The UAE Insurance Authority has rolled out new regulations regarding life insurance and family takaful, following an almost three-year consultation period.
The legislation was initially released several weeks ago in Arabic but now the regulator has released the details of the ‘Decision Pertinent to Regulations for Life Insurance and Family Takaful' in English. Upon the publishing of the legislation in the Official Gazette, firms will have six months to put it in place.
The new rules will improve disclosure for customers and institute commission caps on the sale of protection products, including fixed-term savings plans.
The regulations push for greater clarity and transparency in the provision of products and services as well as the alignment of remuneration across different products"
One of the notable changes in the rules was that commission payments must now be spread out across the product's term, instead of being paid upfront.
The legislation has stated that commission limit rules apply to all types of life insurance policies, whether sold to individuals or groups, regardless of the policy term and distribution channel.
It has also introduced caps on indemnity commissions: First-year commissions shall be capped at 50% of the annualised premium or 50% of the total commissions payable under the insurance policy.
The remaining commissions shall be paid out equally over the remaining premium payment term. For premium payment terms of 20 years or more, the actuary may propose a non-equal payment method, and the first-year commission will be subject to commission claw-back during the first five years of the policy at a minimum.
The payment of fees, under the new policy, to any distribution channels are allowed provided that the client is fully aware of the fees, the fees are part of total commissions, and the fees are not recouped from the offered product.
Many UAE residents bought into long-term savings or lump-sum products sold by independent financial advisers or bank advisers due to the advertised attractive returns. But later on, they find out that the product's early gains have been eaten up by commission fees, and they are unable to back out of the plans without paying the full charges of the product.
The IA has also set up a free look period of at least 30 calendar days, which must be provided to the policyholder, beginning from the earliest date out of either date of the issuing of the policy, the date when coverage commences, or the date when the policy documents are signed by the client.
Zurich Insurance, which provides fixed-term contractual saving products in the UAE, received the development positively.
"The regulations push for greater clarity and transparency in the provision of products and services as well as the alignment of remuneration across different products," Walter Jopp, CEO of Zurich Middle East, who is one of the speakers at the International Investment Middle East Forum next week, said.