NRF Insight: The Insurance Brokers’ Regulation 2024

Enhanced consumer protection

The Regulation contains several measures designed to protect policyholder interests. Primary among these is a requirement for claim settlements and premium refunds to be paid directly by the insurance companies to the policy holder. This significantly reduces the risk of funds being delayed or misappropriated in transit, providing greater security for policyholders and improving the overall efficiency of premium collection.

The Regulation also imposes financial soundness requirements relating to the net equity of insurance brokers. These measures are designed to protect policy holders and are line with the overall objectives of the Regulation, which include fair treatment of clients and promoting the reliability and efficiency of insurance brokerage operations.

Proportionality

The CBUAE will apply the principle of proportionality when considering the insurance broker’s compliance with the Regulation. Therefore, it may be sufficient for an insurance broker to demonstrate that is has complied with the objectives of the Regulation, even if it has not necessarily complied with all of the detailed rules. In determining this, the UAECB will consider the nature, scale and complexity of the relevant business when deciding the extent to which an insurance broker is expected to meet the requirements set out in the Regulation.

Brokers’ remuneration and discounts

To promote price transparency, insurance brokers are now prohibited from offering discounts by reducing their commissions. Any discounts offered to clients must come directly from the insurance company.

Additionally, insurance companies are required to pay broker commissions within ten business days of each transaction. The brokerage agreement can specify a shorter payment period.

Corporate governance

Corporate governance and risk management is a key priority for the CBUAE and the Regulation imposes an obligation on brokers to have in place effective, robust and well-documented corporate governance arrangements. These arrangements must include controls on conflicts of interest to ensure the integrity and transparency of the broker’s operations.

Consistent with the principle of proportionality, insurance brokers must ensure that their corporate governance arrangements reflect the nature, scale and complexity of their operations.

Cybersecurity measures

In recognition of the increasing digitalisation of insurance services, the Regulation contains specific provisions relating to the protection of personal data and management of cybersecurity risks. Brokers must implement adequate policies and procedures to protect client data and ensure secure digital transactions.

The Regulation also mandates that personal data be stored and maintained within the UAE, with secure backups for at least ten years.

Key takeaways

The Regulation introduces significant changes to the required structure and operations of insurance brokers operating in Onshore UAE and reflects the CBUAE’s desire to build a transparent industry that is supported by good corporate governance and appropriate risk management.

In keeping with advancements in the financial services sector more generally, the Regulation also addresses the substantial technological advances and general modernisation of insurance operations that have transformed the industry since the previous regulations were introduced.

Finally, it is important to note that time is up for implementation, as the CBUAE directed insurance brokers and companies to adjust their operations to ensure compliance with the Regulation prior to it coming into effect. Therefore, affected insurance brokers and companies that have not already done so should immediately assess their compliance with the new Regulation to ensure that they are fully aligned with its requirements.

This article has been written by Middle East Partner and Head of Financial Services Regulatory Matthew Shanahan, Counsel Karl Masi and Associate Jack Abrehart.

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