarding the scope of their activities. However, consistent with the regulations applicable to representative offices of other types of financial institutions and representative offices of foreign insurers in the Financial Free Zones, it is anticipated that the CBUAE will issue regulations limiting the activities of a representative office of a foreign insurer to generic marketing of the products and services offered by the insurer outside of the UAE. 

Insurance-related Professions

Article 65 of the New Insurance Law reiterates that persons wishing to engage in the regulated activities of an insurance agent, insurance broker, loss adjuster, insurance consultant, actuary or health insurance claims manager (i.e. a Third-Party Administrator) in the UAE are required to be licensed by the CBUAE. Whilst reflective of Article 69 of the Old Insurance Law, this provision differs in that it expressly refers to Third Party Administrators (which were in any event dealt with by a decision of the Insurance Authority) and “any other insurance-related profession” (which leaves open the scope for the CBUAE to expand its licensing regime). 

One area to note is that there is no express provision enabling Insurers to engage a foreign surveyor or similar professional for complex claims. Whilst it is expected that such engagements will continue where specialist support is required, such activities will need to be carefully considered in the future. 

Non-Admitted Insurance 

Article 12 of the New Insurance Law provides: 

“Insurance brokerage on funds or property located in the State, or on any liabilities arising therein, may only be arranged with a licensed [Insurer] according to the provisions of this Decree-Law.”

This appears substantially unchanged from the prohibition on non-admitted insurance pursuant to Article 26 of the Old Insurance Law. Similarly, Article 41(4) of the New Insurance Law reflects the position under the Old Insurance Law by stating that “an unlicensed Company may not enter into an Insurance Policy, and any Insurance Policy concluded with an unlicensed Company shall be deemed null and void.” However, Article 41(4) further notes that “a bona fide injured Person may claim compensation” which opens a potential defence to an argument around the validity of the insurance policy. 

For the first time, the New Insurance Law expressly prohibits an insurance purchaser from entering into an insurance policy with an unlicensed foreign insurer, including the placement of insurance by a corporate entity for its employees within the UAE.³ However, there is no sanction specified in the New Insurance Law for an insurance purchaser who breaches its requirements. 

The New Insurance Law also contains a new exception to the prohibition on non-admitted insurance. Where coverage is not available within the UAE (or Insurers refuse or unable to offer such coverage) coverage may be arranged with a foreign insurer. This is to be undertaken “in accordance with the controls and requirements specified by the Board” of the CBUAE which remain to be published. This will potentially create opportunities for new and emerging lines of business (for example, in the area of Warranty & Indemnity insurance). 

Mandatory Insurance, Insurance Funds and Insurance Pools

Article 5 of the New Insurance Law provides the CBUAE with the power to mandate insurance for certain risks and to specify the requirements for, and terms of, such mandatory insurance. Following the trend in this area in Saudi Arabia, this may result in the introduction of new mandatory coverages across a range for areas. 

Article 7 of the New Insurance Law retains power for the CBUAE to establish funds with separate legal personality “for the purposes of protecting Policyholders, Beneficiaries and injured Persons”. This is reflective of Article 23 of the Old Insurance Law which was introduced by way of amendment in 2018. It remains to be seen whether these powers will be utilised to create funds to protect policyholders in the event of an Insurer’s insolvency or to provide a compensation scheme for criminal injury victims comparable to other jurisdictions. 

Article 25 of the New Insurance Law permits Insurers to establish insurance pools amongst themselves to provide insurance cover for any insurance business line. Such pools are subject to prior approval from the CBUAE. It is unclear whether these requirements are intended to encompass coinsurance arrangements or are limited to more formal pool arrangements. 

Changes to dispute resolution mechanisms

Under Article 110 of the Old Insurance Law, the Insurance Authority was able to form specialised dispute resolution committees that were tasked with the responsibility for considering and settling insurance coverage disputes. 

One committee formed by the Insurance Authority was the Insurance Dispute Settlement Committee (the IDC) that, as condition precedent to any coverage disputes being brought before the UAE onshore Courts, considered coverage disputes. The IDC has been replaced with the Banking and Insurance Dispute Resolution Unit (BIDRU), under Article 101 of the New Insurance Law. 

