Dubai: The brokerage community has approached the Emirates Insurance Authority (EIA) for a reappraisal of its recent decision on how premium payments are collected.
Last month the insurance regulator mandated that all premium payments on policies sold or renewed by brokers should be issued directly in favour of the insurers.
The directive came into effect from March 1. For the 70-odd active insurance brokers this represents a sharp U-turn from the way they have conducted their business for decades.
Sensitive
"It can be confirmed that representatives of the broker community have approached the EIA for a re-look at the directive," said an industry representative. "We are hopeful that the practical aspects of what we have proposed will be taken on board.
"This is an issue of extreme sensitivity for the wider insurance industry and not confined to the brokerage firms."
Industry sources, however, declined to comment on what these proposals were. They also did not say whether any alternate arrangements had been proposed.
In the past, the premium collected was used by brokers for their own short-term working capital needs as per arrangements with the insurers.
They would make the payments to the insurers at the end of a specified period, usually averaging 60 days.
Regulatory regime
The Emirates Insurance Authority brought in the new requirements after a brokerage firm in Dubai was found to have mishandled premium payments collected from its clients. This happened last year, and since then the regulator brought in changes that ensured such repeats would not occur.
It was also part of a broader move by the EIA to bring in an updated regulatory regime for the insurance industry as a whole to function.
Earlier, the EIA issued a circular requiring brokers to maintain separate bank accounts for premium collected from customers.
"While brokers have welcomed all the recent initiatives from the EIA, we feel there is a need for an extended discussion on the premium payment issue," the industry source said.
Supportive
According to Siddarth Razdan, chief operating officer at the brokerage firm Insighters, "The new regulation will lead to changes in operational procedures, both at the insurance companies and the insurance brokers' end.
"Personally speaking, I do not see a reason why the new regulation should lead to a shake-up in the insurance broker community."
Insurers, with few exceptions if any, are fully supportive of the change in status quo from March 1. Obviously, the fact that payments will be made directly to them from the day a policy is sold or renewed and premiums collected represents a big plus for them.
No longer will they have to wait the 60 days or so that was the norm earlier. Based on market feedback, local insurers are implementing the March 1 directive without any leeway given to their broker partners on staggering the payments.
Now that the brokers have made an approach to the EIA, the ball is now in the latter's court.
Helpful for clients
That all clients pay up the full premiums at the time of buying a policy or renewing it is a fallacy, according to broker sources.
"This is certainly not the case, especially where the premium amounts are large," said Siddarth Razdan at Insighters. "In fact, under the old system, there could be cases where the client did not pay the insurance broker in full within the credit period enjoyed by the broker from the insurance company. But the broker, in turn, paid the insurance company the full premium on the due dates." These are the grey areas that will need to be cleared with the March 1 deadline coming into effect.
