Even as the much expected consolidation in the investment advice and insurance brokerage markets is slowly but surely happening, it hasn’t put off players from venturing in – albeit with different business models.
Anand Singh, senior associate in the insurance and reinsurance practice at law firm BSA Ahmad Bin Hezeem & Associates, Dubai, said: “Along with the consolidation, the market is seeing a different dynamics. The regulations will bring in consolidation in the market, as only those who are committed to the UAE market for longer term would remain.
“We are seeing new players entering the market, some of them being insurtech companies, who are well aware of the commission restrictions, and have customised their business model to suit the revised regulatory framework,” said Singh.
He also said a number of small players have stopped offering life insurance solutions since they no longer see the same profits.
Krishnan Ramachandran, chief executive of Barjeel Geojit Financial Services, Dubai, said: “Post implementation of the BOD49 regulations, the life insurance sector in the UAE has been going through a phase of restructuring and adaptation of the new rules and requirements.
“The major impact of course has been the steep reduction / cap in commissions and the payment of the commissions over the term of the policy.”
He said that this has resulted in a considerable change to the working models of many insurance brokerage firms. However, the timing of the implementation during the covid-19 situation has thrown up many challenges for the life insurance industry especially in the insurance premium front which has witnessed an exponential increase compared to the premiums to the pre-covid period.
This, along with the sharp fall in bond yields during this period, has also impacted the returns to the investors.
“The cost-income ratio for insurance brokers have increased substantially and due to this there are consolidations within the market place,” he added.
On the flip side, there are new players entering the insurance market with a long-term view with business models that are compatible with a BOD49 world.
A number of insurance online entities have also commenced operations. These are evolving in the market place and it will only be a matter of time before they are able to scale up their volumes and create a profitable online transactional platform, Ramachandran said.
Consolidation on course
The economic slowdown triggered by the pandemic and a set of regulatory measures have made it challenging for smaller advisory firms in the UAE to survive, making many of them either buyout targets or exit candidates, said DJ Sengupta, managing partner, Capstone Insurance, Dubai, who had earlier said the advice market in the UAE is ripe for consolidation.
Murali Krishnan, business development manager, Berns Brett Masaood Insurance, Dubai, says: “The market started seeing many mergers and acquisitions. The BOD49 regulations speeded up the consolidation process. Already lots of takeovers are happening.”
Sengupta said there will be more small players wanting to merge with bigger players who are future ready, which means the consolidation process will gain momentum.
The UAE’s rules on upfront commission, fees and mis-selling (BOD49) have long been expected to be a big catalyst for industry consolidation and elimination of smaller players. Now, it’s happening as a number of small brokers have stopped writing life business altogether, said Anand Singh of BSA.
Krishnan says the current situation is ‘survival of the fittest’ and many small players will be forced out of the market. “Much before the pandemic struck the SME sector was severely impacted by the economic slowdown, but banks were not supportive.
“To a great extent insurance business is driven by the SME sector and most brokers have been driving their business through SMEs. For the small brokerages, the pandemic and the BOD regulations proved to be a big blow,” he said.
Apart from the BOD49 regulations by the Insurance Authority, the Central Bank has also issued guidance around consumer protection and the Securities & Commodities Authority has issued a rulebook on code of conduct for the sector, indicating that the markets are becoming more sophisticated and the regulatory framework is also evolving for better.
Advisers are starting to feel the pressure, but they understand that if they want to survive they have to play by the rules, said Singh.
It was expected that the revolutionary regulations would address issues related to mis-selling, upfront payments and overall unspecified commission payouts.
Singh said: “BOD49 has been a step in the right direction and players have found ways around the commission structures by way of overheads commissions etc. While the regulations are a step in the right direction, it will take some time before the complete impact is felt.”
Murali Krishnan said: “For frontline MNCs, this is an opportunity, as they can beat the competition by buying out the smaller firms. The positive is that the market will shrink and to that extent there will be healthy business.”