With hefty commissions and upfront fees, financial advisors have for long ruled the life insurance policy market in the UAE with policyholders often getting the short end of the stick. In fact, countless customers have approached the UAE Insurance Authority (IA), the insurance industry regulator, with concerns that early gains from life insurance policies were being negated by hefty commissions charged by advisors and also drew attention to their inability to exit the plan without sustaining a financial loss.
Fortunately, the voices of policyholders have finally been heard and the regulator is planning to enforce stringent regulations to change the way savings, investment and life insurance policies are sold in the UAE.
Here’s a low-down on the new regulations and how they will impact you as a customer.
What are the proposed regulations?
In the third draft of its new measures, also seen as the final version, the IA has proposed an overhaul of the life insurance and takaful industry in the UAE with sweeping changes. Here’s a look at the new measures:
- The IA has proposed a cap of 4.5% on commissions paid out to advisors selling portfolio or offshore bonds, from the current range of 9-14%, which is deemed too high by investors.
- Under the new regulations, it will be mandatory for sales advisors to provide customers a detailed schedule of fees and commissions that are to be paid out during the entire lifecycle of the policy. Customers will also get an option to cancel the policy within 30 days of purchase if they are dissatisfied.
- The new regulations also seek to end upfront commissions on insurance policies that are paid in full to the advisors, with the IA restricting the limit to 50% of the annual premium in the first year.
[Related: Life Insurance: Are you still ignoring it?]
How do the regulations impact me?
The new regulations will offer greater transparency to customers by giving them a clear idea about the commissions being paid to the advisors over the years and the full extent of charges.
In fact, experts are calling the disclosure requirement as the most welcome introduction by IA as the customers will now be given a detailed explanation about the performance of the product and the fees by the advisor. Earlier, customers remained in the dark about the extent of money they were paying in commissions as the fees described in product literature would turn out to be vastly different from what they actually ended up paying. Plus, customers will also get an option to surrender the policy within 30 days, unlike before.
Also, experts add that restriction on commission paid upfront on the full value of the policy, also known as indemnity commission, will incentivize advisors to serve clients better for the entire term of the policy during which they will earn the rest of their commission.
When will the new regulations come into force?
The regulator has not yet come out with a date from which the regulations will be implemented and has invited feedback on the draft. However, once published in the Official Gazette, certain regulations will come into force the very next day while it could take up to two years for others to be implemented.