Introduction to the Insurance in the UAE
What would happen if the worst case scenario hit and you were not prepared? That is a scary answer to even contemplate. The biggest concern for you, after your personal wellbeing, is the wellbeing of your family and loved ones when it comes to your life and providing for them if you are not there. It could also be so that you fall ill and are in need of treatment which costs a lot and not everyone walks around with a six figure bank balance to pay for medical help. In other cases you may own a car which meets with an accident and gets damaged to such an extent that the repairs end up costing you an arm and a leg. What can you do to ensure that these misfortunes done become a financial liability? The answer lied in insurance.
What is Insurance?
To put it simply, you enter into a deal with a company, the insurance company, where you pay them a nominal sum, periodically, to ensure that your life, health, cars and homes are protected against crippling eventualities. What happen with insurance is that you pay a premium for which the insurance company offers you a cover. For instance, you pay a premium of AED 1,000 per year for health insurance and get a cover of AED 500,000. Let’s assume the same is true for your car insurance as well. Now assume that you meet with an accident, in this case, your medical costs are paid for by the health insurance and the repairs to your car are paid for by the car insurance! What could be better than that?
Principles of Insurance in the UAE
Insurance in general, is an arrangement in which a company or the state takes on the transfer of risk from an individual or an organisation, and provides a guarantee of compensation in the event of a specified loss in exchange for a predetermined amount of premium.
In the insurance model, the company that takes on the risk is the insurer while the individual buying the insurance is the policyholder. At the onset of the contract, the policyholder is required to pay a premium, which is the price that the insurer charges for protection against loss. Should a loss take place, the insurer is legally obligated to recompense the policyholder as per the insurance policy. This amount paid to the policyholder is known as insurance benefit.
Insurance arrangements generally include certain important characteristics, such as:
- Risk Transfer - Where the insurance allows the insured to transfer the risk to the insurer, who is in a better position financially to pay for the loss compared to the insured
- Risk Deduction - Where the insurer is allowed to predict future losses so as to reduce risk
- Loss Sharing - Spreading the losses of the unfortunate few over the entire insurance pool
In the UAE, the principles of insurance can be characterised through the following concepts:
- Insurable interest
- Full and absolute trust
As per this principle, the insurance buyer should have a stake in the goods or lives insured, where a loss or damage to property or life insured will result in a financial loss to the buyer.
Full and absolute trust
An insurance buyer must disclose all material facts when buying a policy. Since insurance contracts function primarily on good faith, insurance policies purchased may be declared invalid if all relevant facts are not disclosed by the buyer.
Indemnity means the payback of loss in the form of cash, goods, or the cost of the damaged building. The principle of indemnity is based on three notions
- Contribution - Each insured and insurer share the agreed payment,
- Subrogation - The insured cannot claim damages from the other party once the insurer has paid the agreed amount
- Doctrine of proximate cause - The damages paid to the insured risks only
Takaful Insurance in the UAE
Takaful insurance is a type of Islamic insurance, where a group of people pool in money to safeguard each other against damage or loss. Takaful insurance is based on Sharia Islamic Law and extols the concept of mutual indemnity and the individual’s responsibility to protect each other within the group.
In Takaful insurance, all activities should comply with Sharia principles and should not contain the following elements:
- Al-Gharar (Uncertainty) - Under Takaful conditions, the distribution of profits to the operators and the participants should be clearly outlined in the contract. The contract is based on the Mudharabah concept and should not contain unknown or ambiguous factors.
- Riba (Interest) - In a Takaful operation, any investment activities that are interest based are explicitly prohibited
- Al-Maisir (Gambling) - While the policyholder will lose all premiums if risk does not occur in a conventional insurance system, in Takaful the participant is entitled to receive all the contributions he has paid, even if the risk does not occur. Should the risk occur, he will be paid from his premium fund plus the pool of funds from the contribution of other participants.
Difference between Takaful and Conventional Insurance
While both Takaful and conventional insurance share similar objectives when it comes to protection and reduction of financial loss in the event of disaster or accidents, there are a number of differences that separate the two.
