How can Insurers enter the UAE’s new End of Service Saving scheme market?

1st Jul 2024, By Ruan van Rensburg

How can Insurers enter the UAE’s new End of Service Saving scheme market?

Members in the DIFC will be well acquainted with DEWS – a defined contribution saving scheme that replaced the old unfunded end of service gratuity system. But what about the UAE Mainland?  

Last October MoHRE (The UAE Ministry for Human Resources & Emiratization) published the details for the long-awaited “Voluntary End of service gratuity scheme” in “Cabinet Resolution 96”, which will introduce a defined contribution scheme to the Mainland, though with limited similarities to DEWS.

This new scheme, once compulsory, has huge potential to deepen and boost the UAE’s capital markets, as over time Assets under Management will accumulate to over US$ 80 to $100 billion and directly generating more than $1 billion in annually reoccurring industry revenues for fund managers, administrators, consultants and other advisers. This is also an important step towards managing foreign workers’ discretionary savings in the UAE during and after the period of their employ. 

Insurers are hugely impacted by this new development. First, it would be desirable to participate in these new revenues. Secondly, it’s a foundation on which employees financial needs can be efficiently serviced.  Imagine if every employee in the UAE had an app on their phone informing them about the state of their savings – both end of service gratuity benefits and discretionary savings - together with medical, short-term and life insurance coverage. This would be hugely valuable to an employee and presents a big opportunity to an insurer. 

On the downside for insurers, the new scheme will heavily cannibalize the sale of individual life/savings and family takaful products, as every UAE Employee will have access to subsidised AVCs (additional voluntary contribution) savings, easily available on their End-of-Service savings app, directly deducted from payroll, and directly competing with the traditional life insurance savings products.

Unfortunately, Cabinet Resolution 96 isn’t written in a way that makes it easy for insurers to lead such schemes. Rather, Cabinet resolution 96 sees Fund Managers in control. They in turn – according to SCA rules – must appoint a proper Pensions Scheme Administrative Service Provider, and the whole scheme must be secured by one of the six UAE licensed Custodian banks. The only role that is available for insurers within this structure is that of Scheme Administration (ie operate a b2b contact, admin & operations centre to deal with issues from HR administrators of the companies and operate a b2b2c contact centre for the employees). It is fair to say that this task is alien to Fund managers (and their fund administrator) and custodian banks – it is very likely that these institutions will look to outsource these operations. 

Herein lies the opportunity for insurance companies: to provide pensions scheme administration services for End of service saving schemes. One prominent insurer, Zurich, has done exactly that, with its ZWS (Zurich Workplace Solutions) operation in the DIFC administering the DEWS scheme. It is to be expected that ZWS will administer some of the new End-of Service saving schemes appearing in the mainland too. Furthermore, we can expect other insurers to copy this approach and to enter the nascent Mainland end-of-service saving scheme market in this way.

It is interesting to note that some insurers are already in an adjacent market, operating voluntary workplace saving schemes: Hayah and Sukoon both offer such saving schemes, with fund options from AXA and Generali. Hayah just recently obtained SCA approval to offer administration services, however, they are working together with Azimut to obtain End of Service Savings licensing – Azimut being an UAE-based asset manager – as opposed to their existing relationship with fund manager AXA. The reason for this is that SCA rules explicitly state that only UAE onshore licensed fund managers can receive approval, or possibly DIFC/ADGM-based funds that are passported into the Mainland (and approved by SCA).

In summary, the emerging opportunity is tremendous – but it appears insurers can currently only participate in this market on the pension administration side, and must team up with an onshore asset manager.


Updated 11 July 2024.

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