The primary sources of insurance and reinsurance law in the UAE are as follows:

• Section Four, Chapter Three of the UAE Civil Transactions Law No 5 of 1985 (Articles 1026–1055);
• Federal Law No 48 of 2023, governing the regulation of insurance business (it should be noted that the executive regulations for this law have not yet been released; as stated in Article 114, the regulations and directives that were previously issued for the provisions of Federal Law No 6 of 2007 will continue to be valid until they are substituted or altered);
• the executive regulations derived from Law No 6 of 2007 issued under Ministerial Decision No 2 of 2009; and
• the regulatory resolutions issued by the Insurance Authority (now overseen by the Central Bank).

The International Association of Insurance Supervisors

Beyond these laws, the Central Bank of the UAE (CBUAE) mandates that all insurance companies operating in the UAE adhere to the basic insurance principles established by the International Association of Insurance Supervisors. This association operates as a voluntary organisation, uniting regulatory authorities and regulators from more than 200 jurisdictions. Its primary goal is to improve supervision of the global insurance industry, protecting policyholders, and contributing to global financial stability. The International Association of Insurance Supervisors regularly reviews and updates the fundamental principles of insurance as deemed necessary.

Following the merger of the Insurance Authority with the CBUAE in accordance with Federal Decree-Law No 25 of 2020, the CBUAE has assumed responsibility for overseeing and regulating the insurance industry. The CBUAE is now responsible for upholding and enforcing the resolutions, regulations, circulars and systems previously administered by the Insurance Authority, for all licensed institutions and activities. While awaiting the introduction of new regulations by the CBUAE, the provisions outlined in Federal Law No 6 of 2007 continue to serve as the guiding framework for the CBUAE’s supervision of insurance companies. With a primary focus on safeguarding individuals and the insurance industry, the CBUAE has been granted the authority to establish regulations and issue regulatory resolutions concerning the operations of insurance companies.

The insurance contract finalisation process in the UAE has been simplified for efficiency. To commence a contract, applicants need only submit an insurance application to the relevant authority. Once received, a temporary coverage memorandum can be exchanged between the insurer and insured to provisionally agree on terms. The contract is then formalised through the signing of the insurance policy. Both parties have the option to modify or supplement the original contract terms, with any changes documented in a supplementary annex to the insurance contract.

According to Federal Law No 48/2023, Article 41 (paragraph 4), an insurance contract issued by an unlicensed company is considered invalid. In such event, the affected party is entitled to seek compensation for any resulting damage.

Insurance contracts contain various clauses depending on the specific type of insurance. Article 3 of the executive regulations of Insurance Business Law No 6 of 2007 categorises direct insurance business into three groups:

• personal insurance and wealth formation operations;
• property insurance; and
• liability insurance.

This coverage extends to reinsurance activities and all occupations connected to insurance, subject to regulations, instructions, or special resolutions issued by the council.

Articles 4 and 5 of the same executive regulations elaborate on the different categories of insurance.

Article 4 covers personal insurance and wealth formation operations, including:

• life insurance – this covers various payouts in the event of death, disability, reaching a specific age, or life insurance linked to investment instruments;
• health insurance – this includes all healthcare-related insurance;
• personal accident insurance – this is connected to life insurance and covers personal accident insurance activities for individuals with life insurance policies from the same company; and
• wealth formation operations – these involve capital formation on a specific date in exchange for a single premium or periodic premiums, irrespective of the likelihood of life or death.

Article 5 includes property insurance, liability insurance, and associated activities, such as:

• fire risk insurance and associated coverage;
• insurance against risks on land and at sea, air transportation, and related liability insurance;
• insurance for the physical components of ships and aircraft, including machinery and equipment, along with related liability coverage;
• insurance on satellites, balloons, spacecraft, and their machinery, with related liability insurance;
• insurance on railway locomotives, buses, land vehicles, and related liability insurance;
• engineering insurance and related liability coverage;
• petroleum insurances; and
• health insurance in all its forms.