The main differences between Takaful based insurance and conventional insurance can be outlined as follows:
|Takaful Insurance||Conventional Insurance|
|Takaful is based on a mutual co-operation basis||Conventional Insurance is based on ‘risk assumption’|
|In Takaful, a group of people agree to jointly share the loss or damage inflicted on any one of them||In conventional insurance, the risk is transferred from the insured to the insurer|
|Takaful is bound by Sharia principles||Conventional insurance contains elements such as uncertainty, interest and gambling, that are not compliant with Sharia law|
|In Takaful, distribution of profits is clearly specified in the contract||In conventional insurance, policyholders are unaware of how profits are distributed and what their funds are invested in|
|Any interest based investment based activities are prohibited in Takaful||Conventional insurance involves interest factors, which are present in investment activities|
|In Takaful, the fund is supplied by ‘rabbul mal’ or policyholders||In conventional insurance, the initial capital is contributed by the shareholders|
|In Takaful operations, the capital is invested in investment funds that must be Sharia compliant||In conventional insurance, the investment of insurance capital is not subject to Sharia law|
|Takaful places emphasis on mutual protection and shared responsibility rather than profit-making||Conventional insurance is based solely on commercial factors|
|In Takaful, any profits are distributed among the participants or the shareholders on the basis of the Mudharabah model of profit sharing or the Wakalah model of agent-principal relationship||In conventional insurance, all profits belong solely to the shareholders|
|In Takaful, if a deficit should arise in a participant’s Takaful Fund, an interest-free loan is provided to the participant by the Wakeel or the Takaful operator,||In conventional insurance, the risks or deficit is covered by the insurance company|
|Takaful activities help in raising the financial status of all participants within the group||Conventional insurance primarily helps the insurance company boost its profitability|
|Unutilized Takaful funds are usually distributed back to the participants||In conventional insurance, excess funds are unlikely to exist since operational costs are borne by the policyholders|
Types of Insurance
There are various types of insurance products available in the UAE. Each one of them has its own specific purpose. You can buy health insurance to cover medical treatment, life insurance to cover your family’s needs, car insurance to cover your vehicles and home insurance to cover damage to your house. In addition to that there are also products like travel insurance that can cover any eventuality when you are traveling outside the country. So what are these products?
This is probably one of the most important forms of insurance and should be owned by everyone. With life insurance you pay a premium to the insurance company which in turn promises to pay a large sum of money to you, in case you suffer from a critical illness or are left permanently disable by a disease. It also promises to pay large sum of money to your family should you pass away. It can help ensure that the financial future of your family is secured against the worst case scenario. Life insurance itself has many types that range from the traditional life insurance to retirement products that allow you to invest in them and save up for when you retire. They can also be used as investments that help your wealth grow while providing cover for your life.
The car insurance is a product that, just like life insurance, is meant to protect your car. In this case too, you pay a premium for which you are provided with facilities like covering the cost of replacement or repair of parts in the car that are necessitated by things like the car turning over, meeting with an accident, getting damaged as a result of natural calamities, etc. Motor insurance also covers theft of the car and replacements if needed. The amount you can get for third party damage can be as high as AED 5 million, depending on the insurer and the premium that you are willing to pay for the car. Motor insurance also offers roadside assistance and medical cover for emergency care.
Health insurance is the second most important insurance product for anyone. It is the insurance product that allows you to pay for medical treatment without having to worry about the costs. Health insurance comes in various forms and can be taken to cover an individual or an entire family. A health insurance policy can cover treatments required for regular ailments and even those required in an emergency. The benefits of health insurance can extend to pre-existing conditions, though this is a facility that is specific to the policy you buy. A health insurance policy can also cover things like care for pregnant women and dental procedures too. The best thing about medical insurance is that it makes medical assistance more affordable.
When you travel, there is no telling what misfortune may befall you. Even though travel these days is very safe, there is always that ‘what if’ that haunts us. In case you are a frequent traveller, you will need to take travel insurance not only because it is mandatory in some countries, but also because it is the smart thing to do. A travel insurance provides financial cover in case of death or disability caused overseas, the travel insurance pays monetary compensations to the policy holders family. It can also cover things like lost or delayed baggage, missed flights and emergency evacuations. The cover can also extend to things like personal liability cover and loss of travel documents. In case you require legal assistance that too can be covered under this.
Home insurance works much the same way that car insurance works in. The basic idea of the home insurance is to ensure that you have the finances to effect repairs to a house that has been damaged under a predefined set of circumstances. These circumstances could be anything from an act of nature to damage sustained in riots, aircrafts hitting the building, theft, floods etc. The insurance amounts can be quite high, even as high AED 1 million, depending on the insurer. Even if you are away from your house, the insurance will cover your home.
