The Board of Directors of the Insurance Authority has made the changes to protect the rights of policyholders and also companies' interests, it said.
The new system sets maximum and minimum premiums but allows insurance companies to vary prices within these limits depending on their customers, or for technical or actuarial reasons, the Authority said.
These premiums can also cover ambulance services and medical evacuations. Insurance companies may not levy or charge additional amounts without permission from the Insurance Authority, it said.
Insurance companies will now have to provide a 'courtesy' car for up to ten days to any party who is not at fault, or pay them Dh300 (£66) per day.
A representative from an insurance firm told Khaleej Times that premiums from across categories will drop anywhere between Dh100 to Dh150.
According to tables published by the Khaleej Times the minimum premium for a third party liability insurance policy for a four-cylinder private saloon car will be Dh750 while the maximum will be Dh1,300.
The system will come into force on 1 January 2017.