Insurance against accidents and liabilities covers personal accidents, warranty and breach of trust, cash and securities, robbery and theft, professional indemnity for a variety of professions, work accidents and employer’s liability, agriculture, livestock, and other animals.

Miscellaneous accident insurance includes other types of insurance that fall outside the specified categories.

In the UAE, insurance premiums are subject to tax, but the specific tax amount is determined on a case-by-case basis, depending on whether the policyholder is a natural person or an entity. This means that the taxation of premiums follows specific criteria in the UAE.

VAT is only applicable to the supply of goods or services. Since insurance premiums are designed to cover specific risks outlined in the policy and do not involve the provision of goods or services, VAT does not apply to any premiums. Life insurance policies are also exempt from VAT charges, but VAT is applicable to general insurance policies.

Insurance companies in the UAE include national, foreign and takaful insurance companies.

Foreign insurers seeking to operate in the UAE can choose to apply either through a branch office or an insurance agent.

To secure a licence, an insurance company must maintain minimum paid-up capital of AED100 million or its equivalent. Additionally, the company must place a bank deposit of AED6 million for property and liability insurance, and AED4 million for personal insurance and fund–building operations.

Insurance brokers, who independently act as intermediaries between insurance seekers and insurance companies, derive their fees from commission paid by the insurance companies.

Key licensing conditions for insurance brokers in the UAE include:

• UAE nationals must own at least 51% of the capital;
• the paid-up capital must be at least AED3 million; and
• a bank guarantee of AED3 million for the head office and AED1 million for branches must be provided.

Insurance agents, authorised by licensed companies to conduct insurance business, must register with paid-up capital of at least AED500,000, fully owned by UAE nationals. Banks licensed in the UAE are exempt from this requirement, and other companies may be exempted based on public interest considerations.

A foreign insurance company (FIC), whether established inside or outside the UAE, needs a licence to operate in the UAE’s insurance sector. FICs have the right to operate in insurance activities within the UAE upon registration with the competent authorities, with a minimum classification and evaluation certificate of AA.

Regulated onshore insurance companies and intermediaries must inform the CBUAE of any planned changes in ownership. Ownership increases of between 5% and 10% require notification within 15 days of acquisition. Ownership increments exceeding 10% require prior approval from the CBUAE, with applications submitted at least 60 days before the date of control. Ownership transfers other than those specified, particularly through inheritance or will, are exempt from requiring prior approval from the CBUAE.

This is not applicable in the UAE.

The merger of the Insurance Authority into the CBUAE, as per Federal Law No (25) of 2020 dated 27 January 2021, has given the CBUAE the authority to promote higher standards and regulation in the industry. This development has affected entities in regulated sectors, subjecting them to increased scrutiny to foster a more reliable and compliant market. The goal is to attract additional investments, ensure stability, and safeguard consumer interests.

A key provision states that at least 51% of the shares in any insurance and reinsurance companies established in the UAE must be owned by UAE or Gulf Cooperation Council (GCC) nationals, or by a company wholly owned by individuals from these jurisdictions. In the event of a company operating an insurance practice through a branch, a UAE national must be appointed as an agent of the branch. Various ownership criteria apply to certain professionals in the insurance sector; for example, insurance agencies must be 100% owned by UAE nationals or companies.

The minimum capital requirement for undertaking insurance activities onshore within the UAE are:

• AED100 million or its equivalent for insurance companies; and
• AED250 million or its equivalent for reinsurance companies.

Previously, all insurance companies, including insurance intermediaries and related entities, operating onshore within the UAE, as well as local reinsurers, were subject to regulation by the UAE Insurance Authority, which has now merged with the CBUAE.

The Key Requirements for Different Entities

Reinsurance companies

The paid-up capital requirement is AED250 million (Article 12(1), IA BOD Decision No 23 of 2019).

Insurance companies

The paid-up capital requirement is AED100 million (IA Decision No 25 of 2014 Concerning the Financial Regulations for Insurance Companies).

