March 25, 2019

Missed opportunity? The UAE’s new electronic insurance regulations

InsurTech is upending and disrupting traditional models of distribution for insurance products across the world. But, how is the UAE facilitating this technological evolution?

In many ways, the provisions of the draft electronic insurance regulations are in line with other recent regulations issued by the Insurance Authority in draft or final form, which miss the opportunity to modernise the industry.

In a series of recent regulations, including draft regulations concerning ‘electronic insurance’, the UAE Insurance Authority is addressing the online distribution of insurance.

Consumers the world over are now able to purchase insurance products from multiple supply points, including mobile online applications, using new technologies designed to be accessible to a new breed of digital consumer.  Insurance aggregator sites, which compare and offer best prices on domestic insurance products, have revolutionised how consumers are able to select between and access insurance providers and their products.  New InsurTech start-ups use algorithms and online platforms to deliver customised insurance products across personal and commercial business lines.  This is in stark contrast to the typical paper-driven, bureaucratic systems that have characterised the insurance industry in the past. 

New electronic insurance regulations

The Insurance Authority’s draft ‘Board of Directors Resolution Concerning the Electronic Insurance Regulations’ was issued in January 2019 and is intended to govern any insurance business carried out online or concluded electronically in the UAE.  The draft regulations are part of a series of regulations issued recently by the Insurance Authority, dealing with ‘insurance producers’ and ‘points of sale’ for insurance products.  It is intended that these regulations, once issued, will sit alongside the more traditional existing insurance broker, agent and company regulations.

But, do the new regulations do the job in bringing insurance into the new technological age, where tech start-ups are disrupting the established methods of business?  Will they encourage new and innovative forms of distribution of insurance products in an exciting emerging market?

The answer is unfortunately 'not'.  Rather than looking to harness the modernising power of InsurTech, the regulations rather seek to drag the new technologies within the existing, somewhat outdated insurance provider company regime.

For a start, the Insurance Authority requires any entity seeking to conduct electronic insurance operations to apply for pre-approval from the Insurance Authority, and to submit a specific action plan to the Authority, setting out a 3-year analysis of its electronic insurance operations, a risk analysis and contingency plan for ensuring continuity of business (Article 3).  Any company wishing to carry out electronic insurance operations must establish an ‘IT department that is responsible for the website’, and obtain pre-approval from the Authority before outsourcing the management of its website to an outside party (Article 7).  There is a restriction on the nature of products that can be sold online: the regulations appear to restrict products to non-life products (Article 6).  Whilst it is certainly the case that investment linked savings products require specialist advice, it is not immediately clear why simple protection products (for example, term life or personal accident with a life insurance rider) cannot be offered online.

The intention appears to be that any entity offering online insurance will need to be registered and regulated by the Authority – either as an agent, broker, TPA or insurance company (Article 14), with all the regulatory compliance and complexity those registrations bring.  In addition, there is an outright prohibition on any insurance entity dealing with ‘websites that make comparisons of insurance policies’ rates’ (Article 18(5)).  At first blush, this would appear to outlaw the operation of price comparison or aggregator websites.  It is not clear whether an insurance broker who offers an aggregator solution will also be prohibited from this activity.

In looking to prohibit aggregator sites, or at least confine their operation to a licensed broker, agent, TPA, or company, the regulations are likely to stifle the technological development that is at the forefront of InsurTech in the industry, and leave the UAE lagging behind in terms of its technologies.  Whether or not this is the intention of the regulator, the likely by-product of attempts to ‘over-regulate’ new technologies is likely to hamper innovation and the increased use of ‘smart’ technology within the UAE insurance industry. The regulatory costs and administrative burden that accompany any regulated entity are likely to prove to be significant detractors to technology providers looking to access the insurance space.  On the face of it, the Insurance Authority appears to be imposing a requirement that any outsource provider offering a price comparison website will need to be registered and authorised by the Insurance Authority as a broker, agent, TPA or insurance company.

The draft regulations do provide some helpful guidance as to the requirements for insurance providers to satisfy themselves that they have established the customers’ insurance needs, provided a product that is adequate for the purpose it is purchased, and that the necessary customer due diligence and information security procedures are observed.  However, notwithstanding the intention of promoting electronic insurance, the regulations impose a duty on an insurer to communicate with its customer ‘using at least two means of communication’, which can include email, sms, registered mail and telephone.  Why a customer who chooses to shop online for insurance should require alternative methods of communication is not immediately clear from the regulations.

Claims processes require the policyholder to submit ‘original documentation’ to the insurer, which would appear to imply the physical delivery of hard copy originals to be provided, the reason for which is not immediately clear.

Modernising the industry?

Overall, whilst the regulations certainly acknowledge the advent of the digital age, the imposition of the requirements for registration, authorisation and pre-approval of any providers of electronic insurance services appears to be counter-productive to the development of the area.  The very purpose of new technologies is to make insurance products more accessible, but by restricting the entities which can host such technology, the Insurance Authority is in danger of stifling the development of this area, which is a hot-bed of activism in other parts of the world, and is seen by many as the way forward to modernise the insurance industry, reduce costs and streamline processes.

An alternative approach that the Insurance Authority could have considered, would be to stipulate a list of requirements for insurance providers to comply with when offering products online, and to place the burden of ensuring that those requirements were complied with on the insurance provider itself, rather than require the online platform itself to be regulated by the Insurance Authority.  A simple registration process whereby the online platform would be required to confirm its appointment by the insurance provider would suffice, and require the provider to satisfy itself that the sale or marketing of its products on the platform met the requirements set out in the regulations.  Reducing the regulatory burden on the technological platform, would be likely to encourage more development and investment in InsurTech in the UAE.

Opportunity missed?

In many ways, the provisions of the draft electronic insurance regulations are in line with other recent regulations issued by the Insurance Authority in draft or final form, which miss the opportunity to modernise the industry.  

For example, Insurance Authority Board Resolution 37 of 2017 sets out regulations concerning ‘Points of Sale’ for insurance products.  These regulations apply to the manner in which insurance products can be sold through car showrooms, travel agents or other consumer outlets.  Modern insurance practice is to allow distribution of appropriate consumer products through these alternative forms of distribution, and for insurance providers to appoint consumer outlets as their appointed representatives.  However, the UAE regulations complicate the entire process by requiring a suitably qualified employee of the insurance provider to be based within the consumer outlet concerned, and for the pre-approval of the Authority to provide the point of sale services.  Once again, the approach adopted by the Authority is not in keeping with modern insurance regulatory practice, for ‘low risk’ consumer products. 

Similarly, draft ‘Insurance Producer’ regulations issued by the Authority in November 2018, appear to complicate and restrict the channels for distribution of insurance products in the UAE.

There is great opportunity for the UAE insurance regulators to encourage and harness the technological developments in the insurance market. Sadly, however, the recent spate of regulations issued to oversee the distribution mechanisms seem unlikely to encourage the growth of technology in the industry, which is likely to see it lagging behind the rest of the world in development of new insurance products and processes.

Originally published in Premium - link to the article here.