Sales advisors will be obliged to provide customers with a detailed schedule of fees and commissions for the entirety of an insurance policy’s life cycle, with a mandatory option to cancel a policy within 20 days of purchase. Pawan Singh / The National
The UAE Insurance Authority
(IA) plans to introduce tough regulations to fundamentally change the way
savings, investment and life insurance policies are sold, in response to
"an alarming amount of complaints" from policyholders.
Sales advisors will be obliged
to provide customers with a detailed schedule of fees and commissions for the
entirety of an insurance policy’s life cycle, with a mandatory option to cancel
a policy within 20 days of purchase.
The proposed new regulations
propose a maximum commission of 4.5 per cent for savings products, while
commissions paid up-front based on the full value of an insurance policy, known
as an indemnity commission, will be prohibited.
"The data provided by the
industry revealed that both the conventional and takaful operators charge heavy
commissions and up-front fees to policyholders, which is perceived to provide
poor policy value to customers in the early years of the policy," the
Insurance Authority said in a circular distributed to insurance providers and
brokers last month.
"The IA has also noticed
an alarming amount of complaints from the policyholders that they are provided
with no value if they surrender in the early years of the policy."
Numerous UAE residents have
found themselves burnt by buying into long-term products that seemingly offer
attractive returns, only to find early gains eaten up by commission fees, with
an inability to exit plans without incurring heavy penalties.
"The [new] regulations
have the potential to fundamentally change the way life products are priced and
sold in the UAE, and represent a long overdue move to regulate the manner in
which life insurance investment contracts have been sold and marketed in the
UAE," said Tom Bicknell, a senior associate with the law firm Clyde &
Co in Dubai. He said the new rules would bring the country into line with more
developed markets such as the UK and Hong Kong.
The ban on indemnity
commissions represents a dramatic shift in the way advisers have traditionally
been remunerated, said Mr Bicknell.
"The ability for a
product manufacturer to pay large upfront fees [albeit with the ability to
clawback in the event of cancellation] has been one of the most important means
for incentivising and thus driving product sales," he said in a briefing
note on the new regulations.
Such regulations, together
with caps on commissions, are probably bad news for certain advisory firms,
especially those that don’t offer general insurance, as well, or discretionary
fund-management services, said Nigel Sillitoe, the chief executive of the
Dubai-based market intelligence provider Insight Discovery.
"The new regulations will
lead to a shake out in the advisory market, but it’s definitely a good thing
for consumers," he said.
"Once the legislation is
put in place, consumers will have more awareness about how much the adviser is
receiving in commissions and what the full range of charges will be, which has
been lacking here in the UAE for many years."
It is unclear when the new
regulations will come into effect and whether they will do so in their current
format. The Insurance Authority did not respond to requests for comment.
"The industry is
witnessing significant regulatory changes but I believe that this is definitely
positive for all stakeholders involved – providers, brokers, and end-users, as
it will define the benchmarks of best practice, giving clients the assurance of
credible and trustworthy service," said Tarun Khanna, the chief executive
of Nexus Global, a financial advisory group.
"As a firm that strives
to reach the highest levels of qualification through the continuous training
and education of its professionals, we are confident that these changes will
continue to offer Nexus opportunities for business development."
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