New Regulations in Life Insurance in the UAE: Will it be a Game-Changer?
The Insurance Authority in the UAE is going forward with stricter regulation in the insurance industry to review how the investments, savings, and life insurance plans are being sold in the UAE.
According to the experts, the latest update in the regulations is more firm than the previous ones. The new regulations for family takaful and life insurance are expected to see more disclosure for customers. The commission caps applied to the protection products sale including the fixed-term savings plans would be larger too.
What are the Changes in the Regulations?
Clearly, the focus of these regulations for life insurance in UAE is to protect the policyholders. The aim is to make sure that they get the value for their funds from the policy they buy.
There are various residents of the Emirates who have been burnt by purchasing lump-sum products or long-term savings that are sold by the independent bank or financial advisors, which offer attractive returns. However, the early gains are eaten up by the commission fee charged. Moreover, they are not allowed to exit the policies without making payment of the full product charges.
Another change would be seen in the refunds or rebates received by a distribution channel like a financial advisor or the insurer from a third party. These refunds or rebates should be paid to the policyholder and not retained by the distribution channel or the insurer.
These life insurance regulations emphasize on greater transparency and clarity in the selling of products & services along with the remuneration alignment throughout various products.
The financial services in this region are finally transforming into a profession, which is in alignment with the needs and objectives of the investors from a commission-based and product-driven industry.
What are the Key Changes in the Regulations?
- The customers should be provided with a complete product illustration that they are buying to make sure they have knowledge about the potential returns on the savings products and the effects of the charges.
- The policyholder will also get a free-look duration of 30 days, where the insurer should offer a complete refund if the buyer wants to cancel the insurance plan.
- The illustration must offer at least two situations for depicting product performance. All the illustrations should be signed by the policyholder.
- The other illustration should show the surrender charges for making sure the owner of the policy understands the early exiting cost for a fixed-term product.
- The insurers must keep the illustrations updated and give information about the top 5 investment funds offered annually, including the performance data for at least 5 years.
- The insurance providers also need to disclose the ratio between protection and savings benefits. If this benefit is less than ten percent, the product should come with a warning that says it has either limited or zero protection benefits.
- For those life insurance plans that come with a savings component, different caps will be applicable to the protection and saving elements-
- There is a limit of 10% of the annualized premium every year on the protection component (not exceeding 160% of the annualized premium during the policy tenure.
- There is a limit of 4.5% of the annualized premium every year for the saving component (not exceeding 90% of the annualized premium during the policy tenure.
- The indemnity commission should be 50% of the annualized premium for the 1st year or 50% of the sum of all the commissions calculated on the policy.
- The commission left after deducting the indemnity commission should be paid over the payment term of the premium equally.
- For the pure protection plans, the commission will be up to 10% of the annualized premium into the policy length in years.
To Sum Up!
The new regulations for the life insurance in UAE are drafted with a view to reducing the complaints of the policyholder. The main aim is to provide the customers with a clear, transparent, and smooth insurance experience such that they get the money value from the policy they have purchased.