Why take Insurance?
There is no question about the merit of insurance products. The simple reason for taking any form of insurance should be that the protection afforded is essential. If you don’t have insurance to cover the repairs to your home or car or pay the medical bills, you will be left with no choice but to take unnecessary loans or break into your savings. All of this can be avoided with insurance.
Factors Determining the Cost of Your Insurance Policy
An insurance policy is no longer a luxury, it is an essential requirement given the risks of living in this world. Protecting the interests of our loved ones is the top prerogative for most of us, but financial constraints could hamper our wish to fulfil their needs. In most cases we do not delve deeper into the costs associated with an insurance policy, but there are a few indicators which go into determining the amount you pay for your policy.
- Age – As mortals, there is a general tendency for our health to deteriorate with age, which make policies a tad more expensive as you gracefully age.
- Occupation – The work profile of an individual can dictate the amount he/she pays towards a policy, with those working in risky jobs required to pay more compared to people in staid, safe jobs.
- Health – How healthy are you? Your policy could get cheaper or costlier depending on how you maintain your health profile.
- Habits – Your regular lifestyle habits can have an impact on your policy. For example, a smoker and drinker might end up paying more compared to someone who follows an active lifestyle.
- Gender – While we may stay in a society which portrays both genders as equal, there is scientific data which shows that women generally tend to outlive men, which means they can get policies at a lower rate compared to men.
- Policy term – A policy with a longer term could come at a cheaper rate compared to policies for short term.
- Demographics – The place where you stay says a lot about you. People staying in regions which are prone to natural disasters or diseases might end up paying more. A high crime rate in your town or lack of health facilities could also impact your policy cost.
- Tests – In most cases, insurance companies insist that you undergo a medical check-up before you avail a policy. Such policies, while time consuming, can save you some money. On the other hand, availing a policy without undergoing tests could mean you pay more.
- Markets – Most companies make money by investing the money you pay for your policy in the market. The premium is often calculated by predicting how the markets will perform over time.
- Company expenses – An insurance company is a business entity whose objective is to make profit. The premiums paid by you are calculated after factoring the costs associated with running the company. Companies with cheaper maintenance and running costs could offer policies at a lower cost compared to others.
Top Insurance Companies in the UAE
UAE is the go-to destination today, with people from all over the globe calling it home. The influx of people and investments has led to a booming economy, an economy where it is critical to ensure we are protected. This large market has enabled insurance companies to set base here, capitalising on the need by offering great products and services. The country has over a 100 insurance providers today, each providing multiple options. Choosing the best insurance company might be hard, but here are some of the top insurance companies in UAE.
- Abu Dhabi National Insurance Company
- AXA Gulf Insurance
- Oman Insurance Company
- Alliance Insurance
- Al Khazna Insurance Company
- National General Insurance Company
- Arab Orient Insurance
- Dubai Islamic Insurance
- Islamic Arab Insurance Company
- AIG Insurance Company
Apart from the aforementioned companies, banks also provide great insurance solutions to people in UAE.
Things to Remember Before Choosing an Insurance Policy
Buying an insurance policy is a smart move, but rushing into it without considering multiple factors could make it redundant. Here are some points which should be kept in mind before purchasing that insurance policy.
- Cover – One should choose a cover after factoring in all possibilities. With rising costs, a cover might become inconsequential if it is too low, offering no benefit to your loved ones.
- Company – With a plethora of options available, it can get confusing to choose the right insurance company. One should go by the history of a company and its performance, choosing one which suits them.
- Tenure – It is easy to get carried away when figuring out the tenure of your policy. A policy which expires when you most need it is a waste of money, which is why it is advisable to spend some time in calculating the policy tenure which you need.
- Claims – On paper, a company might have great numbers and figures, but their claim settlement ratio might be poor. Choosing a company which is infamous for claim settlements could see your kin running around to get money if something happens to you.
- Medical test – Taking a medical test before you apply for a policy could help you in the future. Not only can you get better rates, but the chances of a claim being denied on medical grounds reduces.
Dos and Don’ts
Do Exhibit patience – Jumping into the world of insurance without a second thought could see you gain nothing, which is why it is critical to be patient while choosing a policy.
