Qatar's insurance sector in particular is going through substantial change and the country is about to implement a comprehensive new rulebook on insurance regulation. This is going to be challenging for the country's incumbent suppliers to manage, with enormous changes to how they do business, but will improve transparency and fairness and open up opportunities for international suppliers.
The Qatar Central Bank (QCB) has been made the leading supervisory authority for licensing and overseeing all financial services activities and has issued detailed instructions on how to establish an extensive new legal and regulatory framework.
This framework covers both prudential and business conduct requirements for insurers, and is likely to be implemented at the start of 2016. All insurance businesses including consultants, brokers, loss adjusters, insurers and reinsurers will need to be licensed either by the QCB or by the Qatar Financial Centre Regulatory Authority (QFCRA). Historically, international businesses have tended to lean towards the QFCRA as it operates within a common law and regulatory regime that is more familiar to international insurers. However, the new QCB rules are similar to those of the QFCRA and will potentially attract a larger number of international insurers as well as local operators.
The new legal framework still presents some hurdles to international suppliers. For example, property risks must still be borne by local entities, but these can be financially backed by foreign companies. Foreign insurers can provide cover for other risk categories so long as they meet the local regulations on distribution and conduct of business, although there are still some market constraints: in areas such as construction and engineering, for example, employers still tend to insist on locally issued insurance.
Branch licences for foreign firms are currently expected to require a capital deposit of QR35 million (US$9.6 million) on top of the requirements that local businesses face, and applicants will need to submit a three-year business plan and projections. The QCB has set up a division to deal with the expected rise in queries about applications and to issue the necessary forms.
Insurance in Qatar has to date been licensed by the Ministry of Business and Trade, now known as the Ministry of Economy and Commerce (MEC), under rules dating back to 1966. There was very little regulation or supervision in place under this regime.
MEC licences will continue to be accepted for one year after the new regulation comes into force, and insurers will have to apply for a new QCB licence before this time. They will be given some time to adapt to some provisions of the new regulations, but there is a strict timetable to follow for notifying the QCB of their licensing intentions. There will be some transition periods built into this process, for up to two years, to allow insurers time to recruit for important roles and develop systems for some of the more complex rules. Prudential rules, however, will be applicable immediately from the day that the legislation comes into force.
New data protection rules are also required, while corporate governance, risk policies and reporting will need to be upgraded substantially.
It is not going to be easy for many MEC licensed firms to make the changes that are needed, particularly in establishing the control regime that is needed. Some provisions have been put in place to help, including rules on outsourcing arrangements and the employment of staff for internal control roles including risk management, compliance, actuarial and internal audit.
Reporting to the QCB will be particularly demanding. For conduct of business the regulator will need to approve standard policy terms, and will have control over advertising. There will also be extensive requirements for transparency, with product disclosure rules including explanations of terms, illustrations of benefits, and returns as well as risks. Details of charges and of how distributors are paid are also required, so that policyholders have a full understanding of what is being offered.
Brokers and agents
The QCB has said that it will issue further, more extensive rules on brokers and agents in the forthcoming months, to help regulate sales and marketing of insurance. More innovation and stimulation is needed in the distribution of insurance products, as the broker market is still limited.
The new rules will recognise different types of insurance and different market segments, including health insurance, and distribution methods such as online and direct marketing.
These changes will have far-reaching implications for the insurance market, and it will take a few years before we see the full implications.
Similar changes to in insurance legislation are taking place all across the GCC region, although the scale and speed of change differs greatly from one country to the other. The current changes in Qatar will be watched closely by its neighbours, to see what works well and what should be done differently.
More immediately, there will be significant compliance costs, relating to staffing and to the new control and reporting systems that are needed, and this will increase pressure on insurers.
This new push for regulation is welcome as it will bring increased transparency for the industry, for stakeholders, and ultimately market confidence, higher standards and greater protections for the end consumer. It will take some time to effectively bed in, however, and the transition to the new regime will involve a lot of reporting to the regulators. It will now be a question of managing this in the most effective way without too heavy a cost burden.
Doha-based Roger Philips is a regulatory expert for Pinsent Masons, the law firm behind Out-Law.com.