The Insurance Authority said in future it would require the total commission charged to the customer to be spread over the life of the policy.
It said commissions paid to brokers should be based on the premium collected and should be paid in equal monthly instalments, irrespective of premium payment frequency.
The move by the main regulator for international life companies in the UAE is expected to cause a major shake up in the region’s offshore bond markets.
New commission rates
If the IA’s proposed regulations are adopted unchanged, the commission charge for regular premium life company savings products will, in future, be deducted from the policyholder’s account for a period of not less than five years rather than paid up-front for the full value of the policy.
"For term life insurance products, the maximum commission paid is to be limited to 160% of the annual premium."
However, at this stage the proposals are open for consultation with the industry and could still be modified although the intention, in terms of capping commission payments and abolishing the practice of indemnity commissions, appears to be very clear.
For single premium policies, brokers would be paid commission on a pro rata basis for a period of one year and the maximum commission paid would be capped at no more than 4.5%.
For term life insurance products, the maximum commission paid is to be limited to 160% of the annual premium.
“The maximum commission deducted is 10% of the periodic premium throughout the life of the policy, or at least payable over the five years of the policy as a minium,” the IA said.
The Insurance Authority regulates many well known companies in the offshore financial market in Dubai and Abu Dhabi including well known names Friends Provident International, Zurich Insurance, Generali, and Metlife.
Technically, it does not cover RL360°, Old Mutual International or Hansard, which do not have IA licences.
The regulator first published its plans in a circular released last week and has given industry participants only until 30 November to respond.
The IA said its research had found that that fees levied by both conventional life insurance companies and family takaful operators in the UAE were perceived as being “unduly high”.
In addition the IA said it was concerned about “poor disclosures in place that do not meet global best practices”.
“The IA has also noticed an alarming amount of complaints from policyholders that they are provided with no value if they surrender in the early years of the policy,” it said.