UAE's new lease of life insurance regulations certainly are a win-win for customers

The UAE Insurance Authority’s new regulations on life and family takaful insurance are anticipated to bring more transparency to the industry and better returns for investors, according to industry stakeholders.

The regulations, officially known as Insurance Authority Board of Directors Decision No. 49 of 2019 (BOD-49) concerning instructions forever Insurance and Family Takaful Insurance, arrived to influence on October 16 and can have many perks for end-users, including an increased customer service standard over the board.

The new regulations are expected to lessen mis-selling of life insurance products, increase policyholder confidence on the market and cause industry consolidation, experts say.

“The new law will make certain that advisers will treat their clients better through the entire term of the policy and not merely focus on the original incentive of a high commission,” says Yogesh Khairajani, global market strategist at Century Financial, a financial consultancy.

The UAE Insurance Authority first proposed an overhaul of the life span insurance sector in 2016 to improve how savings, investment and life insurance policies are sold. At the time, the regulatory body said it had received several complaints from residents who were mis-sold long-term savings products.

These insurance products are given by global insurers and written by IA-licensed financial advisers. They have already been criticised for being expensive and inflexible, as clients are locked in for a set time period and must pay the entire charges if indeed they exit early.

In July this season, the UAE announced the merger of the IA with the Securities and Commodities Authority within a restructuring of government and supervisory authorities in the united states.

When The National contacted the insurance regulatory body on the roll from the BOD-49 regulations, it said: “Any press questions directed to the Insurance Authority will be stopped until the merger procedures are completed.”

Elie Irani, a board person in SimplyFI, a non-profit community of UAE investment enthusiasts, welcomed the brand new regulations saying they'll help protect consumers.

“Everybody knows horror stories about unsuspecting consumers getting locked into long-term savings plans that are riddled with high service fees and have practically little potential for beating inflation over the word of the program, typically 20 to 25 years,” he says. “I hope with the new regulations in place, finance institutions will no longer be capable of geting away with almost anything.”

Within the regulations, the IA has capped the entire commission payable on an insurance plan over its entire course. This implies a greater part of a customer’s premium payment will be allocated towards the insurance policy.

Prior to the regulations were implemented, “for a few investment-linked insurance products, 100 per cent of the premium used to be paid upfront as commission to the broker", Mr Khairajani says.

"Now, which will be restricted to 50 per cent in the first year and you will be paid out in the remaining policy duration.”

Financial advisers must add a mandatory 30-day “free-look” period in the policy, allowing customers to cancel it for free within the first month of the policy's inception.

Only the serious long-term players will be able to grow in this environment by changing their sales strategy

Sivadeet Baruah, Oman Insurance

“With the introduction of a cap on commissions, the expense of saving, protection and credit life products has further decreased,” Rajesh Sethi, leader of Dar Al Takaful, says. “This can help increase the confidence of certificate holders in the long-term performance of their products and can ensure a good treatment to them.”

The regulatory body in addition has imposed increased disclosure requirements on financial advisers, who are now required to provide a benefit illustration to customers prior to the policy commences and an insurance plan statement every six months. The power illustration must obviously outline the client’s financial needs, insurance coverage, premium amount, reasonable projection of financial performance, insurance or protection and explain the costs involved.

“The new regulations changes the landscape of the UAE insurance industry. However, intermediaries will probably witness a short-term impact given the brand new maximum commission limits, along with the maximum allowable limits for indemnity commissions,” says Sivadeet Baruah, head of individual life at Oman Insurance.

“The drop in earnings for intermediaries should be compensated by higher sales and, therefore, only the serious long-term players will be able to grow in this environment by changing their sales strategy.”

With the introduction of a cap on commissions, the cost of saving, protection and credit life products has further decreased

Rajesh Sethi, chief executive, Dar Al Takaful

Meanwhile, Zurich Insurance says it “welcomes the brand new regulations”. “We are pleased to supply the market with new solutions aligned with the requirements of BOD-49. Zurich in the centre East will be working very closely with this distribution partners to ensure a smooth transition to the new environment,” a representative tells The National.

Anand Singh, an insurance and reinsurance associate at lawyer BSA Ahmad Bin Hezeem & Associates, says the changes in regulations “may lead to the departure of a number of advisers/distribution channels from the life insurance market on account of lower margins, resulting in a shortage of distribution channel support”.

“Many have previously taken action by changing structures and turning online to spend less and stay afloat,” he adds.

According to Mr Khairajani, insurers need to achieve a complete overhaul within one year of issuance of the order to abide by the law. “This would involve the insurers changing their entire business structure to complement the existing law stipulations. This will be an added cost for the insurance firms.”

Thomas Bicknell, somebody in financial services at law firm Pinsent Masons Middle East, says the new regulations would impact the financials of the UAE’s life insurance sector. “In order to shore up their financials, we're able to see a rationalisation of a number of the smaller market participants in the type of consolidation if not them leaving the marketplace.”

Existing policies will continue with the same fees, contribution and benefits as agreed during the certificate inception. Only new policies issued after the implementation date will be covered beneath the new regulations.

“For existing policies issued to customers ahead of October 16, 2020, if the policy terms and conditions comply with the life span regulations, then those conditions don’t require them to be changed. However, if the conditions of your existing policy aren't in compliance with the life span regulations, then your same ought to be revised and re-issued without a break to the coverage,” Mr Singh says.

The IA also warned customers of policy churning, in which financial advisers may make an effort to cancel existing policies and re-issue new policies to customers. In case a policy issued ahead of October 16, 2020, is cancelled and a fresh policy issued, the full total commission paid beneath the old policy and the brand new policy must adhere to the life insurance regulations.

“So, if the conditions of a customer’s policy do not match the life span insurance regulation requirements or if the distribution channel is pushing for cancelling the prevailing policy to issue a brand new policy, the customer gets the to raise a complaint with the insurer and with the Insurance Authority,” Mr Singh says.