Insurance brokers that have not met minimum capital requirements put in place in 2006 will be struck from the register of firms allowed to practise in the UAE, the Insurance Authority said yesterday. Just 120 of the 209 registered insurance brokers have complied with a ministerial directive issued three years ago requiring them to increase their capital to at least Dh1 million (US$272,000) and hold various forms of insurance to protect clients.
The authority initially gave brokers two years to comply with the new requirements and granted a one-year extension last December. That grace period expired last Thursday. "Some of the brokers are betting on a further extension of the deadline being granted, but the process of compliance for these companies seems a bit impossible, even if [they are] given several more years," said Fatima al Awadhi, the deputy director general of the authority. "As a result, they do not possess the financial capacity and technical expertise necessary for the practice of brokerage and insurance."
Insurance brokers have proliferated in the UAE in recent years because of lax regulation, low barriers to entry and healthy profit margins, especially in the lucrative construction insurance sector. Yet the swift growth in the number of brokers has come with drawbacks including poor service, Ms al Awadhi said. Insurance broking has been taken up "by persons and entities that do not have the financial means or the expertise, which led to a decline in the level of service that should be provided by the broker to the public", an Insurance Authority statement said.
Despite the number of insurance brokers, the country is widely considered to be underinsured. The insurance sector accounts for 1 per cent of GDP compared with an average of 5 per cent to 10 per cent of GDP in more developed countries. While increasing insurance brokers' minimum capital, or the amount of money their backers must invest in them, may reduce the number of practitioners, the hope is that it will lead to better service and foster the industry's growth.