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UAE: Unlicensed agents account for 5% of motor business

Source: Middle East Insurance Review | Feb 2018

Dozens of companies and vehicle registration offices in the various emirates operate unlicensed motor insurance brokers or agents, accounting for 5% of the business.
 
   Insurers and authorised intermediaries complain that the illegal operators contribute to price undercutting in the market, according to the newspaper Al Khaleej which carried out investigative reporting of the situation.
 
   “The number of car registration companies and offices in Dubai is estimated at 200-250, and tens of these companies and offices sell insurance policies under the table,” a senior insurance executive said. These “brokers” allegedly take cash commissions for deals done.
 
   The Emirates Insurance Association (EIA) has called on the UAE Insurance Authority (IA) to crack down on the illegal practice, but noted that the situation has improved with the introduction of new regulations.
 
   Mr Ramez Abou Zaid, General Manager of Dubai National Insurance and Reinsurance, and Chairman of the motor committee of the EIA, said: “There is no doubt that the phenomenon of issuing insurance policies through the offices of car agencies that are not authorised to deal in the insurance sector has already receded as a result of the many procedures and circulars issued by the IA. However, despite these regulations, some of these ‘brokers’ are still trading illegally, which is a bad thing for the insurance industry as a whole.
 
   “Undoubtedly, in the light of circulars issued by the IA, we believe that the share of this group now does not exceed 5% of market transactions and we expect it to fade soon.”
 
   He was referring to amended insurance broking regulations issued by the IA in 2013, that largely impose tougher entry requirements into the segment. 
 
   Under the regulations, for instance, the minimum paid-up capital of AED1 million (US$272,294) was increased to AED3 million for UAE companies and AED10 million for foreign incorporated entrants. 
 
   In addition, the brokers have to furnish unconditional on-demand bank guarantees.
 
   Under the law regarding the establishment and organisation of an insurance company, the IA shall not allow any person to engage in insurance broking unless he is registered in the designated register in the Authority and is in accordance with the specified conditions.
 
   However, executives in vehicle registration offices and companies said that among the provisions included in the commercial licence granted to them is the right to sell insurance to customers, provided that this is limited to an agent, broker or insurance representative accredited by insurance companies to represent them.
 
   Mr Ezzat Abdulrahman Al Khatib, General Manager of Al Najm Vehicle Registration in Dubai, said: “The company’s mechanism is to renew the registration of the car, carry out comprehensive maintenance, periodic inspection and ensure payment of fines for vehicle traffic violations.”
 
   He added: “There is a legal clause in the Labour Law that allows us to sell insurance and to collect commissions from insurance brokers and insurance companies directly of not less than 5%. We are in direct contact with these intermediaries for this purpose. There is a special contract between us as registration companies.”
 
   Mr Mohammed Abdul Baki, a manager at Al Marwa Vehicle Registration, denied that the company takes any direct cash commissions to facilitate the issuance of insurance policies to customers. “The company charges its cash commissions for renewing ownership of the car, renewing drivers’ licences and ensuring regular maintenance procedures for the vehicle. These commissions range between AED200 and AED300 depending on the type of service and the nature of the vehicle,” he said.
 
   Outlining a separate practice, Mr Abdulla Yousef Al Ali of the Roads & Transport Authority, said there are insurers or insurance brokers which lease offices at vehicle examination and registration centres. He said: “Insurance companies and brokers offer insurance for vehicles under conditions set out by the IA.” M 
 
AED1 = US$0.27
 
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