Don’t delay payments – Delaying your premium payments could see your policy lapse, which means you are not protected if something happens to you.
Do a full disclosure – Failing to disclose small details could affect the claim process, giving the company ground to deny a claim.
Don’t go by what you see or hear – Companies advertise, selling their products to the uninformed. Going by what is seen or heard could come back and haunt you. It is best if you get information first hand, doing research before signing on the dotted line.
Do compare – Compare products and services offered by different companies, as this can help you get a better deal at cheaper rates.
Don’t wait – Waiting to buy a policy after you reach a certain age can do more harm than good. Go out there and buy that policy now, for you never know when life can take a turn.
Frequently Asked Questions - FAQs
- Is insurance amounts always paid by the insurers?
- What are exclusions?
- Do I need to renew my insurance?
- Do I need all the insurance products?
- How is the premium for the insurance decided?
- How do I claim insurance?
- What is Sharia?
- What are the different models under Takaful?
Payments of insurance claims depend on the validity of the claim and the circumstances that lead to the damage. Every type of insurance has exclusions, which decide when the insurance is valid and when it’s not.
Exclusions are circumstances defined by the insurer under which they will not honour claims. For example if you claim life insurance but it is discover that the insured committed suicide, the insurance may not be paid. Similarly, if you claim car insurance for damage caused when you were drunk and driving the vehicle, the insurance claim won’t be honoured. You must make sure to know all the exclusions will be taking any insurance product.
Yes. For some insurance products like health insurance you will need to renew it regularly. If it is not renewed the cover provided lapses and any damage occurring when the policy has lapsed will not be covered.
No. Each insurance product is specific to a particular situation so if you don’t own a house or a car, you don’t need car or home insurance. But as far as life and health insurance is concerned, it is always advisable to have it.
The premium for each of these products is calculated in a different way. It could depend on the insured amount or on the value of the object, car/house, being insured.
To make claims easy to make, all insurers have provided services that help customers with the claims process. All you have to do is get in touch with the insurer and submit the relevant documents and they will take care of the rest.
Shari’a is an Islamic code of law based on the Holy Quran and Sunnah, and covers aspects of day-to-day life.
Takaful can be administered using the following models
- The Wakala Model
- The Mudaraba Model
- The Hybrid Model, which is a combination of the Wakala and Mudaraba models
- The Waqf Model
- The Co-operative Model
Yes. Takaful insurance is open to all participants from all backgrounds as long as the participant abides by the terms and conditions of the contract, which are bound by Sharia rules.
News about Insurances in the UAE
Indian insurance firms joins hands with UAE for expats’ reinsurance
Orient Insurance has entered into a reinsurance agreement with HDFC International Life and Re Co. Ltd. to cater to the needs of the expat segment. HDFC International Life and Re is a 100% subsidiary of HDFC Standard Life Insurance Co. Ltd., India and it has significant experience and expertise in underwriting life risks. Orient launched Orient Pension Plan that caters to the expat population’s requirements to build steady dollar dominated retirement income. The association between Orient and HDFC will provide value to the end customer and help the customer structure a long term savings vehicle.
24th October 2016
Heart disease is the top cause of death in the UAE
A study by Global Burden of Disease, Infections and Risks indicated that lifestyle diseases are a major cause of fatalities and disabilities. This reflects the general health trends of developed world where the lifestyle is the major contributor of annual deaths and disability. In the UAE, heart diseases fatalities have overtaken road trauma deaths. The top 3 causes of death in the UAE are ischemic stroke, hemorrhagic stroke, and diabetes. The health experts are trying to understand how to change the prognosis of the diseases and to build a healthier society.
13th October 2016
Noor bank to offer job loss insurance to those who are worried about losing their job
Noor bank which is a leading shari’ah compliant bank in the UAE is launching an exclusive promotion that is designed to benefit the personal finance customers at a profit rate that starts at 2.49% per annum. This will help consolidate debt and to avail new personal finances. Personal finance up to Dh1 millions for expats and up to Dh2 millions for UAE nationals are offered. This promotion is the way of thanking the customers of Noor bank and to provide support to them to meet their financial obligations.
