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New and Tougher Rules in Effect for Insurance Brokers

Paid-up capital and bank guarantee limits have been increased

Gulf News 
By Manoj Nair, Associate Editor


Dubai: New - and higher - requirements on capital and bank guarantees have come into force for the UAE's insurance brokers. There are also stricter guidelines on brokers opening new branches as well as governing who can practice insurance brokerage services in this market.
Paid-up capital for local brokers has been raised to Dh3 million from Dh1 million. (This was a long-standing demand from within the industry, with many feeling the Dh1 million was too small a requirement.)
Foreign brokerage firms need to have a capital base of Dh10 million.
The bank guarantee too has seen an upward revision, and is now set at Dh3 million for local brokers and Dh5 million for overseas firms.

The much-anticipated regulations - routed through the Ministry of Economy - had been long in coming, but there are a lot of positives that brokers are taking from these. It could even pave the way for some consolidation moves in the highly fragmented insurance services industry.


There are about 10-15 leading brokerage firms, including subsidiaries of foreign operators. But the number of smaller brokerage firms, even one- or two-man entities, are many and this is where the higher capital mandated in the regulations will come to pinch.

"By increasing the paid-up capital and the bank guarantee requirements, small and marginal insurance brokers will have to merge with similar or bigger brokers to make their operations viable," said Mustafa Vazayil, managing director at Gargash Insurance Services.


"The new rules are expected to bring in more professionalism into the industry, with the Emirates Insurance Authority expected to take a more pro-active role in regulating insurance intermediaries."


The nature of the new insurance brokers law is comprehensive. Even opening of new branches come with attendant requirements such as pre-approval from the authorities and that the company should show proof that its premium in the previous year was not lower than Dh3 million.


"For a long while brokers were not allowed to open new branches," said a broker with a local firm. "This will [now] be lifted."


But some brokers are also taking the view that a premium requirement of Dh3 million to open a new branch is too low.


Among the other requirements, a brokerage firm cannot combine any other type of business with its core operations. And it cannot act as a partner or agent for any other insurance broker.


In the last two years, the UAE's insurance industry has shaken off the lean spell that came out of the 2009 downturn. There has been steady growth in premium generation, though the rates remain under constant pressure as in motor and healthcare.


But there are signs 2014 could herald in better tidings. The uptick in construction activity and real estate development bodes well, while mandatory health insurance in Dubai will fuel a further spike in health cover.


New capital requirements at a glance

* Local brokers will now have to put up a minimum capital of Dh3 million as against Dh1 million earlier. Foreign firms will need to show Dh10 million.

* The bank guarantee minimum has been set at Dh3 million for a local broker plus an additional Dh1 million for a branch. For foreign firms, it is Dh5 million.

© Gulf News 2013