The BIDRU, which seemingly will have jurisdiction over all financial services disputes, will establish one or more committees to hear insurance related claims. The committee will have independent juristic personality, be chaired by a judge along with another judge and experts appointed by the CBUAE. The procedure for the resolution of disputes concerning insurance claims, as provided for in the New Insurance Law, largely follows the process under the Old Insurance law, with important changes to challenges and appeals. The process anticipated by the New Insurance Law is: 

• A complaint shall be submitted to the BIDRU.
• A decision will be issued. The decision will be final and immediately enforceable where the value is AED50,000 or less.
• Insurers are not permitted to appeal the decision from BIDRU unless the claim exceeds the monetary threshold of AED50,000 (under the Old Insurance Law all decisions could be challenged).
• Any appeals must be submitted within 30 days, and those days shall be counted from the date the decision was issued or the date of knowledge of the decision.
• Importantly, any appeals must be made to the Court of Appeal. Under the Old Insurance Law, appeals were referred to the CFI.
• Any appeals will suspend execution of the decision from the BIDRU where the sum in dispute exceeds AED50,000.

The updated dispute resolution provisions follow the CBUAE issuing regulations for the establishment of an ombudsman unit that will deal with certain consumer complaints as against insurers (and other financial institutions). BIDRU would appear to be the body that would accept appeals from such body. However, how practically the respective bodies will operate together remains to be seen. That said, as a result of the reshaping of the disputes process for coverage disputes, it is expected that the UAE Courts will be involved in significantly less coverage related disputes. We envisage that in accordance with Article 101 (7) of the New Insurance Law that the Courts will continue to exercise their discretion to refuse to hear coverage matters which have not been presented to the relevant insurance dispute committee (this now being the BIDRU).

Prudential Matters 

The prudential requirements for Insurers are addressed in detail in the Insurance Authority Board of Directors’ Decision No. 25 of 2014 (the Financial Regulations). As such the requirements of the New Insurance Law are relatively limited. However, materially, the requirements include: 

• An obligation for each Insurer to deposit the sum of AED4 million (for life insurance business) and AED6 million (for property and liability business) with a licensed bank in the UAE as guarantee for its obligations. This amount may be increased by a decision of the Board of the CBUAE.⁴
• A branch of a foreign insurer is required to provide an irrevocable bank guarantee in favour of the CBUAE in the sum of AED 100 million (for Insurers) and AED250 million (for Reinsurers).⁵
• Insurers conducting life insurance business are required to maintain an amount equal to its actuarial reserve within the UAE and segregated from its other assets. This amount may be reduced by a decision of Board.⁶

Employees 

Article 8(16) of the New Insurance Law empowers the CBUAE to establish Emiratization targets for the insurance sector and to monitor compliance with these targets (the results of which are to be reported to the Council of Ministers). The CBUAE is further empowered to impose penalties and fines for non-compliance with these targets. 

The CBUAE has also been granted greater powers to oversee “Key Employees”. This includes the Chief Executive Officer, General Manager, Deputy General Manager, Senior Managers, Internal Audit Manager or Branch Manager. In furtherance of these powers: 

• Article 17 provides that the CBUAE may specify the conditions for the appointment of key employees, including requirements as to their qualifications, competence and experience. 
• Article 18 provides that Insurers must notify the CBUAE of any vacancy to the position of any member of its Board of Directors or other key employees and to appoint a replacement, with the approval of the CBUAE, within 30 days from the date on which the position became vacant. No reference is made to the concept of temporary cover for the circumstances where a position cannot be filled within the relevant period, and it is likely that this issue will need to be addressed on an ad hoc basis with the CBUAE. 

Material Events 

Portfolio Transfers 

Chapter 13 of the New Insurance Law updates the provisions of the Old Insurance Law relating to portfolio transfers. This streamlines the process as follows: 
The advertisement required in two daily local newspapers now only needs to be published once (as opposed to on two consecutive days). 
The time period for objections by interested parties has been reduced from 45 days to 10 working days. 

