A summary of the new rules published yesterday by law from Clyde & Co., a known expert in insurance law in the UAE, reveals a number of new and heightened costs are to be borne by brokers.
Among these costs is a significant increase in the paid up capital required by firms. It has jumped from AED1m to AED3m for locally incorporated firms and to AED10m for foreign companies.
Author of the Clyde & Co. report and a partner at the firm, James O’Shea, said as paid up capital is not the same as solvency, “it is difficult to see these new requirements as anything other than an incentive to get the smaller players out of the market and discourage foreign entrants”.
In addition to paid up capital, brokers will be required to increase the amount they hold as an unconditional bank guarantee. This will increase to AED3m for local firms, with an additional AED1m for each regional branch, for foreign firms meanwhile it has been set at AED5m, with a further AED3m for each additional branch.
O’Shea said this sum would be drawn down in whole or in part if the broker got into financial difficulty. Similarly, brokers will need to increase their professional indemnity policy from AED1.5m to AED2m (AED3m for foreign firms).
‘Not dictated by amount of commission’
As well as increasing the cost of doing business for brokers, the Insurance Authority has introduced rules around how brokers manage their businesses and their relationships with clients and insurers.
One addition to the rules is a stipulation that brokers must enter into a formal legal agreement with the insurer, with the insurer setting out its terms of business. Interestingly the agreement, which must be signed by both parties, must be in Arabic. The Insurance Authority has also said insurers must have an agreement in place with at least two brokers.
Furthermore, the regulator has, for the first time, attempted to codify the duties of brokers towards their clients. Before acting, a broker must now obtain a signed authorisation from the client, setting out its powers and responsibilities to that client.
O’Shea explained: “A broker must give technical advice to customers, explaining products and sending documents to them without delay.
“It must not charge for negotiating on their behalf and expressly represent the customer’s interests, its advice not being dictated by amount of commission. It must inform the customer of impending renewal.”
A perhaps controversial new rule is one which allows not just insurers and clients to make a formal complaint to the Insurance Authority about a brokerage, but also other brokers. The Authority then has the power to suspend or remove licenses “without prejudice to civil or criminal penalties”.
Tim Searle, chief executive of Dubai-headquartered Globaleye, said he welcomed the new rules.
“We welcome the rules coming into force since it will push out those entities which do not have the capacity to comply,” said Searle. “More importantly, the providers who have the power to self-regulate our industry will be forced to ensure that this playing field is levelled.”
To download a copy of Clyde & Co.’s report click here
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