Quicktake: why the UAE Insurance Authority’s latest life industry regulations are important

We take a look at the government body’s proposed overhaul of the life insurance sector

The new rules for life insurance and family takaful were due to take effect on April 16. Getty Images

The UAE Insurance Authority (IA) is pushing ahead with new regulations to transform the way savings, investment and life insurance policies are sold. The government body issued a third draft of its proposed overhaul of the life insurance and takaful sector on its website on January 31. The National takes a look at why this is significant for the industry.

Why is this happening?

The IA responded after numerous UAE residents complained to the authority after being burnt by buying into long-term products that seemingly offered attractive returns, only to find early gains eaten up by commission fees, with an inability to exit plans without paying the full charges of the product. The IA first declared its intention to overhaul the industry in November 2016 saying at the time that data provided by the industry revealed that both the conventional and takaful operators charge heavy commissions and upfront fees to policyholders, "which is perceived to provide poor policy value to customers in the early years of the policy”. A second draft followed in April 2017.

What does the latest draft propose?

The third draft is not significantly different to previous versions, which may indicate it is the final draft before the regulations are implemented. The measures include caps on commission paid to financial advisers selling lump sum investments — known as offshore bonds — and fixed-term contractual savings plans. The commission payments will also be made over the term of the product rather than paid upfront and there are also stipulations on how customers are made aware of fees and commissions.

Why is it important?

It will offer investors transparency, with a clearer idea of exactly what they are being charged for an insurance-based investment, savings or life product.

Tom Bicknell, a partner in the Dubai office of law firm Pinsent Masons, said the draft rules do not add any further forms of customer protection from previous drafts. “However, the robust disclosure regime, tightening up of commission payments and licensing at the individual product seller level are all significant steps in regulating the industry,” he added.

How will it affect the life industry?

Philip Rose, a chartered wealth manager at Halwyn, an Emirates Securities & Commodities Authority-licensed financial firm, said commission earned at the point of sale of a product will drop significantly “by 50 per cent or more" due to the caps.

“I consider it highly likely that in the next 12-24 months the market share for new business of traditional life co savings products in the UAE will have plummeted and been replaced by much simpler, cheaper and more transparent alternatives,” he says. “It is also possible some providers will simply leave the market place altogether.”