UAE brokerages await updated laws on standards
They are still waiting. While the much anticipated updating of local laws governing the practice of insurance brokerage services did not come to pass before summer, local brokers still have not lost their keenness for it. There is near unanimity that when the laws do come through eventually, it would be a decisive step in ensuring the profession — and its practitioners — adhere to certain optimum standards.
The concerns were set in motion after a leading brokerage firm in Dubai found itself facing financial woes just ahead of summer, and market talk has it that some clients did end up losing money. Panic signals were set off and led many to believe that a chain reaction could set in that could impact on some of the other brokerages as well. All of which went to strengthen belief in what the new laws might have to offer. As it is, “The existing regulations are in place for the last 20 years and it is time it [be] changed to reflect the current challenges faced by the insurance industry,” said Mustafa Vazayil, managing director of Gargash Insurance.
The insurance industry is squaring up to what is going to be a difficult second-half. The year to date has not been an easy run either, with the overall growth in premium being less than 5 per cent.
Interestingly, no new licences have been issued for brokerages for the better part of two years. Even then there are a good 150 odd brokerage firms in place.
Slow asset creation
“While no new players are entering, that does not mean the competition is any less,” said Siddarth Razdan of Insighters. “It also means that new asset creation is slow, while the insurable value of the existing assets declines every year. That has to be a concern for the insurance brokerage community and its ability to service the needs of clients.” If that is the case, will the new laws require a higher capital base for brokers?
“I have always stood for higher capital for reasons such as having the financial capability to hire qualified professionals, the capital requirement for quality infrastructure,” said Vazayil. “However, capital increase alone cannot solve all the challenges faced by the industry. “While it’s true that insurers are the risk carriers, it’s also important that as advisers and consultants, brokers carry a huge responsibility towards their clients who depend on them to ensure adequate insurance protection for their exposures. “It is therefore critical that the professional indemnity insurance cover of the broker is increased multi-fold compared to the present levels. I strongly advocate brokers’ professional insurance indemnity limits linked to the classes of insurance and the size of the broker portfolio with a minimum limit of Dh10 million to start with.” But the wish-list that brokers have from the upcoming regulations extends well beyond setting higher capital requirements.
“All insurance policies should be sold only through brokers as is the norm in the developed markets,” said a senior industry source.
Clients’ Money, separate accounts:
The UAE’s regulatory body for the insurance sector recently mandated that brokers collecting premiums from clients should have these in separate accounts and not with their general accounts.
While it will go some way towards ensuring client monies are protected, industry sources feel more could be done on this score to make it even more secure. “By maintaining a separate account for premiums does not mean that a broker cannot use the funds collected from one individual on behalf of another client,” said Siddarth Razdan of Insighters.