Inayat-Ur- Rahman
The UAE’s Dhs9.5 billion life insurance and family Takaful sector will see a massive change due to the new regulations that came into effect on October 15 this year – which cuts insurance broker’s commission to 10 per cent from 40-70 per cent, making it difficult for the insurance brokers to survive.
The new regulations were initiated by the UAE’s Insurance Authority to stop what they call mis-selling life insurance products. The new regulations make term life insurance policies more transparent and hold the brokers and insurance companies accountable for any misrepresentation of facts and terms and conditions.
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Gross total written life, group life, individual life and group credit life insurance premium in the UAE reached Dhs9.51 billion in 2018, according to the Insurance Authority’s Annual Report. Gross written premium in the individual life insurance in the UAE crossed Dhs7.52 billion in 2018.
The new regulations, known as UAE Insurance Authorities’ Board of Directors Decision 49 (BOD 49) of 2019, will make the new life insurance policies more transparent and cheaper while making insurance companies more accountable and responsible to the customers. The new regulations seek greater information on the policy outlay and risks covered over the insurance terms as well as commissions and fees that are charged by the insurance company and the brokers.
“From October 15, when the BOD 49 regulations came into effect, the Term Life Insurance products might become 15-30 per cent cheaper – which is good for the insured person – as he or she will be able to insure his life for the same coverage with 15-30 per cent less premium,” Leena Parwani, Founder and Chief Executive Officer of LPH Financial Services, told Gulf Today.
“The new regulations obviously intend to increase policyholder protection by enforcing better disclosures, thus expected to increase the life insurance penetration in the UAE, which is quite low at 0.7 per cent of the UAE population."
“Consumers will benefit from greater transparency with less chances of malpractice. The new regulations will make the UAE’s life insurance sector more organised, more professional and more competitive.”
Life insurance is one of the most misunderstood subjects. Industry sources say, the new set of regulations come following allegations of alleged mis-selling of life insurance products and misguiding clients.
“Mis-selling can’t be stopped just by eliminating commission of brokers,” Leena Parwani, an expert financial planner and adviser, says. “To stop mis-selling, our collective focus should be on educating clients and sharing as much knowledge as possible.
“Changes are vital and most of the regulated countries have experiences drastic changes in Life Insurance industry, name it Australia, UK, USA and eventually we get used to of it the way water makes its way same way humans finds way to happily live with it."
“Until today, life insurance clients are force to buy policy to open a bank account and the client sometimes doesn’t even know what kind of policy he is getting in to it. So, we need to educate the clients and make aware of the salient features of each product for their proper understanding and help them decide on their choices and preferences.
“The new regulations make clear provisions for making these clear to the client, and tell the insurance brokers and companies to illustrate the full cycle of the policy and how it works. We now have a greater clarity, which is good for new clients.”
The life insurance market is usually run by brokers and brokerage firms – the majority of whom are not salaried employees and live on commission only. The earlier practice allowed the brokers to receive a higher per cent of the first-year premium as commission and 2-5 per cent more every year on the annual premium collected from the second year onward till maturity of the policy.
“Since we deal with people’s life, their life-earnings, savings, their estate planning, succession and their future, it requires a certain level of qualification, trust and professionalism. People trust us with their intimate financial information and this requires strict professional discipline,” she says.
“So, it is of paramount importance that they remain honest, sincere and true to our professional obligations to help the clients. If we can do this professionally, the insurance penetration will increase in the UAE in future, from the current level of 0.7 per cent.”
However, the maximum cap of brokers’ commission might adversely affect the brokers many of whom might find themselves out of business due to a drastic fall in commission. “The downside of the new regulation is that it will drastically reduce the brokers’ income and due to this many brokers might go out of business within a few years,” Leena Parwani says.