The Financial Regulatory Authority (FRA) has directed insurance companies to enhance the disclosure and transparency of insurance policies that include investment strategies related to gold or other investment assets, to ensure clarity regarding the nature of insurance products, the benefits and risks to customers.
The FRA issued a circular to this effect as part of the Authority’s efforts to protect the rights of those involved in non-banking financial activities, after it saw several negative practices and received customer complaints, particularly about insurance products linked to investments.
Disclosure before signing contract
The circular stipulates that the insurance company must disclose to the client, before the contract is finalised, in a clear, accurate and non-misleading manner, the insurance nature of the product, its advantages, risks and essential conditions, along with a statement of any component or investment strategy related to the policy, to enable the client to make his decision on a clear and informed basis.
If the insurance policy includes an investment linked to gold or any other investment asset, the company is to clarify the nature of this investment and its management mechanism, and to disclose the fund or investment manager, as applicable.
The circular also prohibits the insurance company from implying that it owns or directly manages the asset subject to investment, if this is not true, and it must clarify whether the client has the right to receive the asset in kind or redeem it, and the conditions of receipt or redemption, if any, as well as clarifying the basis for determining the value of liquidation or redemption in accordance with the provisions of the policy.
Confusion between insurance and banking products
The circular stressed that the insurance company is prohibited from using any phrase, means or marketing practice that would cause the customer to be confused between the insurance product and deposits, accounts or other banking products and services or savings and investment vehicles.
It also prohibits including in marketing materials incorrect data, or any data that would create a perception by the customer that contradicts the true nature of the product and its approved terms and conditions.
Customer acknowledgment
To enhance protection of customers and inform them about the nature of the products they are purchasing, insurance companies are to document the customer’s declaration, before the contract is completed, that he has reviewed the essential terms and conditions of the policy, and that he knows that the subject of the contract is an insurance product issued by an insurance company and not a deposit, account or banking product.
The acknowledgment also includes confirmation that the customer has received the necessary information and disclosures to understand the nature of the product, its advantages and risks, and that the company has given him ample opportunity to inquire about the terms and conditions of the document.
The circular emphasised that this acknowledgment does not exempt the insurance company from any of its legal or regulatory obligations related to disclosure or the protection of customers' rights.
According to the circular, insurance companies must review the materials, forms and marketing methods used in distributing their products through bank channels, and take the necessary measures and controls to ensure compliance with the new regulations.