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How the new Consumer Protection Regulations impact insureds

The laws around consumer protection in the UAE are continuously evolving and on 25 November 2020, the UAE Central Bank issued the Circular No 8 of 2020, Consumer Protection Regulations (Consumer Protection Regulations), which are applicable to all “Licensed Financial Institutions”. This was further supplemented by Consumer Protection Standards (Consumer Protection Standard) issued by the UAE Central Bank subsequently, for detailed guidance on the requirements.

In this article, we discuss the Consumer Protection Regulations and the Consumer Protection Standards, and their applicability to the insurance sector. Consumer for the purpose of these instructions has been defined as any natural person or sole proprietor who obtains or may obtain products or services.

The UAE Central Bank has now merged with the UAE Insurance Authority pursuant to the Decretal Federal Law No. (25) of 2020. The Consumer Protection Regulations specify that these regulations are applicable to all Licensed Financial Institutions licensed by the UAE Central Bank under Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities (Decretal Law). Article 65 of the Decretal Law lists down the activities which are considered financial activities and subject to Central Bank’s licensing and supervision regime. The list includes, by way of illustration, the activity of taking deposits, providing credit, currency exchange and money transfer etc, but does not include insurance, and therefore insurance companies, insurance intermediaries or other licensed entities/individuals licensed to carry out insurance. Therefore, while the UAE Central Bank is now the unified regulator of Banking and Insurance in the UAE, the applicability of the Consumer Protection Regulations and Consumer Protection Standards has not yet been clarified.

In relation to insurance, the Consumer Protection Standards contain limited references to insurance/takaful products, mostly around conditions applicable if an insurance/takaful product is being sold by a Licensed Financial Institution, and we are setting out below the important changes introduced by this legislation:

  1. Enhanced Disclosure Requirement - All insurance/takaful products sold through Licensed Financial Institution must be accompanied with a “Key Fact Statement”. Such statement must be in simple terms and explain the benefits, terms and conditions of a product to enable the customer to understand the features and risks and make an informed investment decision.
  2. Customer Consent Necessary - Where Licensed Financial Institutions offer or market insurance/takaful products and/or services associated with the credit/financing product, Consumers must be informed in Writing that they have the choice to accept or reject the offer of insurance/takaful.
  3. Marketing Material - The marketing material of the Licensed Financial Institutions relating to the insurance/takaful, must at a minimum explain the nature, purpose, coverage and limitations of coverage, suitability for the consumer, and fees and commission on such product;
  4. Option to choose Insurer - Where the insurance/takaful is a mandatory requirement, the Licensed Financial Institution must disclose to the Consumer that they have the right to choose from a minimum of three insurers/takaful providers. In this regard, the Consumer must confirm his choice within a “reasonable” period of time, failing which the Licensed Financial Institution can choose the insurer/takaful provider from the options presented to Consumer.
  5. Optional Insurance Cover - If a Licensed Financial Institution engages in bundling of products and/or services with a Credit Product of any kind, it must provide the Consumer with the option to refuse the other bundled product(s) and retain the right to obtain the amount of credit based on the original offer from the Licensed Financial Institution.
  6. Disclosure of Premium/Commission - If the Consumer decides to acquire insurance/takaful through the Licensed Financial Institution, the Consumer must be informed of any additional costs that may be incurred if the insurance/takaful costs are added to the loan/financing principal and thereby incurring the additional interest/profit costs.
  7. Waiting Period - When an agreement, in principle, has been reached with a Consumer to purchase a credit, insurance/takaful, structured product or any other product regulated by the Central Bank, the Licensed Financial Institution must provide the Consumer with copies of all related documentation and disclosures, and allow the Consumer 5 (five) business days after the signing of the contract, to be able to cancel the contract.
  8. Continuous Training Requirements - Licensed Financial Institutions must ensure Staff involved in the sale or marketing of any products or services from third parties including insurance/takaful products or structured / investment products must demonstrate appropriate and current qualifications and training requirements as set out by the responsible UAE regulator.

If all the provisions of Consumer Protection Regulations and the Consumer Protection Standards were to apply on licensed insurance entities on the basis that insurance is an activity that falls within the definition of Licensed Financial Activity and therefore all insurance related entities now licensed with the UAE Central Bank are to be considered as “Licensed Financial Institution”, this could have a wide-ranging impact on the manner in which the insurance entities carry out their business. One such example would be how consumer data is captured, processed and stored. Currently, there are no specific guidance on data privacy or processing issued for licensed insurance entities, but if the activity of insurance was included within the definition of “Licensed Financial Institution”, the UAE Central Bank laws and guidance on data privacy would apply, including those stated in the Consumer Protection Regulations and Consumer Protection Standards, which require that Licensed Financial Institutions must have policies, procedures and control frameworks regarding the collection, protection, confidentiality and authorized use of Consumers’ Data.

The merger of the UAE Insurance Authority with the UAE Central Bank is a relatively recent development and a clarity on the applicability of these guidance would also help understand whether by virtue of the merger, all the guidance issued by the UAE Central Bank now also apply to insurance companies, except of course specific guidance issued for banks and financial institutions only. However, such forward looking regulations are a step in the right direction for Consumers in the UAE market.

Authored by Anand Singh.
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