Brokers

Brokers serving as independent intermediaries facilitating insurance or reinsurance contracts and earning commission from the insurers or reinsurers, are not differentiated into “placing brokers” and “producing brokers” under UAE law. While there is no legal requirement to conduct insurance or reinsurance business through a broker, if engaged, the broker must be authorised by the CBUAE or the Dubai Financial Services Authority/Financial Services Regulatory Authority, as applicable. Dealing with non-licensed brokers is prohibited.

Agents

Distinctions exist in the Insurance Law between brokers and agents. Brokers act independently, while agents act directly and exclusively as intermediaries for a single insurer or reinsurer. The roles are mutually exclusive; a broker cannot act as an agent, and vice versa.

Insurance agents are required to be registered with the CBUAE or the relevant regulatory authority, such as the Dubai Financial Services Authority/Financial Services Regulatory Authority.

Other providers of insurance/reinsurance-related activities

Entities such as loss adjusters, insurance consultants, health insurance third-party administrators, bancassurance agents, and price comparison websites are also required to be registered with the CBUAE.

Law No 48 of 2023, which regulates the insurance sector, defines the roles and responsibilities of both parties involved in insurance agreements. According to this legislation, the insurer is defined as any insurance company operating within the country, or a foreign company, holding a licence to conduct insurance business within the country, either through a branch or an  insurance agent, under the regulations of this law. Conversely, the insured is the individual entering into an insurance agreement with the insurance company.

The duties of both the insurer and the insured, along with the consequences of failing to fulfil these responsibilities, are clearly outlined in the Civil Transactions Law.

Obligations of the Insured

The obligations of the insured, outlined in Articles 1032 and 1033 of the Civil Transactions Law, can be summarised as follows.

Article 1032 states that the insured must:

• submit the designated sum of money within the timeframe outlined in the contractual agreement;
• provide all relevant data necessary for the insurer to assess the assumed risks at the beginning of the contract; and
• inform the insurer of any incidents occurring during the agreement that could potentially increase the risks.

Article 1033 states:

• If the insured deliberately withholds or falsifies information in a manner that understates the risk or alters its nature, or fails to act in good faith when fulfilling obligations, the insurer has the right to terminate the contract and seek payment for instalments due before termination.
• In cases where there is no fraud or malicious intent, upon the insurer’s request for contract termination, the insurer is obliged to refund the insured for the paid instalments or reimburse the portion of the instalments that did not involve any risk to the insured.

Obligations of the Insurer

Articles 1034 and 1035 of the Civil Transactions Law outline the obligations of the insurer as follows.

Article 1034 states that insurers must provide the agreed-upon indemnity or payment to the assured or beneficiary when the risk occurs or the specified time in the contract elapses.

Article 1035 states that the obligation of an insurer under insurance against civil liability becomes effective only when the injured party makes a claim against the beneficiary after the occurrence of the incident from which such liability arose.

These obligations are of a general nature. Depending on the type of insurance and the specific provisions outlined in its clauses, additional obligations may be imposed on each party involved.

As previously mentioned, the responsibilities of the insured according to Article 1033 of the Civil Transactions Law states:

• If the insured deliberately withholds or falsifies information in a manner that understates the risk or alters its nature, or fails to act in good faith when fulfilling obligations, the insurer has the right to terminate the contract and seek payment for instalments due before termination.
• In cases where there is no fraud or malicious intent, upon the insurer’s request for contract termination, the insurer is obliged to refund the insured for the paid instalments or reimburse the portion of the instalments that did not involve any risk to the insured.

