IRA new legal framework for banks selling insurance to boost industry

Banks selling insurance products have been given new rules set out to make the Bancassurance industry operations more transparent and increase capital buffers in order to get licenses.

The Insurance Regulatory Authority (IRA) issued a circular for registration of new licenses where bancassurance companies will have a minimum capital of Sh5 million which is higher than what is required of brokers (Sh1 million) and raised registration fees from Sh1000 to Sh20,000.

The Bancassurance firms must also provide a Kes10 million bank guarantee or a government bond.

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IRA also directed that the lenders must own 100 per cent of the Bancassurance agents, change their business names by adding ‘Bank Assurance Intermediary’ after their company title, obtain collaboration agreement with insurance companies and prominently display the name of the underwriters in any advertising feature.

The principal officer operating the agency for the banks will have to pass a fit and proper test and must be technically qualified in insurance, actuarial, accounting and banking.

“The new regulations require Bancassurance intermediaries to submit a letter of no objection from the regulator of the bank, microfinance institution or financial institution and ensure your principal officer is approved by the authority,” IRA CEO Godfrey Kiptum said.

Since 2004 when the Central Bank of Kenya (CBK) granted the Commercial Bank of Africa (now NCBA) license to operate Bancassurance business, the sector has grown to list over 20 banks and microfinance players.

This includes Absa Insurance agency, Equity insurance agency, KCB insurance agency, NBK insurance agency, CBA insurance agency, Stanbic insurance agency, Standard Chartered insurance agency, Jamii Bora insurance agency and Sidian insurance agency.

The industry has seen tremendous growth. For instance, over the last six years, Absa Insurance agency has grown its retail insurance offering almost all classes including motor, home, life, personal accident, medical, travel and funeral expenses.

The lender says by leveraging its big brand, established and experienced team, and taking advantage of its huge branch network and customer base to optimize costs, it has been able to expand reach across the country.

In fact, it has made it easier for more people to join through insurance premium financing solutions to support clients with their cash flow needs.

“Under this difficult COVID-19 Period, we also have insurance options including retrenchment covers for employees who may lose their jobs and are still required to service their loans”, says MS Julia Shisia, Absa Kenya Head of bancassurance.

“We offer a full bouquet of innovative insurance products and services to our clients at the Absa Group with a “one-stop-shop” for both banking and insurance needs, offering a comprehensive range of insurance products and services available across our 88 branches countrywide,” She said.

The growth has however happened without commensurate legal structures that saw most of the banks peddle insurance products through a distribution model where the bank simply behaves as an intermediary, offering products of more than one insurance company.

The new regulations will now limit a bancassurance company to seek approvals before selling any products to its customers.

They will not be allowed to deduct premiums from their customer accounts without prior written consent.

Before selling insurance the Bancassurance agents must in writing inform you that you can select your own underwriter and should not advise or coerce you to cancel an existing policy.

They should also not stop you from looking for a bancassurance company of your choice or choosing to deal directly with the insurance firm.

They should also ensure confidentiality of customer data and address complaints promptly.

Currently, banks leech on customers seeking asset finance to sell mostly mortgage and motor vehicle insurance which are the most popular products according to a study by the Association of Kenya Insurance (AKI).

“Insurance companies indicated that bancassurance favored banks more as banks would only take in requests for products that fits their needs without necessarily factoring in the needs of the insurance companies. A good example is that of motor insurance which is popular with banks as they easily sell it along with car loans,” AKI said in the study.

Fire and mortgage are also relatively popular, with life insurance being the least popular bancassurance product, though all the insurance classes are underwritten through Bancassurance.