A new set of regulations governing the UAE’s life insurance market became effective October 15, and which drastically reduced brokers’ commissions from 40-70 per cent in the first year of the policy to 10 per cent. This might be good for the insured person and beneficiaries, but could force most brokers to go out of business.

And this will in turn drastically impact the Dh9.5 billion life insurance premium market in coming months. On the plus side, the new regulations will make the new policies more transparent and cheaper while making insurance companies more accountable and responsible to the customers.

Bare facts

Life insurance is one of the most misunderstood subjects. The BOD 49 has been taken apparently following a large number of customer complaints against insurance companies and brokers to eliminate mis-selling policies to clients.

Mis-selling can’t be stopped just by eliminating commission of brokers. To stop miss-selling, collective focus should be on educating client and sharing as much as knowledge possible. Confusion among clients arises when they buy insurance policies from banks as add-ons to other products.

Put out the facts

In many cases, bank clients are forced to buy policy to open a bank account and the client sometimes doesn’t even know what kind of policy he is getting in to it. We need to educate the clients and make aware of the salient features of each product.

Too drastic

The UAE has 62 active insurance companies, including 35 national and 27 foreign companies. Only 12 of them are involved in selling life insurance-related products. There are 163 insurance brokers, 20 insurance agents, 25 insurance consultants and surveyors and loss adjustors in the UAE, who collectively managed to generate gross written premiums of Dh43.71 billion in 2018, including Dh19.08 billion in health and Dh15.12 in property and liability insurance, according to UAE Insurance Authority.

While the new life insurance and family takaful regulations demand greater information to customers on the policy outlay and risks covered, it needs amendments for the industry to grow further. A drastic cut in broker commissions to merely 10 per cent of the premium might force most brokers to go out of business.

Life insurance and family takaful policies are usually promoted and sold by individual life insurance brokers or brokerage firms, whose livelihoods depend mostly on the first-year commission they make from each policy and the recurring commission every year upon collecting the regular premium.

The timing of the new regulations – during the pandemic - makes it difficult, when business sentiments are suffering. The medicine should be applied where the wound is – not somewhere else. If applied in the wrong place, the body might show adverse reaction and that could lead to side effects.

This might be the case here…

 

- Leena Parwani is CEO of LPH Financial Services

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