UAE regulator outlines landmark commissions cap

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UAE regulator outlines landmark commissions cap

The UAE Insurance Authority (IA) has finally issued new regulations relating to life insurance and family takaful insurance which will introduce a 4.5% commission cap on the sale of lump sum portfolio bonds or offshore bonds.

The landmark legislation - which has been mooted across the last four years - has now been signed but it still needs to go through the Official Gazette after which there will be a six-month implementation period for it to take effect.

The final draft is similar to the previous edition:  according to Draft Board of Directors' Decision Pertinent to Regulations for Life Insurance and Family Takaful -, published January 31, the regulator outlines an overall cap of 90% on commissions of savings products over the full term of the policy. Currently, the fees can range from around 6% up to 15% in some cases.

Nigel Green, founder and CEO of deVere group said: "We support the UAE authorities' commitment to the country's vital financial services sector. Their proactive stance further protects clients and makes the industry itself more robust"

Under the signed draft, for pure protection products the maximum commission paid is 10% of the annual premium multiplied by the number of years of the certificate of the insurance subject to not exceeding 160% of the annual premium. For single premium plan and custom installment the commission should not exceed 10%.

Under the new rules, premium reduction should not be used/considered as the premium are related to a specific independent indicator, which would result in decreasing premiums based on limits and rules set previously, to increase the limit of the total commission as the maximum limit is applied basis that all future premiums are as the 1st year premium. For regular premiums insurance certificates, it is not allowed to advance commission, except in accordance with the below conditions and the paid should be based on the annual premium to be allocated.

Under the proposed new rules, a broker can act as an ongoing financial adviser, separate to their role as an insurance producer or products sales person.

Sultan bin Saeed Al Mansouri, Minister of Economy and IA chairman, said that the new regulations aim to achieve greater transparency. He said that they will contribute to a qualitative leap in regulating the life insurance market and increase insurance penetration.

The new regulations also provide for clearer terms and conditions in life insurance policies, including the premium, the amount of insurance, charges, expenses and an annual statement of account for each policy.

They are also characterised by an analysis of the sustainability of investment-linked life insurance policies, by requiring a profit sustainability analysis throughout the life of the policy and its approval by the actuary. The new instructions contribute to the standardisation of practices at the market level.

As an indication of the size of the life and family takaful market, gross written premiums in the segment last year amounted to AED12bn ($3.3bn), representing 27.4% of the total written premiums from all insurance branches. 

The stricter requirements will bring change to how the industry operates in the UAE and some fear the impact it will have.  However, the draft does allow a two year "alignment period" for companies to implement the proposed regulations after final approval.

 

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Gary Robinson

Gary has thirty years experience in financial services, originally as a financial adviser, then financial journalist and videographer