Insurance law and regulation in United Arab Emirates

Insurance in the United Arab Emirates (“UAE”) is generally regulated:

1. ''onshore” (i.e. mainland UAE) on a Federal level, comprising the whole of the UAE with the exclusion of financial free zones; and
2. ''offshore'' in the two financial free zones (the “Financial Free Zones”), being the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market (“ADGM”).

The onshore UAE insurance market is now regulated by the Central Bank of the UAE (“CB UAE”) following the merger of the Insurance Authority (“IA”) into the CB UAE under Decree Federal Law No.25 of 2020.   Accordingly, all rules, decisions, circulars, and regulations issued by the former IA under the provisions of the Federal Law no. 6 of 2007 will continue to apply to all licensed institutions and activities until they are replaced by CB UAE. 

Separate regulatory frameworks are applicable in the Financial Free Zones. DIFC-registered insurance companies are regulated by the Dubai Financial Services Authority, and ADGM-registered insurance companies are regulated by the Financial Services Regulatory Authority. For the purposes of this note, we will be focusing only on the “onshore” jurisdiction in the UAE, regulated by the CB UAE .

Non-licenced insurers cannot insure risks within the onshore UAE jurisdiction. An insurance agreement that is entered into by a non-licenced insurer is void and the non-licenced insurer may be liable to pay damages and face regulatory sanctions. However, foreign reinsurers may reinsure insurance contracts entered into in the UAE, subject to the foreign reinsurer being regulated in their home jurisdiction and satisfying certain rating requirements.

Insurance and reinsurance companies can only establish a presence in onshore UAE through the following three routes:

1. the incorporation of a public joint-stock company (a “PJSC”);
2. the incorporation of a branch of a foreign company; or
3. the agreement with an authorised agent in the UAE as an insurance agent.

The minimum capital requirement to exercise insurance activities through an entity in onshore UAE is:

1. AED 100 million or the equivalent thereof for insurance companies; and
2. AED 250 million or the equivalent thereof for reinsurance companies.

The same capital requirements apply to Takaful operators.

Certain other regulatory steps must be taken before the insurer is fully licensed to carry on its activities, including obtaining a commercial licence from the Emirate in which it is located. Companies offering medical insurance products also require a permit from the relevant authority if they operate within Dubai, Abu Dhabi or Sharjah.

Additionally, at least 51% of the shares in any insurance and reinsurance companies incorporated in the UAE must be owned by UAE or GCC nationals, or a company wholly owned by UAE or GCC nationals. Where a company operates an insurance practice through a branch, a UAE national must be appointed as an agent of the branch. Other ownership requirements apply to certain insurance-related professionals. For example, insurance agents must be 100% owned by UAE nationals/companies.

Although the UAE has recently relaxed foreign ownership restrictions for companies based onshore, we understand that this is unlikely to impact the insurance sector and that such foreign ownership restrictions will continue to apply to companies carrying out insurance activities.

The insured is obliged to:

1. at the time of the conclusion of the contract, disclose to the insurer all information known to him in connection with the insured risk in order for the insurer to assess the risks which it shall bear; and
2. notify the insurer during the term of the contract of any matters arising which may lead to the increase of such risks.

Generally, an insurer's rights in respect of an insured's breach of the policy terms and conditions are provided in the policy itself. If the insured acts in bad faith to conceal any relevant information or by submitting any incorrect information relating to the insured risk, the insurer may claim for the rescission of the contract. In most cases, the insurer can only retain the premiums if it is proven that the insured acted in bad faith. The policy is cancelled from the date of the insured's breach of the contract. For onshore UAE marine insurance, even if bad faith cannot be proven (for example, in cases of negligent or innocent misrepresentation), an insurer may retain half the premium if the insured gave incorrect information. It can also require the policy to be cancelled.

To give a degree of protection to the insured, the insurer is obliged to include all the necessary questions relating to material facts required by the insurer to assess the risk, within the original proposal form. Such form must also set out the consequences on coverage in the event that the insured provides any incorrect or inaccurate information.

