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Legal update: Insurance Authority Resolution

Legal update: Insurance Authority Resolution

July, 2015
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The UAE Federal Insurance Authority (IA) has recently issued its new Resolution 7 of 2015, amending Resolution 9 of 2011 (issued by the Board of Directors of the Insurance Authority), concerning the instructions to license and regulate the control of the activities of the companies to manage medical insurance claims.

This Resolution contains several important changes that will affect Third Party Administrators’ (TPA’s) operations in the UAE. They include the following:

Required Bank Guarantee

All TPA’s are now required to provide the IA with a bank guarantee of AED 1,000,000 for the home office, and AED 250,000 for each branch office operating in the UAE.

With regard to the effective date, such has been set as 1 September 2015. All IA licensed TPA’s should thus obtain the necessary bank guarantee by that date.

Fiscal Year and Currency Denomination

All TPA’s are now required to designate their fiscal year as 1 January through December 31. All amounts stated in the financial statements shall be set forth in UAE dirhams (AED).

Free Zone Operations

Article 5.1 of Resolution 9 of 2011 has been amended to state that TPA’s must meet one of the following forms of establishment:

To be public joint stock companies, private joint stock companies or limited liability companies in accordance with the provisions of the Commercial Companies Law, or a branch of a company established abroad, or a company incorporated in a financial free zone of the UAE and in operation for at least two years.

TPA’s located within the UAE’s various free zones are thus now authorized to apply to the IA for a license, with two very important caveats. Firstly the Free Zone in which the TPA is domiciled must be a “financial free zone”. Secondly, the company must be in operation for two years.

We note that there is a question as to whether the “two year” requirement stated above applies to a “company established abroad”, as was the case with the prior law, as well as to a free zone company. The language set forth above is translated from the official Arabic text, which has not been officially translated into English, and there appears to be a discrepancy in the original Arabic drafting as to the application of the two year requirement. We expect clarification from the IA to verify the intent of this language and whether the two year clause applies to both foreign and free zone entities.

It is doubtful, but still possible, as to whether certain free zones, such as TECOM, will qualify as a “financial free zone”, to the extent that it is unclear whether the IA will view such a free zone as a qualifying free zone. While there are only two Free Zones in the UAE that inarguably qualify as financial free zones – the DIFC and Abu Dhabi Global Market (ADGM) – TECOM does allow certain activities that are clearly financial in nature. In addition to insurance activities, TECOM Free Zone Authority Decision 1 of 2014 (TECOM Decision 1) permits, under its Part 11: General Activities, in Article 26.1, operation of Commercial Banks (26.1.30), Credit & Finance Banks (26.1.31) and Bank Liaison Offices (26.1.32).

Having noted this, Article 8.2 of TECOM Decision 1 states that “issuance and renewal of licenses under Activities [permitted] under Article 26.1 are subject to obtaining appropriate approvals or no objection certificate from the relevant authorities in Dubai.” Insofar as operation of a TPA is controlled by the Federal IA as well as the DHA – and not just the “relevant authorities in Dubai” – it appears that there is an open question as to whether this would confer authority to operate as a TPA from TECOM. This is another issue that will require further clarification from the IA.

Other Provisions

While the above changes will be of the greatest immediate impact, several other changes have been made, including modifications to the liquidation proceedings related to TPA’s, extending the IA Director General’s authority to act to investigate and issue penalties, allowing suspended license holders to file objections, and requiring a branch office manager to possess qualifications as an expert in the field, although specific qualifications have not been stated.

TPA’s should thus take note of the new Resolution so that they may conduct their affairs in accordance with the provisions thereof.

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Published: July 2015
Title: Insurance Authority Resolution
Practice: Insurance & Reinsurance
Authors: Barry Greenberg, Raghad Hammad

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