Insurance brokers and investment advisers in the UAE say the recently implemented Insurance Authority regulations on life insurance have not benefited brokers or customers, and some looking to exit the market in the face of dwindling revenues.
The UAE Insurance Authority implemented the BOD49 regulations on life insurance with effect from 16 October 2020 after a particularly long gestation period.
The regulations cover insurance companies incorporated in the UAE and foreign branches of insurance companies licensed to carry out insurance operations either through a branch or an insurance agent.
The new rules address the most important issues relating to mis-selling, overall commission payouts, upfront payments to agents/brokers by insurers, fees and charges associated with investment products, the free-look period and mandatory benefit illustrations.
It was anticipated that the game-changing regulations will greatly affect businesses, triggering an exodus of smaller players from the market as revenues take a big hit.
Purpose not served
Many brokers feel that the purpose of the regulations has not been served as they are not benefiting the advisers or customers.
It was feared that life products were going to get costlier for policyholders, thereby raising a concern whether the regulation can achieve what it intended.
“There is no actual benefit to advisers or clients,” they said.
International Adviser previously reported that paths were being beaten towards the industry exit door, while others seem to have switched to selling products like credit cards.
“Customers are not happy as life insurance premium has shot up by as much as 60%. All regulated products such as life insurance, retirement planning, education planning have taken a big hit in revenues,” said Navin Nihalani, founder and chief executive, Compass Insurance Brokers.
“The big impact is on life advisers, as customers are buying lesser insurance than they need.”
In one example, a customer looking to buy $1m (£755,430, €842,820) worth of life cover now has to pay a premium of $22,500 – up from $14,000 in the past, a rise of nearly 60%.
Another example given showed a 33% increase in premiums to $20,000 from $15,000.
No details were provided about which products or companies were involved in the above examples.
No indemnity commission
The regulations disallowed indemnity commission for regular premium policies and stipulated that the commissions paid should be based on the annualised premium collected.
First year commissions must be capped at 50% of the annualised premium or 50% of the total commissions payable under the product, whichever is lower.
The remainder must be paid out linearly over the remaining premium payment term of the policy.
The first year commission is subject to claw-back during the first five years of the policy, at a minimum.
“Brokers find it a big deterrent. If he has to make the 50% on the first year of commission, he knows that it’s 10% every year for five years. Logically, he is getting the 50%, but if the customer stops paying, he has to return 40% back to the insurance company. Therefore, nobody wants to sell any product with the five-year claw-back condition. Further, brokers are finding it an accounting nightmare,” Nihalani said.
It was feared that the broker role would become redundant if insurance companies start selling directly, bypassing brokers.
None has started it yet, but it is rumoured that Zurich is contemplating setting up a direct sales force.
Insurance companies will naturally look to strengthen their direct sales channels if there is resistance from the broker distribution network.
“Advisers are forced to change track as they have to do something to survive. Already some are planning to turn into DSA (direct selling agencies) models. It is understood that a few will be surrendering their broking licence to take up DSA licence,” Nihalani said.
Anand Singh, senior associate in the insurance and reinsurance practice at law firm BSA Ahmad Bin Hezeem & Associates, previously stated: “Most insurance brokers are unhappy with the regulatory development.
“The new regulations are not sustainable and that if the distribution channel is not sufficiently incentivised, brokers will lose the motivation to sell these products and therefore have an adverse impact on the life insurance market.”