To be valid and enforceable under UAE law, warranties, conditions precedent to liability or exclusion clauses must be:

1. “prominent” i.e. presented conspicuously such as in bold font and a different colour; and
2. endorsed by the insured.

Under the UAE Civil Code, any clause that would “cause the contract to be annulled or the insured’s right to be forfeited” is considered void unless that clause is “prominent”.

A number of decisions have been issued by the Dubai Court of Cassation whereby the court has held that where an insurer seeks to rely on a clause that limits or excludes liability, such clause can only be relied upon where if it is found in the body of the policy and is clearly identifiable to the insured.

Generally speaking, the insured is obliged to notify the insurer of the occurrence of an insured event as soon as it becomes aware of it. However, customers based in onshore UAE benefit from a number of protections under the general (non-insurance specific) laws, such as the duty of good faith. For example, if an insured has a reasonable excuse for a delay in "notification" to either its insurer or a relevant authority (for instance, the police), a term in their insurance policy providing that late notification will prevent them from having a valid claim is commonly held to be void. In addition, if any policy terms are interpreted by a UAE court to be arbitrary, then such term will typically not be enforceable, which may include a late notification provision.

Each policyholder has the option to submit a complaint to the CB UAE  in the case of an insurance company's breach of any rule or regulation. The CB UAE  can issue warnings, impose fines and suspend or revoke an insurance company's licence. In particular, a company can be fined AED 50,000 for failure to pay the compensation stated in the insurance policy to the insured as soon as the accident occurs or as soon as the insured risk takes place and up to AED 250,000 for any persons practicing the operations of insurance or reinsurance inside the UAE without a licence.

Certain insurance disputes must be referred to the CB UAE for resolution by the Insurance Disputes Committee before any specific claims can progress to the onshore UAE courts. 

The contracting parties are obliged to perform the contract in “good faith”. Therefore, it may be possible for the insured to claim damages for breach of this duty when adjusting and settling claims (similar to ''bad faith'' claims). It may be possible for an insured to claim damages for both:

1. breach of the duty of good faith when adjusting and settling claims (including late payment of claims); and
2. consequential losses flowing from the insurer's breach.

The events and requirements triggering coverage under an insurance policy should be defined in the insurance policy. Insurers must set out a clear mechanism for processing claims, including notification requirements and time periods. The insurer must pay when an insured event as set out in the contract occurs. In the onshore UAE, the limitation period for claims under insurance contracts is generally three years from either (a) the date of the occurrence of the insured event; or (b) the date on which the insured became aware of the occurrence of the insured event. Such limitation period will not apply to the extent that there has been any fraud on the part of the insured (for instance, if the insured knowingly conceals any relevant information or submits any erroneous statements).

The limitation period in respect of marine insurance is generally two years from the date of the incident.

In the case of liability insurance, as per UAE laws, the obligations of the insurer only arise when the injured third party makes a claim against the insured. In general, third parties cannot claim under an insurance policy where the policy does not give them the right to do so. However, where the policy specifies that the insurance policy is for the benefit of a third party (defined as a “beneficiary”), the insurer must pay the insurance proceeds to them.

Under motor insurance, a third party can bring a direct action against an insurer in certain circumstances.

Generally speaking, legal fees are not recoverable by a successful party at each stage of any court proceedings, although in certain cases nominal legal costs may be recoverable. However, court filing fees and expert fees are recoverable as part of any final, successful judgment awarded by the court.

UAE onshore laws do not contain any definition of an uninsurable interest. However, within the UAE insurance market, many insurers offer coverage for civil fines and penalties, typically including the following:

1. Products liability insurance: this covers the insured against all sums, which the insured shall become legally liable to pay in respect of: (i) an accidental bodily injury to any person; or (ii) an accidental loss of or accidental damage to property arising due to use of the products sold/supplied by the insured; and
2. Professional liability insurance: this covers legal liability arising out of professional negligence of the insured or his employees. Different professions, such as architects, engineers, consultants, lawyers and accountants, can typically be covered under this insurance.