After almost four months of the BOD-49 regulation, some are projecting that the changes will lead to a reduced uptake of life insurance products and other financial services, particularly amongst the expat population in the UAE.
Some Background – BOD-49 and Commissions.
The BOD-49 regulations – which were introduced on October 16th– are an attempt to combat mis-selling and increase transparency for consumers, offering them a full breakdown of the associated costs of their chosen policy. One of the really interesting things about the new BOD-49 regulation is what it’s doing to commissions. Under the new rules, no indemnity commission can be charged on regular premium policies. An indemnity commission is an amount on the full value of a policy that is paid upfront to advisers. Further, first year commissions will be capped at either 50% of the annual premiums or 50% of the total commission payable. The amount paid will be whichever is lower. Any outstanding commission will be paid over the remaining policy term.
What Does This Mean?
Many predicted before the implementation of BOD-49 that the new regulation would lead to a smaller breadth of product choices available in the marketplace. And, while BOD-49 should ultimately make the insurance market more sustainable and help brokers to service clients for longer periods, it’s currently leading to a contraction in both products and providers.
But how could this affect consumers? Well, the fear is that people will be left without coverage. Usually, it is rare for consumers to buy financial services. This is especially true for life products, which have extremely low penetration in the UAE. Instead, many products are sold, and these sales were often incentivised by the old commission structure. With a smaller range of available products and a lack of incentive for those selling the products, there’s a fear that some consumers could miss out on purchasing vital financial services like life cover. This is especially concerning for high earning expats, who are even less likely to purchase life insurance and might be inclined to spend more rather than put their extra money into a life insurance policy.
There is, of course, uncertainty about whether or not this will actually happen. Only time will tell whether the reduced crop of providers and products, coupled with disincentivising regulations, will actually lead to fewer people purchasing life insurance products. However, if this prediction is correct, it could contribute to a whole generation who could incur huge costs later in life.
The Bigger Picture.
Life insurance is still just as important as ever. While technology and online resources can aid in combatting a smaller range of products and advice, this cannot do the job alone. The industry is based too fundamentally on relationships and understanding people’s needs. ‘That’s always been the focus of our business’ says Ian Featherstone, CEO of IAE Insure. ‘We’ve found that finding the right policy for our customers is always best achieved by a comprehensive understanding of each individual person and their goals. Technology is an increasingly useful tool in enhancing the experience of our clients – and has been incredibly useful over the course of the pandemic – but there is still no substitute for a one-to-one interaction’.
While the landscape is undoubtedly changing, the bottom line remains similar: brokers and providers need to adapt to a changing landscape. For those providers willing to create innovative products and those advisers willing to build strong and lasting relationships with customers, the future remains bright.
If you’re concerned about whether you have enough cover or want to discuss what policy is right for you, contact IAE Insure today at firstname.lastname@example.org or call +971 4 396 1878 for a FREE no obligation quote. Visit us at www.iaeinsure.ae.
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