The UAE Insurance Authority (IA) is pushing ahead with tough new regulations to transform the way savings, investment and life insurance policies are sold, offering investors better protection.
The IA issued a second draft circular in April, firming up its proposed overhaul of the life insurance and family takaful businesses, reported The National.
Among the proposals, the IA plans to impose maximum limits on the indemnity commission advisers can earn, and ban them from recouping fees from the investment or insurance products they sell, which currently gives them an incentive to recommend those paying the highest fees.
The IA is putting in place many of the measures proposed in its original circular published last November, that was issued after the regulator “noticed an alarming amount of complaints” from policyholders who had seen their gains swallowed by high upfront commission fees, with harsh penalties for exiting the plans early.
Under the new regulations, advisers must clearly illustrate all fees and charges the client is likely to pay over the full term of the policy.
Policyholders will also benefit from a 30-day “free look period” during which they can cancel without penalty.
Commissions and fees
In other measures, the IA has confirmed plans to limit the maximum commission on savings products to 4.5% of the annualised premium, with an overall cap of 90% over the policy term.
First-year indemnity commission will be capped at 50% of the annualised premiums, or 50% of total commission, whichever is lower.
In addition, when an adviser or intermediary sells through multiple distribution channels, the cost of each channel should be clearly set out, with no cross-subsidisation.
The maximum commission on pure protection products will be limited to 10% of annualised premiums, with an overall cap of 160% over the policy term. For a single premium policy, the maximum commission must not exceed 10%.
Advisers and intermediaries can still impose upfront, fixed, advice, management or trailing fees, provided these are clearly explained to customers. The fees cannot be recouped from the product provider and must form part of the overall maximum commission limits.
All commission must be repaid in full if the policy is surrendered within the “free look period” of at least 30 calendar days. The policyholder is free to cancel the policy without any explanation.
The new rules will only apply to policies written after the regulations are published in the Official Gazette. Insurers have one year to comply with rules on indemnity commission and disclosures, and pure protection business. For other rules, the alignment period is two years. M