written by
Renjit Philip

Navigating the UAE's Evolving Insurance Regulatory Landscape

Insurance insurtech regulations open finance 4 min read , April 23, 2024

The insurance industry in the UAE and the broader Middle East region is undergoing significant regulatory changes to strengthen corporate governance, enhance consumer protection, and foster innovation. In a recent podcast hosted by FSBrew (I am a co-host), legal expert Anand Singh, Senior Counsel at Al Tamimi & Company, shed light on the key regulatory developments in 2024 and their potential impact on insurers, brokers, and the overall ecosystem.

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Housekeeping Regulations: A Necessary Step

Several new regulations introduced in 2023 focus on what Singh describes as "housekeeping" matters, such as risk management, corporate governance, business planning, and the establishment of an ombudsman. While these may seem like basic requirements in developed markets, Singh notes that approximately 60% of the UAE insurance market currently needs to be more compliant with these fundamental aspects.

These regulations aim to bring much-needed standardization and accountability to the industry. By clearly outlining expectations and potential repercussions for non-compliance, regulators hope to elevate the priority of these essential practices among market participants.

Open Finance: A Game-Changer on the Horizon

Among the most anticipated regulatory developments is the introduction of Open Finance, an initiative that seeks to create a centralized system for banks, insurers, brokers, and other licensed players to integrate and exchange data seamlessly. In simple terms, Open Finance is a framework that allows for the secure sharing of financial data between different financial institutions. Singh considers this a "noble" endeavor, as it has been successfully implemented in only two countries worldwide.

The potential benefits of Open Finance are manifold. It could drive digitalization and innovation by mandating insurers and banks to upgrade their systems to meet minimum integration requirements. For instance, it could enable insurers to offer more personalized policies based on real-time data. Additionally, by fostering transparency and data-sharing, Open Finance could enhance financial inclusivity, paving the way for fintech and insurtech companies to offer more affordable and tailored products to consumers.

Safeguarding Consumer Data and Privacy

New regulations underscore the importance of data security and customer privacy in health and medical insurance. Since insurers handle sensitive personal information, regulators have introduced stringent requirements to ensure robust cybersecurity measures and reinforce insurers' ownership of customer data.

Singh attributes this emphasis on data protection to the sensitivity of health data and instances where third-party administrators (TPAs) have left the market unexpectedly, leaving customers vulnerable. By strengthening data governance and empowering insurers to take ownership of customer data, these regulations aim to safeguard consumer interests and maintain market stability.

Capital Requirements and Market Consolidation

The revised insurance law introduces higher capital requirements, particularly for branches of foreign insurers operating in the UAE. While subsidiaries were previously subject to capital requirements, branches now face an AED 100 million capital guarantee mandate. Singh notes that this move may prompt some branches to reevaluate their strategies, as they essentially become akin to local subsidiaries without the risk-sharing benefits of operating under the parent company's capital.

However, the higher capital requirements could also spur market consolidation and attract new players willing to invest in the UAE insurance sector. If the regulators facilitate the issuance of new licenses, Singh believes it could lead to an influx of fresh capital, innovation, and competition, ultimately benefiting consumers.

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Consumer Protection and Industry Sustainability

Several regulations aim to enhance consumer protection and promote industry sustainability. The reversal of the 50% discount on minimum motor insurance premiums, which had been bleeding the market, is already showing positive impacts on profitability. Singh emphasizes the need for self-regulation among market participants to avoid excessive discounting practices that undermine the sector's long-term viability.

Additionally, the introduction of an ombudsman is expected to be a "game-changer" in resolving disputes and safeguarding policyholder interests more efficiently than the current insurance disputes resolution committee.

Looking Ahead: Challenges and Opportunities

As the UAE insurance industry aligns with these enhanced regulatory expectations, insurers and brokers face challenges in terms of increased operational costs and profitability pressures, at least in the short term. 'Short-term costs of compliance' refers to the immediate financial and operational burdens that insurers and brokers may incur as they adapt to the new regulatory requirements. However, Singh believes that these measures will have a positive long-term impact, fostering a more robust, sustainable, and consumer-centric industry.

Singh identifies one area that needs further attention: premium collection. He suggests the adoption of an "advanced premium collection" mechanism, where risk coverage commences only upon receipt of premiums, to address the prevalent issue of insurers granting coverage without receiving upfront payments.

Furthermore, Singh advocates for a level playing field, expressing concerns about unlicensed players operating in the market and potentially draining premium revenue from compliant insurers burdened with stringent capital and governance requirements. 'Unlicensed players' refers to entities that are not authorized by the regulatory authorities to operate in the insurance market. These entities may not adhere to the same standards and regulations as licensed insurers, posing potential risks to consumers and the stability of the market.

Overall, the UAE's evolving insurance regulatory landscape presents challenges and opportunities for industry stakeholders. While the short-term costs of compliance may be significant, the long-term benefits of enhanced consumer protection, financial stability, and market growth are promising.

Insurance Insurtech regulations open finance