DUBAI: A new UAE law regulating the growing Islamic insurance industry will provide more transparency and oversight but the extra costs of compliance may drive consolidation in a fragmented market, lawyers said.

The Islamic insurance, or takaful, law was issued Sunday, placing companies under the jurisdiction of the Insurance Authority of the United Arab Emirates and giving them a year to reorganize their processes.

Under the law, every takaful firm must have a Sharia board consisting of three qualified scholars with experience in Islamic finance.

The boards will be responsible for issuing an annual report and will fall under the oversight of a supreme committee within the authority charged with all Islamic legal opinions.

The law also sets standards for financial and accounting issues as well as rules for paying out surpluses resulting from premiums and investments.

“Up until now, companies were just trying to put insurance law in an Islamic context without any specificity,” said Peter Hodgins, partner at Clyde & Co. “The new law aims to standardize the operating structure of all takaful firms which will strengthen the industry.”

But any standardization process will likely result in an increase in costs that could hit an industry already struggling to make a profit. That could help spur some long-awaited consolidation, said Justin Balcombe, director of Middle East advisory at Ernst & Young.