UAE Insurance Authority pushes ahead with stringent life insurance regulations

The government body published the third draft of its new measures, firming up its bid to overhaul the life industry

Abu Dhabi, U.A.E., February 12, 2019. Sunny but chilly weather at the Corniche.
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Reporter:   Mustafa AlRawi
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The UAE Insurance Authority is forging ahead with new regulations to transform the way savings, investment and life insurance policies are sold, offering investors better protection.

The government body issued a third draft of the decision taken by IA’s board of directors on its website detailing its proposed overhaul of the life insurance and family takaful business in the UAE.

“The latest draft is very much a ‘firming up’ of previous versions with most of the key concepts remaining,” said Tom Bicknell, a partner in the Dubai office of law firm Pinsent Masons.

The measures include caps on commission paid to financial advisers selling lump sum investments, known as offshore bonds, as well as fixed-term contractual savings plans, with the payment made over the term of the product rather than paid upfront. There are also stipulations on how customers are made aware of fees and commissions.

In theory this should ensure that clients are treated better than they currently are as the adviser will be incentivised to continue to look after the client for the full term of the policy so that they receive the commission which will be dripped to them across the term of the policy.

Numerous UAE residents have been burnt by buying into long-term products that seemingly offer 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.

Swiss insurer Zurich – one of the leading providers of fixed-term contractual saving products in the UAE – said it welcomed the efforts of the IA and other regulators.

“We continuously aim to improve our solutions and services to benefit our customer and adhere to all local regulatory requirements,” said Walter Jopp, chief executive, of Zurich Middle East. “This is the third version, we will provide the IA with our feedback and work with them to enhance the UAE insurance industry as whole.” Mr Jopp said the company could not comment on the regulations in detail because they were still in draft form.

Friends Provident International – another leading provider – did not comment.

The IA first declared its intention to overhaul the industry in November 2016 in response to "an alarming amount of complaints".

“The data provided by the industry revealed that both the conventional and takaful operators charge heavy commissions and up-front fees to policyholders, which is perceived to provide poor policy value to customers in the early years of the policy,” the IA said in a circular at the time.

The authority then followed up with a second draft circular in April 2017, at the time setting a date of May 11 of that year for any further input from life insurance and family takaful companies. The Central Bank of the UAE also clamped down on mis-selling from banks and finance companies, revealing in September 2017 that 100 clients had money returned to them by banks due to the crackdown.

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Peter Hodgins, an insurance lawyer at Clyde & Co in the UAE, said the latest draft is not significantly different from the 2017 version, which may indicate it is a final version. While the IA has not said when the regulations will be implemented, the authority has invited comments on the draft, he added.

The measures include a cap of 4.5 per cent on the sale of lump sum portfolio bonds or offshore bonds by advisers from financial companies. This replaces commission payments of up to 10 per cent paid by some insurers to the advisers on the sale of their products.

The draft also says sales advisers must provide customers with a detailed schedule of fees and commissions for the entirety of a policy’s life cycle and customers have the option to cancel a policy within 30 days. Commissions paid upfront to advisers on the full value of an insurance policy – known as indemnity commission – would be restricted to 50 per cent of the annual premium in the first year with the rest drip fed over the term of the product.

Sam Instone, the director of AES International, a fee-based financial advisory, said the measures were "more stringent".

“In theory this should ensure that clients are treated better than they currently are as the adviser will be incentivised to continue to look after the client for the full term of the policy so that they receive the commission which will be dripped to them across the term of the policy,” said Mr Instone. "However this may not be the case depending on whether the adviser is in the job for the long term or not and could just lead to them ensuring they obtain maximum up front commissions by selling longer term policies and then moving on to the next region."

Steve Cronin, the founder of, an independent community for financial education in the UAE,  said the regulatory changes are welcome.

"The new regulations will prevent the worst excesses of the industry and will help prevent customers being completely ripped-off," said Mr Cronin. "The economics of growing and maintaining a financial advisory business will be less attractive, especially given new caps on upfront commission and a longer period for claw-back of commissions. This should lead to consolidation of advisory companies and the exodus of 'advisers' looking for fast money with little concern for their clients."