The UAE Insurance Authority has postponed the roll-out of its new life insurance regulations by six months, the regulatory body said in a circular.
The new rules for life insurance and family takaful, which are set to offer greater transparency for customers and apply commission caps to the sale of protection products, were due to take effect on April 16, according to the circular on the IA's Arabic website. However, this has been pushed back until October 16.
“The period granted for implementing the provisions of Board of Directors Resolution No. (49) of 2019, concerning the Instructions on Life Insurance and Family Takaful Insurance, shall be extended for an additional six months starting from April 16, “ the IA circular stated.
The UAE Insurance Authority first proposed an overhaul of the life insurance sector in 2016 to improve how savings, investment and life insurance policies are sold. At the time, the regulatory body said it had received "an alarming number of complaints" from residents mis-sold long-term savings products.
These types of insurance wrappers are provided by global insurers and distributed by IA-licensed financial advisers. They typically combine a life insurance policy with an investment plan and have come under fire for being expensive and inflexible, as clients are locked in for a set period of time and must pay the full charges associated with the product if they exit early.
The new measures include better disclosure regulations and caps on commission paid to financial advisers, a “free-look” period of 30 days, where the insurer is required to offer a full refund if the buyer wishes to cancel a policy and extensive product illustrations for new policyholders at the time of purchase. The final draft of the rules was released by the IA in October last year with a six-month implementation period.
While the delayed implementation is “regrettable”, according to Peter Hodgins, a partner at law firm Clyde & Co, the authority “had very little option". He said the new measures “are designed to enhance the protections for purchasers of life insurance policies”.
The regulations require insurers to overhaul their portfolio of products to reflect the restrictions on commissions and policyholder charges, update their systems and retrain staff, said Mr Hodgins.
“To achieve this within a period of one year from the issuance was always going to be a challenge for the industry. Recent events have exacerbated this difficulty … the postponement is therefore a pragmatic decision,” said Mr Hodgins.
“Secondly, [there is] the expense of implementation … the IA will have taken into account the cost of the implementation process at a time when industry players are already bearing significant additional cost and, in the case of insurers, seeing the value of the investment portfolios decline during the current crisis.”
Anand Singh, a senior associate at law firm BSA Ahmad Bin Hezeem & Associates, said the extra time will give insurers an opportunity to come up with innovative products for the market and offer financial respite for advisory firms used to sourcing income from commission payments.
He also warned some advisers may try to cash in before the new rules are rolled out and mis-sell products to residents.
Aside from the delay, Mr Hodgins said he does not expect “further amendments” to the regulations before their implementation later this year.