Commission cuts are too hard for UAE insurance brokers to absorb

The sale of life insurance premiums is now subject to a stricter regime, but it also imposes a financial cost on brokers.
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A new set of regulations governing the UAE life insurance market came into effect on October 15 and drastically reduced brokerage commissions from 40% to 70% in the first year of the policy to 10%. This could be good for the insured and the beneficiaries, but could force most brokers to close their doors.

And that in turn will have a drastic impact on the MAD 9.5 billion life insurance premium market in the coming months. On the bright side, the new regulations will make new policies more transparent and cheaper while making insurance companies more accountable to customers.

Raw facts

Life insurance is one of the most overlooked subjects. The BOD 49 was apparently taken as a result of a large number of customer complaints against insurance companies and brokers to eliminate abusive sales of policies to customers.

Bad selling cannot be stopped simply by eliminating the broker’s commission. To stop abusive sales, the collective focus should be on educating the customer and sharing knowledge as much as possible. Confusion among customers arises when they buy insurance policies from banks as add-ons to other products.

State the facts

In many cases, bank customers are forced to buy a policy in order to open a bank account, and sometimes the customer does not even know what type of policy they are signing up for. We have to educate the customers and make known the main characteristics of each product.

Too drastic

The UAE has 62 active insurance companies, including 35 domestic companies and 27 foreign companies. Only 12 of them are involved in the sale of life insurance related products. There are 163 insurance brokers, 20 insurance agents, 25 insurance consultants and experts and adjusters in UAE, who collectively managed to generate gross written premiums of Dh 43.71 billion in 2018, including Dh 19.08 billion in health and Dh 15.12 in property and liability insurance, according to the UAE Insurance Authority.

While new life insurance and family takaful regulations require more information for clients on policy expenses and covered risks, they require changes for the industry to grow further. A drastic reduction in brokerage commissions to just 10% of the premium could force most brokers out of business.

Life insurance and family takaful policies are typically promoted and sold by individual life insurance brokers or brokerage firms, whose livelihoods depend primarily on the first year commission they receive for each policy and of the recurring commission each year when collecting the regular bonus.

The timing of new regulations – during the pandemic – makes it difficult, when corporate sentiment suffers. The drug should be applied where the wound is – not elsewhere. If applied to the wrong place, the body may experience an adverse reaction and this can lead to side effects.

This may be the case here …

– Leena Parwani is CEO of LPH Financial Services and a seven-time Million Dollar Round Table qualifier.

About Ellen Lewandowski

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