2. The objective is mainly toregulate the manner in which life insurance investment contracts have been sold and marketed in the UAE.
KEY POINTS
1. Ban on indemnity commission
2. Cap on commissions payable for savings, term, short-term and bancassurance life products;
3. Minimum death benefits, for example 25% of the value of the product for single premium products held by under 45 year olds;
4. A 20 working day 'Free Look Period' following purchase; and
5. Compulsory disclosure regime setting out detailed requirements around commission and fees disclosure as well as product performance criteria.
RESTRICTIONS ON COMMISSION AND FEES STRUCTURES
1. it is proposed that commissions paid up-front based on the full value of the policy
2. The rationale for this, which is a common theme throughout the Life Regulations, is that commission should track premium collected rather than being calculated based on projected premium over the life of the policy.
3. The ability for a product manufacturer to pay large upfront fees has been one of the most important means for incentivising and thus driving product sales.
4.There is also a proposed restriction on the ability of insurers to cross-subsidise distribution channels. The intent being to avoid customers paying for expenses that did not arise directly from their purchase. This represents a particularly burdensome obligation on insurers as presumably they would have to be able to breakdown expenses on a per-distribution channel basis, which could be near impossible given the various costs incurred on a business-wide basis.
CUSTOMER PROTECTIONS
1. customers must be given comprehensive disclosure from the out-set along with a 20 working day cancellation period following purchase.
2. The 'Illustration' of the product must set out all key details of the product will full itemisation of all fees and charges payable for the life of the policy
3. A minimum of two projections of the performance of the product must be provided; importantly these projections must not use a rate of return greater than EIBOR +3% and one of them must show performance based on a 0% return.
MINIMUM DEATH BENEFITS
1. Prevent insurers using a low value death benefit as a 'wrapper' to ensure classification of the product as an insurance product rather than a general investment product.
2. The proposed rates are 25% for below 45 year olds and 10% for over 45 year olds for single premium products: and 10 times annualised premium for below 45 year olds and 7 times for over 45 year olds for regular premium products.
CALCULATION OF SURRENDER CHANGES
1. The insurer's profit derived from the product should not be greater at the surrender date than if the product had not been surrendered.
2.Surrender charges cannot take the form of a penalty to dis-incentivise the product holder from cancelling the product.
BANCASSURANCE
1. Commission rates payable to banks are proposed to be capped at 25%.
2. In terms of disclosure, separate documentation for the credit life product needs to be provided to the customer with the bank and insurer not being able to rely on the bank's product literature for the corresponding credit product.
3. Banks are not allowed to enter into exclusive arrangements with insurers for the sale of credit life products; instead they are required to provide customers with multiple options at the point of sale.