As previously stated, insurance companies are under the supervision of the Central Bank in relation to the insured’s failure to comply with laws and procedures. This matter is addressed in Chapter Seven of Insurance Law No 48/2023, specifically in the section titled “Measures and Penalties”. In paragraph 2 of Article 33, the law prescribes the penalty for the insured’s breach of their responsibilities. The Article states the following:

“In the event that a Company fails to comply with any of the provisions of Clause (1) of this Article, the Central Bank may impose the measures or penalties it deems appropriate, and it may impose one or more of the following:

1. Addressing a warning that includes a statement of the nature of the violation, its corrective procedures, and the mechanism for rectifying its situations.
2. Requesting the Company or headquarters of the foreign Insurance Company, as the case may be, to take the necessary procedures to correct the administrative situations, including the recusal of the Director-General of the Company, the Authorised Directors, or any other Key Employee.
3. Recusing the chairman of the Board of Directors of the Company and any member of the Board whose responsibility for the current situation of the Company is proven.
4. Establishing a neutral committee of experts to replace the Board of Directors of the Company for no more than six (6) months, renewable for similar period or periods as necessary, provided that the total time limits in all cases do not exceed twenty-four (24) months, as well as determining its tasks, appointing the members of the committee, its chairman and his deputy. The Company shall bear the committee’s fees specified by the Central Bank, provided that the election processes and formation of a new board of directors are carried out under the provisions of the aforementioned Federal Decree-Law No (32) of 2021 at least thirty (30) days prior to the end of the committee’s work.
5. Taking all necessary procedures to merge the Company with another company with the approval of the Company with which it will be merged.
6. Preventing the Company from entering into new additional insurance contracts or from practising a certain type or more of the insurance types.
7. Setting an upper limit for the total Premiums collected by the Company from Insurance Policies issued.
8. Maintaining assets in the State whose value equals all of its net liabilities arising from its business in the State, or a certain percentage of its worth as specified by the Central Bank.
9. Restricting the Company’s practice of its investment activities related to the Solvency Margin or requiring it to liquidate its investments in any of these activities in order to achieve this purpose, unless a damage to the Company is sustained as determined by the competent expert.
10. Appointing an independent controller member from outside the Central Bank to attend the meetings of the Board of Directors of the Company and participate in the discussions without having a counting vote in decision-making. The Board shall determine his tasks and fees.
11. Suspending the Company’s licence.
12. Revoking the Company’s licence.
13. Restructuring of the Company.
14. Liquidating the Company.
15. Imposing a financial fine on the Company, provided that it does not exceed AED one hundred million (100.000.000).”

According to Insurance Business Law No 48 of 2023, a legal person licensed by the Central Bank who facilitates the conclusion of insurance or reinsurance agreements by acting as a mediator between those seeking such services and insurance or reinsurance companies, receiving a commission as compensation, is defined as an insurance intermediary.

Article 42 of Law No 48 explicitly prohibits individuals from engaging in the profession of insurance intermediary unless they are registered in the designated register, adhering to the criteria set forth by the council.

The responsibilities of an insurance intermediary are determined by agency contracts. The extent of the agent’s authority, covering legal actions within the original agent’s capacity, is defined by the terms and conditions outlined in the agency contract. The agency contract states the insurance intermediary’s authority and the permissible legal actions by the original agent. The insurance intermediary is obliged to follow reasonable and lawful instructions from the principal in carrying out their duties. Consequently, the insurance intermediary must adhere to the provisions and conditions in the contract with the insurance company issuing the policies, enuring that they do not exceed the agreed terms.

An insurance contract is classified as a designated agreement for which the legislator has established specific provisions due to its legal and technical complexity. Defined by the Insurance Business Regulation Law, an insurance contract or insurance policy is a written document finalised between the insurer and the insured. This document outlines the terms of the agreement, the respective obligations and rights of both parties, along with any attached appendices.

Article 13 of the law outlines the conditions that the policy must meet, with the key requirement being that it must be written in Arabic. The article states, “The insurance policy in the country shall be drafted in the Arabic language. A sufficient translation into another language may be attached to it. In case of a discrepancy in the interpretation of the document, the Arabic text shall prevail.”

The following also apply:

• clauses releasing the company from liability in the policy must be highlighted in a different colour, and the insured must initial them;
• the issuance of an insurance policy electronically is allowed, subject to the conditions and procedures specified by a decision of the council; and
• in exceptional cases exempting some insurance policies from the requirement to be drafted in Arabic, the general director of the Central Bank                                                                      may exercise this authority.

