The moves come ahead of even bigger changes on the horizon such as the introduction of Common Reporting Standards (CRS) across over 100 countries in 2017 and, in the following year in Europe, the arrival of an updated Markets in Financial Instruments Directive, so called MiFID II, and an updated Insurance Distribution Directive.
“The direction of travel in the industry, that includes both life insurance companies and advisers, is one where you’re talking about improved customer outcomes, which inevitably will mean income to advisers in the short term will be reduced,” said Philip Cernik, chief marketing officer of Friends Provident International.
In a key move for the life industry the Isle of Man’s main regulator, the Financial Services Authority (FSA) announced it was going to make it mandatory for all international life companies based on the island to disclose to retail customers all commissions being paid to their financial advisers where ever they operate in the world.
That move was part of an initiative to bring the island’s insurance regime into line with the code of conduct issued by the International Association of Insurance Supervisors (IAIS).
At the same time, the industry and the government worked towards the completion of a new code of conduct governing how Isle of Man-based insurers do business which is likely to urge firms to only operate in regions where they are appropriately licensed.
The IoM’s plans should have little impact on life companies that do business in the UK, which is already covered by the RDR rules, but do represent a big change for firms that focus more on international markets where regulations are looser.
The FSA’s plans also go further than current requirements by regulators in Jersey and Guernsey.
In line with these moves, the Insurance Authority in the United Arab Emirates announced in late November it planned to ban indemnity commissions on life insurance products sold by the life companies it regulates
In future, the IA will require the total commission charged to the customer to be spread over the life of the policy. Commissions paid to brokers should be based on the premium collected; and be paid in equal monthly instalments, irrespective of premium payment frequency.
This move, though not yet formally written into UAE law is expected to cause a major shake-up in the region’s offshore bond markets.
The life regulations have the potential to fundamentally change the way life products are priced and sold in the UAE, and represent a long overdue move to regulate the way life insurance investment contracts have been sold and marketed in the UAE, said Tom Bicknell, Wayne Jones, and Peter Hodgins of international law firm Clyde & Co.
At the same time the UAE’s Securities and Commodities Authority (SCA) has introduced a new regime which means that mutual funds offered within any retail distributed, insurance-wrapped products must be registered and pay an annual fee.
In the past insurance contract-based products were not regulated by SCA so the new rules have a massive impact on the industry, according to Muneer Khan a partner at law firm Simmons & Simmons in Dubai.
“We know a lot of the funds, in fact the vast majority of those funds, are not registered currently,” he said.
Khan also noted that new Arranging Promotion regulations are due at any time. These will cover the sale of bonds, structured notes and other types of securities in addition to mutual funds.
“The indication is that they will come into force very soon. Sometime probably in the new year,” he said.
Meanwhile in Hong Kong the life industry and its intermediaries have had to battle with the introduction in 2015 of a regulation known as GN15 and a subsequent rule, GN16, which regulated different types of insurance products.
According to Mark Christal, chief executive officer of Hong Kong for Old Mutual International, part of Old Mutual Wealth, the GN rules were introduced in a bid to regulate the advice process around insurance products following concerns over certain sales practices.
However, he added they have also served make the already challenging IFA market even more tougher to navigate and increase the cost of compliance.