Mergers & Acquisitions 

Chapter 15 of the New Insurance Law includes new provisions relating to the change of control of an Insurer. Article 74 of the New Insurance Law requires the CBUAE’s approval for any acquisition of, or increase in, a controlling interest in an Insurer (whether at an individual level or through transactions involving connected parties). 

Article 76 similarly provides that any merger of Insurers requires CBUAE approvals. However, materially, the expanded enforcement powers of the CBUAE include “taking all necessary procedures to merge the [Insurer] with another [Insurer]…”. Needless to say, that such a merger is subject to the consent of the second Insurer!

Enforcement Powers of the CBUAE 

Under Article 33 of the New Insurance Law, the CBUAE is granted broad powers to inspect insurers to check their financial soundness and compliance with the provisions of the New Insurance Law. These powers are bolstered by Article 36 which, for example: 

• Grants broad rights of access to information and documentation held by holding companies and subsidiaries of licensees. 
• Grants broad rights to gather information “from any person with whom the [Insurer] or Insurance-Related Professional has a relationship in relation to the subject matter of the inspection.”
• Permits the CBUAE to inspect the headquarters of any person suspected of practicing any insurance business or the activities of insurance-related professions. 
• Permits the CBUAE to appoint “experts, consultants, actuaries or auditors”, at an Insurer’s expense, to undertake an assessment of its compliance⁷. 

Where the CBUAE has determined that there has been non-compliance by an Insurer with the New Insurance Law, the CBUAE is granted the ability to impose a broad range of penalties, including restricting an insurance company’s ability to enter new insurance contracts, the ability to engage in certain types of insurance as well as imposing a financial fine up to AED100million. 

Whilst the details of the specific fines which may be imposed by the CBUAE are largely addressed in Cabinet Resolution No. (7) of 2019 (as opposed to being set out in the New Insurance Law), it is instructive to note the one exception, namely, Article 105 which refers expressly to the CBUAE’s power to issue a fine of not less than AED1million on:

• Any person who establishes an Insurer in the UAE without a licence. 
• Any person who has conducted insurance business in the UAE without a licence, including by entering into an insurance policy. 

This would tend to suggest that there will be more scrutiny by the CBUAE of its regulatory perimeter and greater use of sanctions against persons who breach the licensing requirements. 

What next? 

We anticipate that the coming months and years will see a period of refinement of the regulatory regime for the insurance sector. This is reflected by number of references in the New Insurance Law to the power of the CBUAE to issue further regulations and circulars. Further regulation, for example, in the context of the key employees with regard to their competence, qualification and ongoing professional education, would appear likely. 

The New Insurance law itself may also require updates to address ambiguity. For example, the Old Insurance Law anticipated insurance business could be undertaken through a UAE incorporated public joint stock company, or a branch of a foreign insurance company, or an insurance agent. The New Insurance Law has seemingly deleted the reference to insurance business being undertaken through insurance agents. Although, curiously, insurance agents are still included in the definition of insurance company.

Greater enforcement of the regulatory regime would appear a certainty given the expansion of the CBUAE’s powers in this area. This is both in the context of the Insurers and insurance-related professions that are regulated by the CBUAE and enforcement of the regulatory perimeter to prevent the conduct of unlicensed activities. 

Whether we will also see a relaxation on the moratorium on the issuance of new licences for Insurers remains to be seen. 

The procedures for the BIDRU, its interaction with the Ombudsman Unit, and the membership of the insurance committee also remain to be formalised. It is to be hoped that the new procedures will rectify some of the issues associated with the IDC such as the fact that the IDC as a local body does not have the benefit of international judicial co-operation agreements to say investigate losses abroad and generally to improve the competence of the disputes process on complicated commercial risks. 

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¹Article 69 of the New Insurance Law. 

²Article 102 of the New Insurance Law. 

³Article 12(3) of the New Insurance Law. 

⁴Article 38 of the New Insurance Law. 

⁵Article 50 of the New Insurance Law. 

⁶Article 40 of the New Insurance Law. 

⁷Article 28 of the New Insurance Law.