To date, changes in insurance regulation in the UAE have had little significant direct impact on claims and claim adjustment. However, changes in regulation and greater enforcement by UAE (and regional) insurance regulators are likely to require all claims professionals to revisit how they deal with claims going forward.
During the course of the last 18 months, the UAE's Insurance Authority (as is the case with other regulators in the region) has issued a number of regulations that either directly impact on how claims are processed, or that are aimed at enforcing earlier regulations to which certain insurers and service providers may have paid lip service. This note therefore considers the impact of the two important recent UAE insurance regulatory changes that are likely to have an impact on claims.
The UAE Insurance Law (Federal Law 6 of 2007) applies to all insurance business in the UAE. In the circumstances, the new insurance regulation that can be expected to have the most pronounced and direct impact on energy claims is the recent amendment to the Insurance Law.
The Insurance Law was amended in 2018 pursuant to UAE Federal law 3 of 2018. The amendments apply to all insurance lines/types of insurance.
Article 110 of the Insurance Law (as amended) now deals with the finalisation and resolution of insurance claims. In particular, Article 110 expressly provides that claims are to be dealt with in accordance with the Code of Conduct issued by the Insurance Authority in 2010 and notes that, where an insurer seeks to decline cover, the insurer is obliged to provide the insured with written reasons as to why its claim is not covered.
Requiring a written declinature letter is likely to have limited impact on claims handling, what is likely to have far greater impact are the amendments that deal with how subsequent disputes are to be resolved. In this regard, the amendments to the Insurance Law anticipate that UAE coverage disputes will now be referred to a bespoke insurance disputes committee, which is to be formed by the Insurance Authority. Only after such disputes committee has provided its decision on coverage, may the insured or insurer refer the matter to the applicable Court of First Instance.
The approach of having a specialist forum for the resolution of insurance disputes is laudable, particularly as the Insurance Authority intends to set up committees to cover all specialist classes of insurance business. However, whether there is a sufficient volume of, say, UAE energy claims to justify a standalone specialist insurance disputes committee remains to be seen. In addition, and notwithstanding that the amendments are now effective, the implementation of the (amended) Insurance Law and the achieving of its goals are undermined by the fact that no claims committees have been established yet.
Notwithstanding the current teething issues with the implementation of the new procedures, when the new committees are established, it will be apparent that it will be far easier for insureds to challenge insurers on coverage than was the case if they were required to commence court proceedings.
The risk of fines and penalties
A second important regulatory change that impacts on dealing with claims in the UAE is Cabinet Resolution 7 of 2019 (the Resolution). The Resolution deals with administrative fines and penalties that can be imposed by the Insurance Authority. The Resolution came into effect on 6 April 2019 and applies to all entities and professions licensed by the Insurance Authority including insurance companies, loss adjustors and brokers.
The Resolution contains a list of more than 200 fines and penalties that range up to AED 250,000 for the most serious violations and anticipates fines of up to AED 2 million for repeat violations.
Ordinarily regulatory fines, such as those imposed by the Resolution, could be expected to have little impact on claims. However, there are a number of fines introduced by the Resolution that deal with failings during the claims process and will therefore need to be considered. The fines and penalties introduced by the Resolution and that impact directly on claims include: that insurers may be fined AED 50,000 where they fail to settle a claim following a insured loss; a fine of AED 50,000 if an expert or consultant (which is likely to include forensic experts and adjustors) wrongly disclose information and breach their obligations of confidentiality; a fine of AED 250,000 where an individual undertakes work restricted to any of the professions regulated by the Insurance Authority (e.g. adjusting or broking) without a licence; and a fine of AED 20,000 where a surveyor or adjustor fails to carry out their "duties".
The fines and penalties are not particularly problematic where they are for the breach of an objective standard. However, it will be apparent that there are a number of fines that link to, say, the Code of Conduct to determine whether an adjuster has performed any required "duties". To illustrate the importance of understanding such duties and the likely impact of the amendments it is worth noting, for example, that the Code of Conduct requires claims to be settled within 15 days of all requested information being provided. With complex losses, which are prevalent in the energy sector, it is simply unrealistic for claims to be settled within such a short period of time. Understanding the extent of each profession's professional duties in the UAE will therefore perhaps be more important than ever before to avoid regulatory sanctions and fines.
The regulatory changes affecting how insurance coverage disputes will be resolved and the risk of sanction and penalties, means insurers and their service providers will need to be far more proactive when dealing with claims and will need to keep a careful eye on their regulatory obligations to ensure that they comply with any specific obligations and duties that arise in the UAE.
It should further be noted that similar regulatory changes are happening across the Middle East. However, the insurance regulations being introduced across the region are, from a claims perspective, far from consistent. The effect is that what may be required with a claim in the UAE may not have any relevance to a claim in, say, Oman.
While not all the changes to insurance regulations have a direct impact on claims, what is clear is that the introduction of new regulations in the UAE will have a direct impact on the claims handling process in the UAE. No longer will insurance regulations therefore be an issue of concern only to underwriters and the management of insurance companies.
The introduction of new regulations no doubt will create challenges and may require new approaches when dealing with claims, but as is always the case with change, new regulations will create opportunities for insurers and service providers, and will hopefully also result in a better claim experience for insureds.