Following the circulation of a draft resolution earlier this year aimed at regulating the hitherto unregulated area of ‘bancassurance’ in the UAE, the Insurance Authority issued a circular in September 2011 to all insurance and takaful companies in the UAE setting out guiding rules which UAE insurance and takaful companies should adhere to until to the Insurance Authority’s draft resolution regulating the marketing of insurance policies by banks (the Draft Resolution) enters into force (click here for our review of the Draft Resolution - June 2011). The guidance appears to take effect from 13 October 2011.
Following the circulation of a draft resolution earlier this year aimed at regulating the hitherto unregulated area of 'bancassurance' in the UAE, the Insurance Authority issued a circular in September 2011 to all insurance and takaful companies in the UAE setting out guiding rules which UAE insurance and takaful companies should adhere to until to the Insurance Authority's draft resolution regulating the marketing of insurance policies by banks (the Draft Resolution) enters into force (click here for our review of the Draft Resolution - June 2011). The guidance appears to take effect from 13 October 2011.
A brief overview of the circular is now provided:
Scope of the circular
The circular targets marketing relationships entered into between banks and insurers in respect of an insurer's policies. It explicitly provides that a bank may not act as an insurance intermediary, agent, broker or consultant. To this effect, the circular reiterates the Draft Resolution's requirement that insurers cannot delegate certain activities to their partner banks, including issuance of policies, settlement and payment of claims. The implication of this is that a bancassurance agreement should only permit a bank to market an insurer's policies, but not act beyond this capacity. Ideally an agreement should explicitly prohibit a bank from undertaking such activities and contain procedures to ensure the bank does not undertake that role.
Types of insurance which may be marketed and to whom
As with the Draft Resolution, only specific types of insurance may be marketed by banks on behalf of insurers. These are personal lines coverages and commercial lines are not permitted to be marketed via banks. One of the matters expanded under the circular is found in the first provision, where the definition of the types of insurance that may be marketed by banks is slightly broader. Whilst the Draft Resolution states that only specific types of insurance can be marketed by a bank, the circular adds that "Housing loans and related insurances" also includes "credit, personal loans, credit cards insurance and similar types of insurance such as involuntary loss of work and wallet insurance (the insurance covering the loss or theft of the wallet holding credit cards, ID, keys, money and covering health care costs resulting from injuries suffered at the time of wallet loss or theft."
These types of policies should only be marketed to existing customers of the bank who have an account with the bank and policies cannot be sold to the bank's potential customers. The implication of this is that any agreement between an insurer and a bank to market the insurer's policies should explicitly set out the types of insurance that can be marketed by the bank and these should not go beyond the categories/ types of policies listed in the Draft Resolution or circular. Any agreement will also need to restrict the customers to whom policies can be marketed.
Requirements regarding Insurer's branch locations
Pursuant to Article 3 of the circular, a bank can market an insurer's policies only in the Emirate where the insurer has branches authorised to settle claims. The implication of this is that the geographical scope of current and proposed agreements will be restricted to areas where the insurer has a physical presence in the form of a branch in that particular Emirate.
Compliance with Anti-money Laundering Laws
Pursuant to Article 2(7) of the circular which reiterates the Draft Resolution, any agreement between an insurer and a bank must have provisions applying the Insurance Authority's Instruction 1 of 2009 regarding anti-money laundering and combating of terrorist financing. Premiums paid in respect of the insurances sold by the bank must be from the customer's account with the bank.
The implication is that insurers should incorporate a provision referencing the procedures to be followed by a bank in dealing with bank customers in respect of any the insurer's insurance policies, ideally with specific reference to the Insurance Authority's Instruction 1 of 2009.
Secondments or training
Pursuant to Article 4 of the circular a bank which markets an insurer's policies must ensure that it has a member of staff adequately trained to be able to advise the bank's customers about those policies. This could be an employee of the bank or someone seconded from the insurance company. If the employee is seconded from the insurance company, that employee is also permitted to issue insurance policies and motor insurance certificates only. The insurance company must also provide training to employees of the bank who are involved in the marketing of insurance products, but it is unclear what will be considered "suitable qualifications" for an employee of the bank to undertake these activities.
The implication is that bancassurance agreements will need to include express provisions in respect of training and secondment arrangements and/or requirements for a bank to employ suitably qualified staff will need to be included.
The agreement between the bank and insurer should contain provisions for resolving any disputes, requiring any dispute to be referred to the Central Bank and the Insurance Authority before any court action is commenced. However, no details have been provided by either the Central Bank or the Insurance Authority as to how these disputes are intended to be resolved. Care should be taken when drafting dispute resolution provisions to ensure that, whilst reference is made to the provisions of the circular, the parties still retain effective and clear means of resolving any disputes that may arise.
Other Contractual Provisions
Article 2 of the circular requires that insurers must provide proof of their authorisation to issue policies of the type to be marketed and the agreement must specify that the insurer will issue the policy and amendments thereto, as well as pay claims.
We will report further bancassurance regulatory developments in the UAE as they are published by the UAE Insurance Authority. In the interim, it would be prudent for insurers and banks to ascertain what agreements they have in place in this respect and to begin analyzing the extent to which such agreements will need to be amended to align them with the Draft Regulation. It is anticipated that the Draft Regulation will be largely unchanged from the current draft when it enters into force.