The Insurance Authority (IA), in a draft circular released on April 25, has set out details of its planned overhaul of the life insurance and family takaful industry.
It follows feedback from major international life companies and a meeting held with key industry representatives on January 12.
“The IA intends to put in place certain measures to raise the bar of regulation of life insurance and family takaful products in the UAE,” the regulator said.
The revised draft of the Insurance Authority’s planned rules, first announced on 14 November last year, incorporates much of the industry’s feedback, particularly in allowing time for the changes to be implemented, though the main features remain intact.
Commission rules
For life company savings plans, the maximum commission is to be capped at 50% of the annualised premium with the remaining 50% to be spread over the term of the plan.
In addition, the IA is sticking with the commission restrictions outlined in its Circular 33 last year, which set an overall cap of 160% of the annual premium for term products.
The 4.5% cap on single premium savings products pro-rated over 12 months is also retained.
The ban on commissions paid up-front and based on the full value of the policy (i.e. indemnity commissions) is due to take effect when this new circular is officially gazetted.
In the UAE when regulations are published in the Official Gazette they come into force.
“There are lots of changes for life companies and IFAs to implement now, in one year and lots more in two years’ time,” said one industry executive who had seen the circular.
Cross selling
For life companies using multiple distribution channels, the total costs, including commissions and internal expenses linked to selling a product, will in future be specifically allocated to the customers within each channel.
“Policyholders should only bear the costs associated with their distribution channel and should not be disadvantaged by sharing the costs of another distribution channel,” the IA has decided.
Fees paid to advisers or intermediaries cannot be recouped from the product offered, are limited by the new commission rules and must be fully disclosed to the client, ending any cross-selling practice.
Transparency
The new rules, outlined in IA’s Circular No. 12 of 2017, are particularly strong in seeking to enhance transparency and protection for customers of life industry products.
Key among these is a comprehensive disclosure requirement for all fees and charges paid in any form as part of a plan.
One observer who had seen the circular said: “It’s very clear on all costs being included.” These would include premium, commission and surrender charges, administration fees, and investment management or fund management fees. There is also a rule that companies must disclose any form or rebate or refund.
Companies must also provide historical performance of funds for at least five years or for as long as the fund has been in existence.
One implication of this is that the IA seems to have explicitly recognised the investment-focus of most modern life products.
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