Somaliland Insurance Act

Somaliland has recently passed a new law on insurance to regulate local and international insurance companies, agents, and brokers. The act lays down the nature, structure, responsibility, and licensing procedure. An insurer must have two separate accounts: one for receiving its commission and the other for the insured to pay his or her premium. The minimum and maximum premiums will be decided by the National Insurance Committee, and the insurer cannot issue an insurance policy if the premium is against the guidelines issued. The act obliges the insurance companies to have an account in the central bank of Somaliland and deposit 20% of their paid-up capital.

Structure of the Insurance Company.

The act states the following structure in which the insurance company must be formed or consist:

  1. Board of Directors
  2. Executive Director(s)
  3. Sharia Board
  4. Staff members.

It also lays down that the insurance company should have: a) a risk management unit; b) a legal department; c) an insurance risk analysis section; d) an internal audit department; e) a Sharia advisory committee; and f) any other unit that the insurer deems necessary for the company.

The company has to notify the details of the members of the Sharia Board and Executive Director(s), and there shall not be any executive member who serves in any other insurance company in Somaliland. The law gives power to the Somaliland insurance authority to approve the policies of the companies; after approval, the insurer cannot add or alter anything to the policy. All agreements between two or more insurers must get the approval of the insurance authority.

Registration and License of Insurance Company.

The new law provides conditions for any company that wants to register and establish its insurance business in Somaliland, and they are:

  1. Fill out an application form, which is available at the National Insurance Authority, and pay a registration fee of 1,000, 000 Somaliland shillings.
  2. Certified copy of the articles and memorandum of association of the company.
  3. A feasibility study report or a business plan with financial projections (balance sheet and income statement) for the first three years.
  4. Details of the shareholders and shareholding structure of the company.
  5. Detailed and signed curriculum vitae of all directors and the Chief Executive Officer. The location of the head office should be specified.
  6. A certificate from the Central Bank or other banks registered in Somaliland specifying the amounts and details of a security deposit of at least 20% of the core capital.
  7. The proposed premium rates and rating scales for each class of business. Proposed reinsurance arrangements.
  8. Once the application is approved, a license fee of USD 4,800.00 is payable by insurance companies registering with the authority.

The general insurance license will not be issued to any insurer unless: a) the company holds a minimum core capital of 3 million dollars. b) The reinsurer is holding a minimum core capital of 5 million dollars; and c) the payment of the license fee, which is 4,800 dollars for the insurer and 7,000 dollars for the reinsurer.

After receiving the request application, the Chairman of the Insurance Authority will appoint a committee that will verify all the information submitted by the company and write a report within two months. After the company fulfills the above conditions, It will get the insurance license, but if the authority does not satisfy the company’s request due to non-compliance with this law, they will send a written response to it within 45 days after receiving the application.

The company must register and become a member of the Somaliland Insurance Association after getting the license, and it's valid for up to 1 year only. The re-new payment is 2,500 dollars.

The Insurance Authority will also provide guidelines and regulations for the licensing of brokers, agents, and private insurance risk advisors. It can ban and suspend the license of a company at all if a) the insurer violates the provision of this act; b) the business of the insurer is against Islamic principles; c) it did not start its insurance business within 180 days after receiving the license; d) it provided fake information at the time of requesting the license; and e) the company did not pay the claim of an insurer within 90 days after judicial judgment against the company.

The act gives the insurer a dispute resolution mechanism for the insurance companies, which can appeal to the National Insurance Committee from the decision of the Insurance Authority. The committee has the power to approve, change, or dismiss any decision made by the authority. If the company does not satisfy the matter decided by the committee, it can file a final appeal in the competent court within 30 days.

Combination of Insurance Companies.

The act prohibits the insurer from transferring some or all of its insurance business to another company without getting written approval from the Insurance Authority, and any company that does so will be liable to pay a $100 million fine!

The law mentions the procedure or steps needed to be taken when two or more insurers want to merge with or transfer the business: a) must publish the combination or the transfer into a local magazine; b) must notify their insured people of the changes in the companies. After doing so, the companies have to submit an application, including a proposed document of the combination or transfer and audited accounts and balance sheets of each company, to the Insurance Authority requesting the changes.

The authority will respond within 3 months, and if not, the companies can proceed with the insurance pooling or the combination.

The act protects the insured's information and prohibits the disclosure of confidential matters by the company or its staff. It also mentions some punishments, including imprisonment and a fine, for crimes committed by the insurer, agent, and broker.