UAE health insurance industry faces new round of regulations

The rules of engagement are gradually being tightened in the UAE's lucrative health insurance industry as universal medical cover looms closer on the horizon. From January 31 it will be third party administrators (TPA) that will have to raise their game to be in compliance with the regulator's new requirements for them. They will have a full year to do so as per the directive set out by the authorities. Moreover, TPAs, which play a vital intermediary role in the processing of claims related to health insurance, will need to renew their licences annually through the UAE Insurance Authority. This represents the "first federal regulation of this type of activity in the UAE", according to a recent update issued by Clyde & Co. Currently, the only regulatory requirements governing TPAs relate to those applied in Abu Dhabi for its compulsory health insurance scheme. Come January, the scrutiny on TPAs will apply at the federal level. The directives also require TPAs to be a limited liability company, a public joint stock company or private joint stock company registered in accordance with UAE Company Law. Or they need to be a branch of a foreign company and operational for at least two years. Free zones In a marked change from the past, under the new directives TPA based in free zones can set up branches outside the jurisdiction to ply their trade. Would this then mean a rush for new TPA licences from players until now unrepresented in the market? "I am not sure about the possible boom — one of the reasons TPAs operate in a free zone platform is because they can have 100 per cent ownership," said Mustafa Vazayil, managing director of Gargash Insurance Services. "As soon as they move into a UAE jurisdiction they need to dilute this and some multinational organisations may not want to do this. "Third party administration is a specialist field and often it's better to be a global or regional player than a local operation. That being the case, local TPAs need to become regional players or we should have some global names which can bring in more of technology and expertise to the marketplace." Pressure A growing population base ensures that medium-term prospects for the UAE's health care and medical insurance sectors have never been better. But it will exert pressure on the individual components to be in optimum fettle. For TPAs, it means their financial base will have to be secured. This would require TPAs to maintain separate accounts for its core operations from its company account. They would also need to have a higher paid-up capital of Dh5 million with a professional indemnity policy of Dh3 million and more. However, the Clyde & Co. report notes: "This capital requirement appears somewhat incongruous considering the administrative function of the TPA. It would appear this is premised on the fact that the TPA and insurer will be ‘jointly liable' for obligations under the management contract [which on a plain reading appears to make the TPA co-liable for the insurer's obligation to pay claims]." But Vazayil is in broad agreement with the higher capital requirements. "There have been instances of small players entering this field and running into financial difficulties," he said. "The higher capital would mean eliminating fringe players and making this business a competitive one among the serious contenders." Outsourcing: Some restrictions apply While the recent directives from the UAE Insurance Authority spell out what TPAs can do in the future, it's equally clear what cannot be done. Medical claims management can only be done by licensed TPAs in the UAE. "This is in contrast to regulations recently circulated by the Saudi Arabian regulator, which permits insurers to outsource administration and back-office services to a provider outside the jurisdiction, providing certain safeguards are in place," said the Clyde & Co report. Also, it appears TPAs will no longer be able to be set up in a UAE free zone. Industry sources are divided on what the restriction on outsourcing would mean for the medical insurance sector here. "Outsourcing is a worldwide phenomenon and is the basis of achieving competitiveness and profitability," said an industry source. "If local players are thus given an opportunity to outsource part of their activities, they can achieve economies of scale and thus compete with global players."