The UAE’s Insurance Authority (IA) has released details of the widely-anticipated Decision Pertinent to Regulations for Life Insurance and Family Takaful in English.
This comes after BOD49, formerly known as Circular 12, was signed into legislation a few weeks ago in Arabic.
The legislation first needs to be published in the Official Gazette, after which there will be a six-month implementation period for firms to put provisions in place.
Walter Jopp, chief executive of Zurich Middle East, said during International Adviser’s Fund Links Forum in October that this is “the single biggest piece of legislation that we’ve seen in the market”.
Commissions
The commission limit rules apply to all types of life insurance policies, whether sold to individuals or groups, regardless of the policy term and distribution channel.
The maximum commission of pure protection products will be 10% of the modal annualised premium times the number of years in the policy.
For a single premium policy and ad-hoc premium, the maximum commissions paid must not be more than 10%.
The ratio for savings products is 4.5% of the modal annualised premium times the number of years in the policy term.
Overall, the cap on commissions over the full policy term is 90% of the annualised premium; and for a single premium policy and ad-hoc premiums, the maximum commissions paid must not be more than 4.5% of the premium.
The protection product ratio is 10% of the modal annualised premium times the number of years in the policy term.
The overall cap of commissions over the full policy term is 160% of the annualised premium; and for a single premium policy and ad-hoc premium, the maximum commission paid must not be more than 10% of the premium.
Indemnity commissions
The commissions paid on annualised premium is subject to the following conditions:
- First-year commissions shall be capped at 50% of the annualised premium or 50% of the total commissions payable under the insurance policy, whichever is less;
- The remaining commissions shall be paid out equally over the remaining premium payment term of the policy;
- For premium payment terms of 20 years or more, the actuary may propose a non-equal payment method; and
- The first-year commission will be subject to commission claw-back during the first five years of the policy at a minimum.
For regular premium policies, no indemnity commission is allowed beyond the conditions set out below.
The commissions paid should be based on the annualised premium collected and if payment is semi-annual, quarterly, or monthly, the commissions paid can be based on the annualised premium.
In this case, it must absorbed by the company and not through the policyholder account.
Fees
The payment of fees; including up-front, fixed, advice, management, to any distribution channels are allowed provided that the fees are not recouped from the offered product; the client is fully aware of the fees; and the fees are part of total commissions.
Investment adviser fees are allowed provided that they are not fully disclosed separately from all other charges or if the client is not fully aware of the fees and services at the creation of the policy, then the fees are part of total commissions.
If the fees are fully disclosed separately from all other charges and the client is fully aware of the fees and services at the start, then they shall not be part of total commissions.
The firm can pay initial access fees to start a relationship with any distribution channel.
For multi-year relationships with any distributors, which started prior to the end of the implementation period, the initial access fees to be repaid must be based on a pro-rata share of the charges for the term of the relationship.
Free look period
The IA has set up a free look period of at least 30 calendar days, which must be provided to the policyholder.
It starts on the date of the issuing of the policy, the date when coverage commences, or the date when the policy documents are signed by the client, whichever is earlier.
Distributors directly involved in the sale process cannot ask for an explanation from the policyholder, in case the latter tries to cancel or surrender the policy during the period.
Those not directly involved in the sale process have the right to contact the policyholder to identify the reasons for the cancellation.
However, applying pressure on the policyholder will be considered a breach of the code of professional conduct.
All distribution channels involved in the process of sale will comply with refunding the commissions in full, if the policy is surrendered within the free look period.
Likewise, the pro-rata first-year commissions must be refunded to a firm after the period.
Client documents
All documents provided to clients must be available in Arabic and another language as requested by the client.
Firms are required to send the policyholder an account statement at least semi-annually.
For clients that request an account statement more frequently than semi-annually, firms may charge a fee, provided this fee is pre-defined in the policy.
All companies are required to produce the values at the gross rate of return and then deduct all charges in determining the policyholder benefits.
Historical performance
Firms must also provide the historical performance of at least the top five funds to the policyholder, where the performance of their account is dependent on either an internal or external fund.
This will include five years of fund performance or all years if the fund has not been around that long.
The top five funds only needs to include funds available to policyholders in the UAE and not globally.
A separate fund performance report based on the client’s chosen portfolio of funds should also be provided.
It will have information on all funds available with respect to a product or all of the funds the company offers.
Firms cannot pick and choose which funds to show a client.
This must be updated annually or more frequently after financial results are finalised.
Churning of products is strictly prohibited under the new legislation.
Failure to comply
The English version document states that failure to comply with the legislation will result in penalties, but fails to explicitly state what those penalties could be.