The definition of the insured, as outlined in the Insurance Business Law, is discussed in 6.1 Obligations of the Insured and Insurer. Concerning the beneficiary, as per the same law, the beneficiary is the individual who secures rights under the insurance contract, either from the outset or through legal transfer.

Article 1050 defines the status of the insured or beneficiaries when expressly identified in the contract:

• The policyholder may specify that the insurance proceeds be paid to a person designated in the contract or to individuals subsequently specified.
• If the insurance is designated for the benefit of the spouse, children, descendants, or heirs of the insured, the proceeds will be disbursed to anyone proving they fall within that category at the time of the insured’s death. In the event that the heirs are the beneficiaries, the insurance proceeds will be distributed among them in accordance with their lawful shares in the estate.

This suggests the option to name a specific person as a beneficiary or insured party in the insurance contract. It also highlights the insurer’s responsibility to pay the indemnity to the beneficiary upon the maturity of the policy.

The CBUAE, formerly the Insurance Authority, established in accordance with Federal Law No 48/2023, is responsible for overseeing insurance companies. It has the authority to impose fines and disciplinary measures on those who violate regulations. Regarding insurance-related disputes, the Insurance Disputes Committee, affiliated with the authority, reviews cases impartially and objectively, taking into account the relevant legal provisions.

According to the regulations governing reinsurance operations outlined in Insurance Authority Resolution No 23 of 2019, a reinsurance contract is an agreement in which the direct insurer transfers the responsibility for the risk assumed in the contract to the reinsurer, along with the associated rights and responsibilities.

Regarding consumer contracts, it is important to recognise that they deviate from conventional contracts in that they operate under a general principle outlined in Article No 2 of Federal Law No 15 of 2020, which addresses consumer protection. This law is applicable to all goods and services offered within the country, including those in free zones, and ensures the protection of consumers in their transactions and interactions.

From these definitions, it becomes evident that consumer contracts cover a broader scope and offer a more extensive range compared to insurance or reinsurance contracts.

Alternative Risk Transfer (ART) solutions serve as alternative methods for risk management and financing compared to the conventional direct insurance marketplace. ART involves a redefined and repackaged approach to tackle some of the key issues and challenges encountered in traditional insurance placements.

Organisations are driven to explore ART solutions for three primary reasons:

• Cost efficiency – ART solutions have the potential to be more cost-effective over time compared to what the traditional insurance market would offer on a similar basis.
• Supplementing traditional insurance – ART solutions create alternative access points for acquiring additional or new capacity and/or higher limits previously not available through traditional insurance channels.
• Bridging the protection gap – ART solutions create opportunities and possibilities for exploring protection options for risks that were previously deemed uninsurable.

Please can you respond here, even if just to say that this is not applicable in your jurisdiction? Otherwise there will be a blank under the heading.

When the language of a contract is clear and unambiguous, there is no need to debate its interpretation. In such instances, the judge is obliged to adhere strictly to the exact wording, terms and conditions of the contract. However, the clauses within an insurance contract must conform to the legal regulations governing them, as stated by the following:

• Section Four, Chapter Three of UAE Civil Transactions Law No 5 of 1985 (Articles 1026–1055);
• Federal Law No 48 of 2023 concerning the regulation of insurance activities;
• the executive regulations of Law No 6 of 2007 issued under Ministerial Decision No 2 of 2009; and
• regulatory decisions issued by the Insurance Authority (and now, by the CBUAE).

In accordance with established legal principles and the ruling of the Court of Cassation, the interpretation of an insurance policy, like any other contract, falls under the jurisdiction of the court handling the specific case. The interpretation must remain within the limits of what the policy’s language permits and align with the intentions of the parties involved. When reaching a decision, the court must consider the entirety of the policy’s expression, while also taking into account the nature of the transaction and the principles of honesty and good faith that should prevail, as per customary practices. This ruling was issued by the Court of Cassation on 26 November 2020, in relation to Civil Appeals No 2020/377 and No 2020/378.

