The UAE advice market will adapt to the game-changing, commission capping regulation that is BOD49 through consolidation in the sector, according to Walter Jopp, chief executive of Zurich Middle East.
The Insurance Authority (IA) implemented BOD49 on 15 October 2020 and the rules state that no indemnity commission — a sum paid upfront to advisers on the full value of an insurance policy — is allowed for regular premium policies and the commissions paid should be based on the annualised premium collected.
Jopp told International Adviser: “The impact of BOD49 can’t be underestimated. It’s a huge piece of legislation for the life insurance business, and I think the main intention of the Insurance Authority was to create transparency, and to be sure that customers really knew what they were getting and what they were paying for.
“As an addendum to that, commissions were capped and the way that the commission was actually paid was changed. That will have an effect on distribution partners, particularly in the IFA sector. There will be consolidation.
“For the really large financial advisory firms, I think they are well capitalised, they have the right people, and they’re able to adapt, but some of the smaller ones that have gotten used to working on an indemnity commission…
“I think that model is broken, and it needs to be changed. Therefore, some of those firms will not survive. I think we will definitely see consolidation in that space.”
Bancassurance taking over?
Another knock-on from BOD49 is the way life insurers look to distribute. Financial advisers in the market believe the regulation will make insurers turn to more bancassurance agreements as a way of increasing their product distribution.
Most recently, Emirates NBD entered into a strategic partnership with MetLife to provide insurance products and solutions to its wealth, retail and SME customer base across the UAE.
But Jopp believes in a multi-channel distribution strategy which features advisers and banks.
“Insurance is hugely under-penetrated in the UAE,” says Jopp. “Our mission is to get those insurance needs fulfilled. We need to get customers to be aware that they have a need. We are adopting a multi-channel distribution strategy.
“We are fully committed to our IFA partners, we’re fully committed to our bank partners and we will look at other ways. We’ve got a D2C offering if a customer wants to deal directly. We’re looking at a variety of affinities and maybe partnerships with other entities, we continuously looking at that because the ultimate goal really is to try and fulfil the needs of the customer.
“From our perspective, we’ve been in the bancassurance space for many years, we understand it well. We have some great partnerships with some of the world’s biggest banks, and we’re very proud of those.
“I think that’s not changing. But that doesn’t mean to say that we are de-scoping or not focusing on the IFAs. Far from it, as that’s why we’ve got our commitments and working together with our largest distribution partners to ensure that we have products, services, and solutions that really are fit for purpose.
“Customers will demand other ways of purchasing policies from providers like us, and we are able to fulfil the whichever way the customer wants to interact with us.”
BOD49 will undoubtedly leave its mark on the sector for many years to come.
But with the IA, Securities and Commodities Authority (SCA) and Central Bank of the UAE merger, there could be more regulation on the horizon.
“I think what we’re seeing is the regulatory environment changing in so far as the central bank now essentially becoming the head of the IA and SCA,” Jopp said. “I think that is a very positive move. If you’re going to be a world class regulator, I think having alignment of regulation and eliminating regulatory arbitrage is a very good thing.
“It’s a good thing for financial services. I would expect, as the market evolves and the UAE matures, regulation to keep evolving.
“It has to keep evolving, we need regulation to do with digital purchasing, with online capabilities, with adviser training and standards.”
BOD49 is not the only issue for the UAE advice space, it is also going to have to adapt to the problems caused by the coronavirus pandemic.
Jopp said: “I think covid has been a monumental change to the global economy, how the world works, and how countries adapt to it.
“In terms of advisers, and if I look at IFAs in particular, the way that they traditionally sold was very much about meeting face-to-face. With the lockdown that became very difficult, so using Microsoft Teams and Zoom, and all those things became the norm.
“From a provider perspective, we had to look at ways of how we can support our distribution partners, so that they were able to adapt themselves and work in this new environment.
“The other thing it did is it accelerated the digital evolution of what we were offering. We’ve made five commitments to our distribution partners.”
The commitments are:
- ‘We will provide you with the best possible technology’;
- Working with advisers to ‘develop market leading propositions, bond offerings, and products’;
- A dedicated support team for advisers;
- Commitment to pay all covid claims; and
- To be a ‘trusted and global brand’.
Jopp added: “We are here in the market, and we’re here to stay.”
Demand for protection
One of the most significant developments of covid was the increased awareness about the need for protection.
Jopp said: “The actual penetration rate of insurance in the UAE, which is the highest in the Middle East, it’s still incredibly low when you compare it to Europe and North America and parts of Asia.
“There is huge scope for people to get protected. The other thing is, obviously, most of the people in this country are expatriates. They know that if something goes wrong, their family needs to be fully protected and that message is getting out there.
“We see that in the in terms of the number of applications we’re getting, the number of quotes that have been done.
“When we talk to our distribution partners, there used to be a lot of business that was done as lump sum business, single premium investment business and all that sort of stuff.
“We’ve seen a change, we have seen the demand for protection.”
During the pandemic, the UAE sought to increase its appeal as the place to be for expats by bringing in legislation to change how the country deals with inheritance.
So, could this spark a demand for products around inheritance in the UAE?
“The changes are that people will no longer be subject to Shariah law if they’re a non-Muslim,” Jopp said. “That is a positive. There is no tax on inheritance. So, whereas in countries like the UK and other European countries, we see a lot of insurance products being developed because of the tax angle and what it can do to actually mitigate your tax liability.
“I think we are yet to see exactly how that will pan out. But the essence of having a policy that it pays out right away when something going wrong, that’s what we want to do.
“For us, nothing changes on that. I think the fundamentals don’t change. I think whether the specific products that cater for that, we’re always looking to tailor our products for our different customer segments and different demographics.
“We will carry on doing that and they face a specific need that arises as this piece of legislation gets tested over the course, then then we will adopt accordingly.
“I’m not sure that at this stage, that I see necessarily a huge bubble because that taxation element, which is a main driver in the UK and elsewhere, isn’t here.”