For insurance brokers in the UAE, selling life policies have become a hard sell. Image Credit: Agency

Dubai: Insurance brokers in the UAE will take a deep hit on their revenues with a new commission payment structure coming into effect on all insurance policies from October 15. They are now asking the country’s insurance industry regulator for a review of the new payment regime, which brokers say will even affect their business continuity.

“We keep looking at our bank statements from the last two to three days… and the changes in commission payouts is stark,” said a broker. “If they were used to getting Dh100 earlier, now that’s come down to Dh7.5…”

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What are these changes?

In simple terms, it means that fees/commissions generated from selling a life or savings policy will be paid to the broker over the tenor of the premium payment. And not as a one-off payment made at the time of the policy coming into effect and the first premium is paid by the policyholder.

There is also a provision for 'free-look' period of 30 days, where the insurer is required to offer a full refund if the buyer wishes to cancel the policy. Policy sellers must also provide extensive product illustrations for new policyholders at the time of purchase.

The final draft of the rules was released by the Insurance Authority in October last year with a six-month implementation period. The pandemic delayed the implementation until now.

For brokers and agencies long used to getting paid upfront, the drop in income can be quite substantial. It’s not the only issue brokers are confronted with.

“As per the new regime, if for some reason the policyholder does not meet any premium payment commitments after the first year, the broker gets saddled with paying back the commission generated up to that point on the policy,” said Leena Parwani, CEO of LPH Insurance Brokers. “In a marketplace where residency permits are for two or three years on average, this requirement places an additional burden on agents.”

Stop the mis-selling
The UAE Insurance Authority first proposed an overhaul of the life insurance sector in 2016. Despite several initiatives, the life insurance category in the UAE never managed a sustained high growth trajectory.

What was also hurting its prospects were the high incidence of mis-selling of fixed-term savings products. "They typically combine a life insurance policy with an investment plan and came under fire for being expensive and inflexible, as clients are locked in for a set period and must pay the full charges associated with the product if they exit early," said Leena Parwani.

Tougher requirements

For the UAE Insurance Authority, the need to bring in the new requirements was clear cut – ensure greater transparency in policy selling, especially those related to life and term savings. Plus, it would reduce the opportunities of customers getting caught in “mis-selling” practices.

By staggering the commission payments over the premium payment period, rather than one upfront pay out, agents would see the need to remain committed to these policies. That is, they share the responsibility along with the insurer in servicing the policyholder’s needs right through.

Long gestation

The new requirements was not sprung on an unsuspecting brokerage industry. These changes had been on the radar for some time, and brokers were asked to furnish their views – along with concerns.

“At the time, feedback was provided that touched upon all the angles to the Insurance Authority,” said Parwani. “But it’s now that brokers are confronting the full extent of what the new commission structure means to their cashflow.”

Some brokers have had preferred funds, which have additional charges, and which clients are not aware of most of the time. The preferred fund games will stop

- Leena Parwani of LPH Insurance Brokers