New regulations passed by the Insurance Authority last month are expected to increase life insurance coverage in the UAE, which currently has very low take-up rates, industry stakeholders say.
“Life insurance penetration is very low in the UAE. In 2018, it was 0.67 per cent. In contrast, coverage stands at 30 per cent in Luxembourg, 16 per cent in Hong Kong and 10 per cent in the UK,” Frederic De Melker, RAKBank's managing director of personal banking, said during a webinar on Sunday. The global average for life insurance coverage is 6.1 per cent.
The UAE is vastly underserved in terms of life cover because a vast majority of expats come from regions in Asia where penetration rates are even lower than in the Emirates, Mr De Melker added. These include countries such as Pakistan, the Philippines, Bangladesh and China, whereas India has a 2.7 per cent take-up rate.
The onset of the coronavirus pandemic has resulted in an uptick in people considering taking out life insurance, RAKBank said.
“From March through to June, the number of people searching for life insurance on Google has gone up by more than 50 per cent globally because of Covid-19,” chief executive Peter England said.
The UAE Insurance Authority’s new regulations on life and family takaful insurance, which were implemented on October 16, capped the overall commission payable on a policy over its lifespan, stipulated a mandatory 30-day “free-look” period for a policy and increased financial advisers' disclosure requirements.
“The new regulations will protect the customer, make the insurer and the intermediary more responsible and operate in a transparent and customer-focused manner,” said Dimitris Mazarakis, chief executive of MetLife Gulf, who also spoke during the webinar.
Although the brokerage industry will experience short-term disruption, most independent financial advisers started to develop the appropriate infrastructure many years ago to face the impact of a significant reduction in income, Mr Mazarakis added.
“They will try to build a more efficient organisation and build sustainable streams of income. The future is bright for distributors and insurers,” he said.
The UAE's low insurance penetration was attributed to poor awareness, lack of trust in the market and the transient nature of expatriates.
“Until recent regulations were passed, all financial products were treated with suspicion. We have all heard of people being mis-sold schemes by aggressive salesmen. We welcome the new regulations which guarantee openness in terms of low charges and transparent pricing,” Mr De Melker added.
With consolidation under way in banking and other financial services industries, the UAE’s insurance sector is also ripe for some mergers.
“There are way too many insurance companies in the UAE. As the market evolves and digital transformation takes place, scale becomes crucial. This will lead to more consolidation among general players,” said Mr England.
Echoing this sentiment, Mr Mazarakis said the increasing number of insurers might lead to further consolidation to achieve required scale and efficiency.