In accordance with Article 1034 of the Civil Transactions Law, the warranty represents the payment the insurer is required to provide to either the insured or the beneficiary in the agreed manner when the risk materialises or the specified term in the contract ends.

Based on this definition, the scope of the warranty is determined by assessing the particular peril covered by the insurance, excluding consideration of other potential risks. It is formulated in alignment with the provisions of the contract, which may specify the exclusion of certain risks under specific circumstances. If the excluded risks materialise, the insurer is not obliged to provide the warranty.

The insurance contract states that the insurer’s liability for compensation is based upon the terms outlined in the contract. However, Article 1028 of the Civil Transactions Law states: “The insurance policy will be considered invalid if it includes any of the conditions listed below: a)... b) a condition stating that the insured’s right will be forfeited if there is a delay in reporting the incident to the necessary authorities or submitting the required documents, unless the delay is justified by a valid reason."

This means that it is the duty of the insured to notify the insurer of the risk. However, a failure on the part of the insured to fulfil this obligation results in contractual liability. The insurance contract may define the extent of this liability, but the law sets a maximum limit on this consequence to protect the insured’s right to seek compensation from the insurer based on the insurance policy.

In accordance with Article 1035 of the Civil Transactions Law, it is imperative that the injured party files a compensation claim against the beneficiary within a three-year period from the occurrence of the incident, as specified in Article 1036.

Resolution of Insurance Disputes

Insurance disputes are resolved when the insurance company is immediately informed by the policyholder, beneficiary, or third party, after an insured accident or incident occurs. This notification is made to request compensation for the resulting loss. The insurance company then initiates a claims process, evaluates the value of the losses or damage, and then disburses a compensation amount to the policyholder, beneficiary, or third party, ultimately reaching a final settlement. In the event that the insurance company rejects the claim, the policyholder, beneficiary, or third party has the right to take legal action.

Resolution of Reinsurance Disputes

For reinsurance contracts, when the policyholder notifies the insurance company of a covered event or accident, the insurance company is obliged to notify the reinsurer to take the necessary actions. These steps include appointing a specialised expert to inspect and assess the damage, examining the insured party, calculating repair costs, estimating the compensation amount, and notifying the insurance company to make the compensation payment to the policyholder, third party, or beneficiary. Following this, the insurance company obtains a final release. If the reinsurance company rejects the claim, the policyholder, beneficiary, or third party has the right to pursue legal action. The insurance company is responsible for presenting its legal and technical arguments in court under the supervision of the reinsurance company.

Limitation Period

The time limit for settling insurance disputes is three years, except for maritime insurance, where it is one year

Third-Party Beneficiaries

Standard insurance policies are issued for the exclusive benefit of the policyholder. However, it is possible to issue insurance policies that benefit a third party, as is the case with policies related to vehicle liability insurance, workers’ compensation insurance, or project risk insurance, which covers the damages incurred by third parties or beneficiaries. This means that there are insurance policies that cover third parties who are not specifically named in the policy, and under these policies, insurance companies are obliged to cover damages in accordance with the terms of the insurance policy.

The general principle is that insurance disputes should be resolved in state courts, with the exception of cases where arbitration has been agreed upon. If a disagreement arises about which court has jurisdiction over an insurance dispute, the matter is referred to the Federal Supreme Court to determine the appropriate judicial authority. State laws should be applied to all insurance disputes, although in exceptional circumstances, certain provisions of international agreements may be considered, such as in disputes related to air transportation.

Litigation in state courts varies depending on the claimant. When a policyholder, a third party, or a beneficiary initiates a claim, they are required to initiate a complaint with the Insurance Disputes Settlement and Resolution Committee. This requirement does not apply to lawsuits filed between insurance companies. If the value of the dispute is below AED50,000, the decision of the Insurance Disputes Settlement and Resolution Committee will be conclusive and immediately enforceable. However, if the value of the dispute surpasses AED50,000, the decision can be contested within 30 days of its issuance or acknowledgement before the appropriate Court of Appeals. This appeal will halt the decision made in disputes that exceed AED50,000.

