An overhaul of rules for insurance brokers in the UAE aims to remove outliers but advisers fear they do not go far enough in tackling poor practice, writes Owain Thomas.
Insurance broking regulations introduced by the Central Bank of the United Arab Emirates (UAE) have laudable aims and should serve to remove poor outliers in the intermediary market, according to Homan Fenwick and Willan partner John Barlow.
Speaking at the Health & Protection Middle East Summit in association with UnitedHealthcare Global, Barlow highlighted some of the key steps the regulator had introduced to tackle poor broker practices.
However advisers from the international private medical insurance (IPMI) industry were concerned that the rules were not tight enough or targeted at the competence of frontline brokers.
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Addressing the audience, Barlow (pictured) noted that the rules, which went live just days before the event, would not just affect the broker community but also underwriters and policyholders.
“So it is quite a fundamental change in the market and they are laudable objectives,” he said.
“One of the issues is there are far too many brokers in this market and I suspect this is a means of clearing out some of the chaff.
“The regulations are aimed at ensuring the safety, sense and efficiency of the insurance industry and to reliable and efficient insurance broking operations.
“That’s why I say it is to really get rid of some of these outliers in the market – there are far too many of them, and quite often they contribute nothing to their clients, to the policyholders and also to the insurers.”
Commission vs fees
There was also a warning that the way intermediary firms could be remunerated had changed with a clear definition between commission and fees required.
But it is possible for firms to be compensated for the work they do in different ways, and as a result some firms have been setting up separate divisions to do so.
“Brokers, I dare say, are going to have to recalibrate their financial models, you either get commissions or you get fees, but you can’t have both,” Barlow continued.
“For example, if you are a broker you charge commission on the premium you receive – but also if you are a good and sensible broker in that you have a claims handling service for your insureds, can you charge fees?
“Not within the context of that particular entity.
“So what people are tending to do is set-up a separate entity to deal with, for example, claims handling – you can charge a fee for that, but you cannot charge commission.”
Tied in with that are rules for insurers when making commission payments to brokers, which must be received within 10 business days.
Another tougher stance is that brokers cannot offer discounts to customers, whether directly or indirectly, and so they will need to look at discount models in a separate way, with discounts coming directly from the insurer.
Barlow noted that good advisers would be able to discuss this with insurers, but practices such as rebating some of the premium would be impossible as brokers are no longer allowed to handle premiums.
The issue of advisers not being able to collect premiums was raised as a concern for corporate clients by Nasco Middle East director of direct sales Diana Haydar.
She noted that for non-medical insurance it was often helpful for brokers to take instalments from their corporate clients as some insurers were unable to offer these facilities.
“We had this leverage to provide some payment facilities,” Haydar said.
“But by removing all these it is squeezing insurance companies, brokers and clients a little bit.
“It’s an alarming topic, to be honest, towards big corporations because they need instalments and not all insurance companies can provide this.”
In response, Barlow acknowledged that a combined industry response to raise any such issues with the central bank and illustrate how they could harm end customers might be well received.
“This requires pressure from not just individual brokers, but it requires an industry group to say this is actually harming the companies here,” he said.
“If they can’t get sufficient cover, what happens if a disaster happens?
“They might not be able to trade if they require policies for trade finance or trade credit – if they don’t get those policies, what are they going to do? They might just relocate.”
Outsourcing restrictions
Another of the new regulations restricts the ability of brokers to outsource services to organisations based outside the UAE.
“Can you give an example of some activities that you think can be outsourced?” asked Health Beyond Borders CEO Laila Aljassmi.
“And don’t you think that there might be some risk in outsourcing to certain companies abroad in case of legitimacy of those companies?
“Is that why the central bank implemented this kind of a policy?”
Barlow agreed this was a key issue that the regulator was attempting to address and that brokers could not shirk the responsibility of ensuring their financial stability and the security of any organisations they did outsource to.
“You cannot wash your hands when you outsource matters – you are still primarily responsible for that outsource,” Barlow explained.
“So even if the if the third party gets it wrong that doesn’t protect you; you can’t say, ‘we outsourced it to them and that was quite legitimate’.
“No, you are primarily responsible for that.”
However, he suggested there may be some situations where firms were seeking to maximise the skill sets and capabilities within their businesses.
For example, intermediary firms may see developing products and policies as better suited to their business operations but may wish to outsource claims handling or premium collections.
This could also be particularly important for multinational advice firms.
“Some of the large global firms have their retail brokers here, but their claims handling is within a separate company,” Barlow continued.
“And therefore the claims handling company will get a fee, whereas the broker will get a commission. And you can’t have a field commission within the same company because there has to be a fee-based or commission-based model.
“I’m not saying it’s wrong to say it must be kept within the UAE, for example, there needs to be a development of a cadre of people here to have that area of expertise growing.
“But at the moment we haven’t got that area of expertise – and if you have got it say outside the jurisdiction you can bring it in.”
Qualifications not correctly focused
Ultimately though, attendees at the Middle East Forum were not fully convinced that the regulations would serve to greatly improve broker practices.
In 2022 the subject was one of the hottest topics debated during Health & Protection’s first Middle East event and there is clearly desire from the panel to see the regulatory bodies go further.
“If you read the regulations they are really badly written, just vague,” said Malakut Insurance Brokers head of employee benefits Michael Plaugmann.
He also raised the issue of qualifications and working standards which have been placed on business leaders but not on those people dealing with clients.
“I find it weird because they state the CEO has to have very specific qualifications or years of experience – for the person or people who are not effectively doing the job.
“But the people who really should be vetted and qualified, the frontline brokers, there’s no mention of them at all.
“Therein is the problem – the qualification criteria doesn’t go the right place.
“We talked about this in the first event but from then to now nothing has happened. So while regulations are great and something is happening, we’re not at the level where it’s going to make a difference.
“Are we weeding out the brokers that shouldn’t be in the market? I don’t think so, not yet.”
Nasco’s Haydar also raised concerns that some of the rules were too focused on making things complicated for human brokers while the growth and empowerment of aggregators appeared to be coming from the government.
“You have many aggregators in the market owned by the government or they are investors in these platforms,” she said.
“Whereas on the other hand, we are complicating things for the brokers to be able to operate properly. So I’m not sure which strategy we’re looking at honestly from this perspective.”
It will come eventually
However, Pacific Prime regional CEO David Hayes was more optimistic that this was another step along the road to improving the overall quality of the market.
He noted there was consideration pre-Covid that rules for the qualifications of frontline brokers may be brought in.
“They were looking at bringing in Chartered Insurance Institute (CII) requirements or there was talk about an assessment centre that was going to be set up,” he said.
“I think it will come eventually because it will make sense.
“Yes, this whole thing is still in its infancy.”
Meanwhile Lifecare International director of corporate consulting Amber Musson-Thorp considered how this compared to what had already taken place in her base of Qatar.
“What’s interesting is we already have this in Qatar and the market is so much smaller with maybe 10 house brokers,” she said.
“We already have exactly these built-in controlled functions because they align very closely with the UK – the Chartered Institute for Securities & Investment (CISI) regulations.
“Everything that comes from the regulator is exactly the same as the UK, so we’ve had it before we got big – whereas you guys are having it after the horse has bolted,” she added.
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