CBUAE Unveils New Insurance Broker Regulations to Enhance Stability and Transparency

The Central Bank of the UAE (CBUAE) introduced the new "Insurance Brokerage Regulation" on July 25, 2024, which supersedes all previous guidelines and regulations for insurance brokers.

The new regulation will come into effect six months from its publication in the UAE gazette, anticipated by late January or February 2025.Insurance brokers and insurers must align their operations with the new rules within this period.

Major Changes

Redefinition of Insurance Brokerage: Insurance brokerage now explicitly includes soliciting, negotiating, or selling insurance or reinsurance contracts, eliminating ambiguities that previously allowed unregulated entities to operate as intermediaries.

Categorisation of Brokerage Licences:  Licences are now divided into primary insurance, reinsurance and composite insurance. This change allows entities to specialise in reinsurance with different regulatory requirements compared to primary insurance brokers.

Prohibition on Premium Collection: Insurance brokers can no longer collect premiums; this responsibility now lies solely with insurance companies. This prohibition raises questions about the future relevance of the escrow requirements set by the CBUAE in 2022.

Commission Payments: Insurers must pay commissions to brokers within 10 business days of receiving the premium. For premiums paid in installments, brokers receive proportional commission payments accordingly.

Minimum Capital and Bank Guarantee: While the minimum capital and bank guarantee requirements remain unchanged, they are now distinct obligations. Brokers must maintain these separately, impacting their balance sheets -- a detail still awaiting full clarification.

External Auditors: All brokers must appoint external auditors approved by the CBUAE.

Issuance of Policies and Endorsements: Only insurance companies are authorised to issue insurance policies, amendments and endorsements, except for motor insurance certificates, if agreed upon.

Corporate Governance Policy: Brokers must implement a comprehensive corporate governance policy covering internal structure, management practices and procedures to ensure transparency, accountability and ethical behaviour.

Financial Soundness: Brokers must inform the CBUAE immediately if their net equity falls below 100% and present a plan to rectify it within 15 days. During this period, they cannot undertake new business but must continue servicing existing clients.

Outsourcing Requirements: Brokers must obtain the CBUAE's approval for outsourcing material business activities, which cannot be outsourced outside the UAE. The definition of "material business activity" remains unspecified.

Offering Discounts: Brokers are prohibited from offering discounts from their commissions to customers. Discounts must come directly from the insurer according to underwriting guidelines.

Cybersecurity and Data Retention: Brokers must maintain robust policies to prevent and address data breaches, ensuring personal data is stored within the UAE and retained for a minimum of 10 years.

Conclusion

The new regulations underscore the CBUAE’s dedication to enhancing the insurance brokerage sector's stability, transparency and fairness.

The CBUAE may apply proportionality, tailoring requirements based on the nature, scale, and complexity of a broker's business, ensuring the overarching goals of the regulations are met without strictly adhering to every specific mandate.

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