In the event that an arbitration agreement is in place, the claim for arbitration is presented to the relevant arbitration body. Following the issuance of a final decision, this decision can be either confirmed or challenged through the appropriate legal procedures before the relevant court. Following this, the process of enforcing the judgment proceeds.

The enforcement of court judgments issued by state courts is conducted through the procedures established by the law before an execution judge.

Foreign judgments must undergo a validation process, especially in the absence of an international agreement, in effect concerning the recognition and enforcement of foreign judgments with the UAE. If there is an existing international agreement, the judgment is recognised once the specified conditions, such as those outlined in the Riyadh Agreement for Judicial Cooperation, are met. Afterwards, the foreign judgment can be enforced before an execution judge in accordance with the legal prerequisites.

Where there is an existing arbitration agreement, the parties involved are required to adhere to it. This obligation is met by approaching the competent arbitration body and submitting a case to seek a decision based on the rights derived from the arbitration agreement.

If an arbitration award is issued by a competent authority within the state, it will be enforced by the relevant execution judge, in accordance with the legal procedures.

In the event that an arbitration award comes from a foreign judicial authority, it must undergo a ratification process before the competent state judicial authority. After ratification, the award is enforced in accordance with the applicable legal principles and procedures.

The UAE legislator has mandated the use of alternative dispute resolution methods to address specific types of insurance disputes before approaching the courts, and these methods have the potential to resolve some insurance disputes prior to litigation.

However, reinsurance contracts are not legally bound by alternative dispute resolution methods.

When an insurance company delays the disbursement of claims, the eligible claimant is allowed to initiate legal proceedings to recover the original claim amount, along with additional interest on the delayed payment until complete settlement. The interest is intended to compensate the claimant further for the insurance company’s delay in meeting its obligation.

Under circumstances where specified conditions for seeking compensation are satisfied, an insurance company is entitled to demand reimbursement from the party responsible for the same amount it has disbursed. This is usually pursued through a lawsuit before the appropriate court, in accordance with the legislator’s established legal procedures. This process is typically carried out either through a subrogation right granted by the insured party or through legal actions.

The global pandemic significantly accelerated the process of digital transformation in the insurance sector. Insurtech, a combination of “insurance” and “technology”, represents an emerging industry that utilises modern innovations to revolutionise traditional insurance practices. According to Article 23 of the Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT) Decision, insurance operators are required to identify and evaluate money laundering and financing of terrorism risks in life insurance and other investment-related insurance products.

This evaluation includes the development of new products, evolving business practices, and the use of emerging technologies, such as mobile insurance applications, insurance portals, transaction terminals, and insurance booths. Prior to launching or employing new products, practices, or technologies, operators must conduct risk assessments and implement measures to manage and mitigate identified risks. Operators need to be vigilant regarding products, practices, or technologies that allow for anonymity.

All takaful insurance companies recognise the significance of digitalisation in their business. Each company has distinct strategies for digital transformation, with the key driving factors being the importance of efficiency and customer experience. Companies are motivated to digitalise operations, not only to increase revenues and profits, but also to reduce costs and expenses.

The CBUAE has introduced sandbox regulation to define the regulatory framework for governing the operation and administration of the experimental environment within the insurance sector. The primary objectives of this document include:

• understanding the products to be introduced, identifying associated risks, and ensuring a satisfactory experience for customers during the pilot period;
• transitioning the UAE insurance market into a smart insurance market;
• supporting emerging Emirati fintech companies; and
• creating an attractive environment for the insurance sector through the integration of innovative systems, serving as a platform for interaction with fintech companies, improving the regulatory framework, and contributing to economic growth and risk management.

As a growing financial market, the UAE actively adapts its regulations to effectively address emerging risks. Factors such as the COVID-19 pandemic and global/regional conflicts have led to increased migration and business relocation to the UAE, driven by its reputation for safety and desirability.

