The UAE’s Insurance Authority (IA) has signed the widely-anticipated Decision Pertinent to Regulations for Life Insurance and Family Takaful into legislation.
The final draft of the regulation was published at the end of January 2019 and was previously known as Circular 12, which now will be named BOD49.
All chief executives of life companies in Dubai have been contacted about the signing.
The legislation needs to go through the Official Gazette after which there will be a six-month implementation period for it to take effect.
The regulation has been issued in Arabic but the English version is not yet available.
Don’t underestimate the legislation
“It is a significant change” Walter Jopp, chief executive of Zurich Middle East, told International Adviser at our Fund Links Forum 2019. “We have known about it for some years and we have seen a couple of draft iterations.
“Now, we see the board of directors of the Insurance Authority have signed this into legislation.
“It will change the industry, but companies like ours in the Middle East were well placed to adapt to that change and move forward.
“Ultimately, we need to work with the whole industry to ensure customers are given the right advice and nothing falls through the cracks.
“We will be working with our distribution partners and the authorities to make sure this transition is as smooth as it can be.
“Don’t underestimate the size of the change, it will be significant, it is the biggest piece of legislation we have seen in the life insurance space.”
This legislation has the power to shake up the financial advice space, which could potentially see firms leave the space.
Jopp added: “I think advisory firms will really have to evaluate their businesses.
“We will be working with them and support them to help them understand. Luckily, a company like Zurich has had experience of this around the world.
“We know of other models, we know of how that can work and we will be working with our distribution partners to make that happen.”
The six-month implementation period gives firms a limited timespan to adapt but Jopp is confident it will not be a problem.
“Things in Dubai happen very quickly and that is part of the reason why the country as a whole is such a success, as it is been built in such a short period of time,” said Jopp.
“The timescale is tight and we will put all our resources to make sure we are ready in time.”
The final draft is similar to the previous edition, which will cap commission on the sale of lump sum portfolio bonds or offshore bonds of 4.5%, replacing a system where fees could be anything from 10-15%.
The January 2019 draft also proposed an overall cap of 90% on commissions over the full term of the policy.
Indemnified commissions would be restricted to 50% of annual premium in the first year, with the rest drip fed over the term of the product.
The rules previously proposed by the IA also allow for a broker to act as an on-going financial adviser, separate to their role as an insurance producer or products sales person.
The draft said advisers can charge a fee for this investment advice; provided those fees are not recouped from the product offered; the customer is fully aware of them; and the fees are considered to be part of total commissions and therefore in line with the overall commission limit rules.
Details also included a “free look” period for customers and rules on transparency for all charges and fees, and provisions for calculating the surrender value of a policy.
Lastly, it was proposed insurance brokers will provide the historical performance of at least the top five funds to the policyholder, where the performance of the policyholder’s account is dependent on either an internal or external fund.
This will have to include at least five years of fund performance or all years if the fund has not yet been in existence for five years.