Insurance Regulation Changes: A Matter Of “Life” And Death For Brokers?

To protect and give comfort to consumers, retailing of insurance is a regulated business and like all insurance brokers, we at InsuranceMarket.ae are governed by the rulings of the Insurance Authority (IA) here in the UAE. October 16^th saw the announcement and implementation of some major changes to the way in which life insurance is sold and administered: with these changes tackling areas affecting brokers directly such as commission payments, fees & charges, mis-selling, and upfront payments to agents &/or brokers: as well as critical customer issues such as the “free-look” period and mandatory benefit illustrations. You may have heard about this already or this might all be fresh news, but either way you’re doubtless wondering, “what does this all mean”? Let us share things from our perspective and hopefully answer some of your questions on the key areas.

Commissions

Our “intermediary” status means that we offer our services free to you as the customer but of course we need to get recompensed for our services somehow! This is where commission comes in, as the sum we receive from the insurance company your business is placed with. It’s essentially a “thank you” from them for the introduction of you as a customer and a fee to cover our costs of advising on administering your business. Typically, insurance is an annually-renewable contract and as such, we usually get our commission shortly after you pay your premium. However, life insurance is different in that it is a one-time long-term contract purchase and premiums are often paid monthly and throughout the term, or the duration of your insurance policy. A term insurance could be taken out for a 10- year term or period, for example, to cover an unsecured loan from a bank; whereas a whole of life plan is just that: it runs for a long period of time such as until the age of 96! It wouldn’t work to charge your premium upfront in one hit as the time period might not be known (a whole of life policy usually runs until the first death of the insureds covered on the policy) and the premium would be large and somewhat unaffordable (imagine 25 years’ worth of premiums rolled-up into one premium at point of sale!). In the past, we have received our commission up-front after the first or second premium payment and the commission was total (ie. based on the anticipated premium receipts overall x a percentage). The new rules mean that we will now only receive a significantly smaller percentage of our usual commission in the first year, with the remaining commission being paid on a proportional (like an instalment) basis over the remaining premium payment term of the policy. In addition, if you were to cancel your policy within the first five years, we would lose a part of the commission we received, plus of course forfeiting future years’ commission. The “free-look” period means that you now have 30 days to change your mind and cancel your policy without penalty if you decide it’s no longer for you, and of course this impacts us since our commission would be repaid or “clawed-back” by the Insurer. So, what does this mean? At worst, it means potentially we could have worked in servicing your business for up to five years for a very limited income if you decide to cancel your policy anytime during that period and at best, that we receive income in stages rather than upfront, with that income being linked to how long you keep your policy running. Rather than seeing this as a restriction on us, we see it as an enhancement for our customers. Being paid on a regular, long-term basis increases the market’s focus on retaining you as a customer and offering you a more regular service. It could also be said that it will, as a result, help to differentiate the “serious service-led” brokers from those who are only interested in ‘selling and disappearing’, so will help raise industry standards and in turn, consumer confidence.

The General Impact

In general, this means a big reduction on insurance broker incomes and a significant impact on cash flow: some project a potential loss of 60%. Put simply, less revenue upfront. With the majority of costs being incurred at the beginning of the life of the policy, this can be really damaging. Think having a Sales Advisor take your details, contact Insurers, obtain and present your quote, answer your queries, negotiate the price, confirm acceptance to the Insurer, get your policy documentation issued, collect your first premium payment and set up your regular payments. All of that takes place in the early stages: and whilst for sure there will be questions to answer or maybe a claim to deal with later on, it is fair to say that a good 85-90% of administration takes place “day one”. This administration has also been increased by the recent regulation changes. Brokers now need to offer more “product illustrations” to you before you purchase the insurance. These documents provide a projected summary of your policy benefits throughout the life of the policy, as well as the premiums you pay and are designed to help you make a more informed choice. For smaller insurance brokers, these changes could be the difference between being able to keep trading as they are or not. Less income equals less money available to run the business: such as paying the salaries of sales and admin staff and since many broker businesses in the UAE rely on direct person-person selling for this type of insurance, it could have a big impact. If there is less money available to pay salaries or sales commissions it might result in “down-sizing” the salesforce: cutting jobs, or at least reducing salaries to enable the current workforce size to remain the same. Either way, very demotivating for staff and damaging to the business. Having less staff could equal less service too and this is therefore bad for the customer. If you have a concern or even a claim, you want to know that there are suitable people available to help you and having reduced staff numbers or those feeling demotivated, could make you “feel” the difference as a customer. This makes the future all sound a bit gloomy, right? Well, maybe for some, but as a business that never stops encouraging and embracing change, we at InsuranceMarket.ae are actually excited by the opportunities these new regulations present. Let me tell you why.

The Opportunities

Before we get into the details, let’s just say that change is inevitable and necessary: life is about evolution and it therefore follows that “life insurance” needs to be evolutionary too! For a number of reasons, InsuranceMarket.ae continues to be in prime position to service this type of business and offer our customers the great value-for-money offering they’ve come to expect. Here are just a few!

We’re digital

As the UAE’s leading digital-first insurance brokerage, we don’t rely on a business model that only involves person-person prospecting and sales. Whilst we have a great team of advisors and servicing staff (we’re over 400 employees and still growing!), we also have a strong online operation and that sets us apart from many brokerages. Technology is a big investment but one that pays dividends in the long term. We’ve always recognised the importance of continuous investment and development in tech and have enhanced our digital services to meet the demands of the market, if not lead it. And we’re still on that journey.

We’re cautious but not conservative

Just like you, we watch our finances and manage them responsibly. We’ve kept an eye on the essentials whilst making sensible investments on upgrades that support our mission to “be the most customer centric insurance platform by saving policyholders time and money on insurance not only when buying but also when making a claim”. We’ve always had big ambitions and have enjoyed phenomenal growth but never at the expense of sustainability or scrimping on service.

We’re connected

Since our launch, we’ve built up a great profile and reputation and as such have established lasting relationships with the UAE’s leading insurance companies. Our professional, ethical approach has meant we’re people they want to do business with and this brings us privileges such as great discounts that we can pass on to you. Having numerous such partnerships means we can offer a range of insurance products to suit all needs and budgets and this sets us apart from the competition. The changes imposed by the Insurance Authority have led to speculation that some insurance companies might decide to develop their own online presence further, which of course is in direct competition to brokers. However, it is important to bear in mind that whilst this might increase competition on a per product basis, the offering is not the same. A good insurance broker should be able to offer a range of products to choose from provided by a number of different insurance companies, whereas an insurance company can only of course offer its own products. Therefore, InsuranceMarket.ae remains the “sensible shopper’s” choice for Life insurance as we offer the widest one! We shop around so you don’t have to!

We’re here for Life!

With a lot of smaller outfits and short-term ‘hit and run’ brokers now folding or refocusing their efforts in other areas, we are presented with a tremendous opportunity to capture meaningful market share in the life insurance space. Life insurance is a long-term business and since commission revenue will now be paid over a longer term, it’s crucial to consider customer service over a longer period. InsuranceMarket.ae are proud to have been providing a “silver service” to the UAE community for the past 25 years and excitedly looking forward to the next 25!