• A circular from Financial Regulatory Authority (FRA) Chairman Dr. Islam Azzam:

  • Mandatory measures to prevent misleading clients and confusing insurance products with other savings and investment vehicles

  • Companies must document the client's acknowledgment that they have read the terms and disclosures and understand the nature of the insurance product

  • A ban on marketing phrases or practices that give the client false information about the insurance product

As part of ongoing efforts to tighten market oversight and protect clients across all non-banking financial activities, Dr. Islam Azzam, Chairman of the Financial Regulatory Authority (FRA), issued a circular to insurance companies to strengthen disclosure and transparency for insurance policies that include gold-linked investment strategies.

The circular requires insurance companies to disclose the nature of the insurance product to their clients, bans confusing or misleading marketing, and requires them to document the client's awareness of the product's nature. It follows the FRA's detection of a number of negative practices and client complaints about insurance products being confused, when marketed through banking channels, with savings or investment vehicles or with banking products and services, particularly investment-linked insurance products.

Under the circular, the company must disclose to the client before contracting, clearly, accurately and without misleading, the insurance nature of the product, its benefits, risks and key terms, and set out any investment component or strategy linked to it, so the client can make an informed decision.

Where the insurance policy includes an investment linked to gold or any other investment asset, the nature of that investment and how it is managed must be explained, and the fund or investment manager disclosed, as applicable.

The circular also bars the insurance company from implying that it owns or directly manages the underlying asset if that is not the case. It must make clear whether the client is entitled to take physical delivery of the asset or redeem it, and the conditions for delivery or redemption, if any, as well as the basis for determining the surrender or redemption value under the policy's terms.

The circular stresses a ban on any marketing phrases, means or practices that could lead the client to confuse the insurance product with deposits, accounts or other banking products or services, or with savings and investment vehicles. It also bans including incorrect or inaccurate information in marketing materials, or information that would create an impression at odds with the true nature of the product and its FRA-approved terms.

In an important step to protect and inform clients, the circular requires insurance companies to document, before the contract is concluded, the client's acknowledgment that they have read the policy's key terms and conditions; that they know the subject of the contract is an insurance product issued by the insurance company and not a deposit, account or banking product; that they have received the information and disclosures needed to understand the product's nature, benefits and risks; and that the company gave them ample opportunity to ask about its terms and conditions.

This acknowledgment does not release the insurance company from any of its legal or regulatory obligations relating to disclosure or client protection.

Under the circular, insurance companies must review the materials, forms and marketing methods used to distribute their products through banking channels, put in place the internal procedures and controls needed to ensure compliance with the above provisions, and notify the FRA within one month of the measures taken and of the client acknowledgment form they will use when contracting.