Digital Transformation and Related AML/CFT Risks

The increased digitalisation of services provides easy access to financial products but introduces risks, such as the potential issuance of policies to sanctioned individuals or the handling of laundered money. The UAE addresses these risks through strict AML/CFT regulations. Recent measures include the establishment of a specialised federal prosecution unit focused on combating economic crimes and money laundering.

Mergers and Oversight on Solvency

Factors such as operational expenses, increased competition in the insurance sector, and increased regulatory scrutiny, including commissions caps for insurance brokers and agents, and a mandated 30-day “free-look period” for policyholders, have prompted mergers among UAE insurance firms to maintain profitability. The CBUAE diligently oversees insurers’ solvency, ensuring compliance with the mandatory Solvency Capital Requirement (SCR). This requirement considers various risks, including underwriting, market and liquidity (investment), credit, and operational risks, aligning with the proposals outlined in the EU’s Solvency II Directive.

Corporate Governance and Risk Management

Two regulations recently introduced by the CBUAE aim to increase the financial stability of the insurance market. Circular No 24/2022 on Corporate Governance Regulation for Insurance Companies (the “Corporate Governance Regulation”) mandates the establishment of independent risk management functions reporting directly to the board. It highlights the importance of a risk management framework, and the circular requires the inclusion of policies, processes, procedures, systems and controls to identify, measure, evaluate, monitor, report and control, or mitigate, material sources of risk.

Additionally, the CBUAE will employ a principle of proportionality in the enforcement of this regulation, allowing smaller companies to demonstrate their compliance with the objectives without necessarily addressing all the detailed specifications.

Circular No 25/2022 on Risk Management and Internal Controls Regulation and Standards for Insurance Companies (the “Risk Management and Internal Controls Regulation”) requires a comprehensive risk-management approach with a focus on forward-looking stress testing. This involves evaluating extreme adverse scenarios so as to be informed about their potential impact on financial position. Companies are required to consider both identified risks and others while assessing their capital and liquidity requirements.

The UAE insurance market has been significantly transformed due to the integration of insurance technology (insurtech), leading to a dynamic shift.

Insurtech

Insurtech innovators are introducing comparison features, allowing users to make well-informed decisions when selecting insurance packages that suit their specific needs. This not only empowers consumers but also helps in risk mitigation by ensuring individuals choose coverage tailored to their unique requirements. The digitalisation of the insurance subscription process is a key adaptation to changing market conditions, especially in the post-COVID era. By streamlining and digitalising the subscription process, insurtech companies are not only improving operational efficiency but also meeting the growing demand for contactless transactions, a trend accelerated by the pandemic.

The collaborative efforts between traditional insurance companies and insurtech start-ups highlight the industry’s recognition of the potential benefits. This collaboration aims to improve overall efficiency, representing a significant step towards addressing emerging risks collaboratively.

Takaful and Technology

In response to the digital transformation imperative accentuated by the COVID-19 pandemic, takaful insurance companies in the UAE are prioritising key factors for the adoption of technology. These include improving operational efficiency, enhancing customer satisfaction, increasing revenue and profitability, reducing costs and expenses, and collecting valuable data. The strategic integration of software as a service (SaaS) and cloud computing emerges as a pivotal solution, providing seamless service delivery, enhancing client experiences, and optimising operational costs.

In recent times, the UAE legislator has introduced a series of regulations to regulate insurance disputes. This includes the introduction of standardised insurance policies for vehicle insurance, clearly outlining the responsibilities and entitlements of both insurance companies and policyholders. These measures have played a key role in improving and developing the operational landscape of the insurance industry.

Additionally, a new set of legislation has been issued to establish Insurance Disputes Settlement and Resolution Committees, which deal with specific categories of insurance disputes prior to resorting to the court system. These developments have directly influenced how insurance disputes are handled in the UAE, offering a more organised and effective framework for their resolution.