12th October 2016
Despite pressures, UAE insurers return to profit
After the aggregate losses in 2015, the UAE insurers reported aggregate profits in the first 6 months of 2016. The net profits grew by 118% overall in the first half of 2016 from the first half of 2015. Both Abu Dhabi and Dubai generate more than 90% of the medical insurance premium. Since both have completed their medical insurance projects, it will be difficult for insurers to continue the pace of growth unless they find innovative ideas that can help diversify the business.
04th October 2016
Gulf insurance market promises greater stability
A.M., an insurance rating and information firm has observed deterioration in the performance of the insurance companies in the GCC markets as they are adjusting to the disciplined regulatory environment. Intense competition and pricing pressures were emphasised based on pricing. The approach for reserving for many market participants was weak. Many markets have companies that have poor underwriting discipline and cut throat competition. Some insurers have a strong balance sheet and sound operating performance while others have poor data quality, inadequate accounting practices, lack of technical expertise arising from poor risk management. New regulations was designed to address these issues. A.M. believes that this new regulatory changes will provide greater financial stability in the coming future.
29th September 2016
20 percent growth in Islamic insurance in GCC
The Islamic Insurance in the GCC saw a cross contribution increase by 20% on year on year in 2014 and 2015. The report published by S&P Global Ratings said that the earnings in GCC will remain relatively weak and unevenly distributed. S&P finds that the growth combined with net loss is eroding the capital strength and is damaging the credit profiles. Most of the takaful players are small when compared to the conventional peers. The less track record and books are business are a disadvantage as the oil prices are falling. Over 8% Islamic insurance premiums were written in Saudi Arabia.
08th September 2016
Abu Dhabi listed insurer’s profits increase by 37 percent
The profits of the insurance companies which were listed on the Abu Dhabi Securities Exchange increased to AED336.6 million for the first half of 2016. The profit increased by 37% compared to the corresponding period last year. It is attributed that the awareness of risk in the current economic situation pushed businesses and individuals to seek protection. The other factors that lead to the increase in the profits is the insurance laws and regulations that promote insurance services. There has also been increase in life insurance, unemployment insurance and retirement, and fire and theft insurance. There are 17 insurance and takaful companies listed in Abu Dhabi.
30th August 2016
Insurers expect a limited increase in the premium rates
Saudi Arabia’s insurance companies are expecting a slight increase in the premiums for the next year due to the losses incurred in health and motor insurance. This prediction is in spite of the surge in the profit for the first half of this year. The media spokesman for insurance companies, Mr. Adel Abdulaziz Al-Essa told the local media that the insurers will have detailed information about the expected premium increase after the results for the second half of the year is released. The result will help the insurers to determine the rise in premiums. He also added that the insurance companies are in a process to set up a common database for motor accident claims. The 34 listed insurance companies in Saudi Arabia reported a combined profit of SAR839.7 million for the first half of 2016.
16th August 2016
RSA Signs Partnership with FGB To Distribute Insurance Products in UAE
RSA Insurance Group plc, is a well-known British multinational general insurance company. IT has signed a partnership deal for Insurance Distribution FGB, which is an Abu Dhabi headquartered bank. This now entitles RSA to distribute a wide range of their insurance products through FGB's branches across UAE. Currently they are distributing through 20 branches across the country.
The agreement, was made effective from June 1, 2016. This is also an important landmark in UAE banking considering the partnership between one of Europe’s leading insurance brand with a well-known banking brand in UAE to provide their customers, in this case UAE residents with world-class insurance cover.
Director (Distribution) at RSA David Harris also mentioned that the agreement is part of the company’s initiative and strategy to encourage an efficient bancassurance model since potential for growth in in premiums for this platform is pretty big.
12th August 2016
UAE Insurance Authority Endorses Numerous Foreign Actuarial Bodies
With the intention to provide licences actuaries who are working for insurance companies who are qualified, UAE Insurance Authority, the insurance regulating organization in UAE has started accrediting several actuarial bodies who are foreign.
These include actuarial bodies France, Canada, the UK as well as the US. The insurance regulatory body is in the requirement of insurance providing companies to base the product pricing on the actuarial standards to enhance the pricing. This is being done to the price undercutting observed in the insurance market in UAE leading to losses for several insurance companies in UAE. UAE Insurance Authority is also detailing rules and regulations for licensed actuary appointments.
The Insurance Authority requires insurance companies to price their products according to actuarial standards so as to improve pricing. This is because price undercutting in the overcrowded UAE insurance market has led to losses for several insurers.
03rd August 2016