Gulf Insurance Restructuring Continues

Posted on Jul 13, 2011 by Sergio Ulloa (G+)

The United Arab Emirates is working hard to revise many of its regulatory policies to better conform to GCC laws, applicable through its membership in the Gulf Union. This restructuring effort could involve the adjustment and merger of some of the nation's legislative and regulatory institutions, most notably the dissolution of the UAE Insurance Authority. The insurance sector has continued to develop admirably in the United Arab Emirates. The Insurance Authority's most recent report revealed that the total volume of underwritten insurance premiums in the UAE was AED22 billion (US$6 billion) for 2010, a 10 percent increase over the AED 20.1 billion (USD 5.5 billion) recorded in 2009. The total invested funds in the insurance sector meanwhile topped AED 27.6 billion, with national companies enjoying more of the windfall than ever before. The UAE, long known as a broker market, has retained an institutional distinction between banking and investment services. Banking has been supervised by the UAE Central Bank, while insurance services are regulated through the UAE Insurance Authority. This has unfortunately resulted in numerous grey areas whereby regulators have been unable to properly apply and monitor their market reforms. Reorganizing the relationship between the Central Bank and Insurance Authority will hopefully produce a standard set of regulations across the UAE to properly address risk and guarantee the necessary consumer protections now required in a global economy. Sources close to the situation have confirmed that the UAE Insurance Authority will likely be dissolved later in the year. The institution was first established in 2007 to oversee and pass legislation governing the regulation of the insurance industry in the UAE, including accreditation for both local and foreign registered insurance entities. In the wake of the global economic downturn, the Insurance Authority began tightening its regulatory efforts to closely match their regulatory frameworks in line with best industry practices elsewhere. The Insurance Authority was among many regulators in the Gulf at the time seeking to better police the insurance industry, particularly the intermediary sector. These businesses were failing to comply with the new capital requirements first set for brokers in December 2006. Last year, the Insurance Authority singled out and removed almost sixty firms, now leaving around 145 brokers still standing in the region. These efforts have lead to the institution extending its supervision to insurers already regulated by other bodies in the region, such as the Dubai Financial Services Authority, which also created perhaps an oversight redundancy. To date the UAE Insurance Authority has issued nine licenses to insurers who wish to operate in the Emirates insurance industry. In March, the institution put forth draft resolutions aimed at better controlling investments within the country's insurance market. The proposal would both set maximum limits on funds invested as well as minimum cash reserves held by active insurance firms that would be proportional to their standing capital. The Insurance Authority has also recently embarked on a process of unifying its electronic database across all insurance companies in order to soon provide a one-stop location for those interested in UAE motor vehicle insurance online, with the option ready to extend its services into other countries in the region as well. It is hoped that efforts likes this will gradually lead to either a harmonization of requirements across the region, or reciprocal arrangements between the various countries, and ultimately allow for better cross-border provision of services Similar to other Middle Eastern states, the UAE authorities have also expressed concerns about the dominance of the expatriate workforce in the local insurance sector. Fatima Mohammed Ishaq Al Awadhi, deputy director of the Insurance Authority, intimated that the UAE may not give approval for another insurance firm to operate in the country unless it employed a sufficient number of Emirate citizens. Out of 7,271 employees currently working for insurance companies in the UAE, only 397 are citizens, an 'Emiratization' rate of 5.5 per cent. The regulatory tasks and responsibilities of the Insurance Authority will be redistributed to other organizations as the institution is phased out during the year, including the issuance of new licenses for insurance, financial and investment companies looking to set up business in the country. More specifically, responsibilities for the license accreditation of UAE investment companies will be removed from the jurisdiction of the Security and Commodities Authority (SCA) and bestowed upon the Central Bank, while licenses involving insurance companies and brokerages (previously the Insurance Authority's responsibility) will be now reassigned to the SCA. The SCA has also been authorized to monitor and process the licenses of all brokerages in the financial sector as well. These consolidation moves have been made to make domestic regulatory authorities better adhere to international best practices. The increased involvement by the Central Bank in the insurance sector comes as the UAE considers setting up a system to guarantee small bank deposits of below AED1.5 million (US$410,000). Similar insurance plans were approved for larger deposits earlier in the year as part of a strategy to better ensure long-term financial stability in the region. The amount insured would either be carried by the banks or jointly by both banks and depositors as it is in financial systems in other countries. Many bankers in the region have thus far rejected the proposal citing unnecessary costs and the UAE banking sector's strong capital position as a guarantee of stability. Other countries in the Gulf region have also been busy updating their regulatory infrastructure and implementing social reforms to address institutional difficulties. This week, the Kuwaiti government signed an insurance contract worth GBP 1.8 million (US$2.8 million) with BUPA to provide private health insurance for all Kuwaiti students currently pursuing higher education in the United Kingdom. BUPA currently serves over 2,000 students in the UK, and provides the necessary experience to ensure Kuwaiti expatriates will be well protected while abroad. The insurance policy with BUPA will include treatment for most medical and dental services available in both private and public hospitals and clinics. While visiting the United Kingdom it is important to have health coverage. The British government has renewed efforts to clamp down on the abuse of its NHS services by foreign nationals. Kuwait Health Minister Dr. Hilal Al-Sayer told reporters that this deal demonstrated Kuwait's intentions to provide the best services for its students to help them better learn and compete with their counterparts from other countries on more equal footing. The Ministry also planned to raise allocations for foreign medical treatment across the rest of Europe and the US. This policy was important as it would enable Kuwaiti expatriates to better adjust to high standards of living in European countries, the minister added. Insurance Companies Mentioned Bupa Bupa was established more than 60 years ago in the UK and now has ten million customers in over 190 countries, and over 52,000 employees around the world. Bupa is a leading international healthcare provider, offering personal and corporate health insurance, workplace health services and health assessments. As a provident association Bupa has no shareholders, because of this it uses its profits to invest in healthcare and medical facilities around the world. Bupa has operations around the world, principally in the UK, Australia, Spain, New Zealand and the US, as well as Hong Kong, Thailand, Saudi Arabia, India, China and across Latin America.