In certain developing markets, insurance and bank products have been sold together for many years without there being specific legislation to govern the conduct of banks that sell insurance products. In this month's legal update we review the new Insurance (Bancassurance) Regulations (the Regulations) which were published on 15 March 2019.
- Bancassurance is a mechanism by which banks or financial institutions and insurers collaborate to distribute and market insurance products.
- A bancassurance agent is a bank or financial institution licensed by the Tanzania Insurance Regulatory Authority (TIRA) to conduct bancassurance business.
Within the East Africa region, we have recently seen Kenya adopt rules that would regulate Kenyan banks offering insurance products, which were previously regulated as insurance brokers instead of bancassurance agents or operators.
In Tanzania specifically, banks have been able to sell insurance products through their insurance broking licences, and they may continue to do so for a period of not more than 2 years from the commencement date of the Regulations.
Whilst there may be a number of insurers in the Tanzanian insurance market, there is still room for the insurance sector to grow, and it is anticipated that with the inclusion of banks and financial institutions in bancassurance business, the Tanzanian insurance sector will likely expand and become a key investment sector for the economy.
Highlights of the Regulations
- Below are some key highlights of the Regulations:
- Bancassurance agents may act for a minimum of three and a maximum of ten insurers.
- Bancassurance agents are to apply to the Commissioner for Insurance for a licence to conduct bancassurance business.
- There is a one-time registration fee (approx. US $2,200) and an annual licence maintenance fee (approx. US $450) applicable to licensees.
- Bancassurance agents have to maintain their minimum capital as provided for under the Banking and Financial Institutions Act, 2006 – which means for banks or financial institutions that are already compliant with the minimum capital requirement, no further work or changes would be required.
- There shall be a bancassurance agency agreement between the bancassurance agent and an insurer which sets out:
- The mode for remittance of premium which shall be consistent with section 72 of the Insurance Act 2009 (the Insurance Act);
- The claims handling process;
- Safeguards for policy holders;
- Commission and fees to be charged and the mode of payment;
- The schedule of the products and services to be offered;
- The procedure to be used to settle conflicts;
- Modalities and frequency for reconciliation of premiums and other funds; and
- Any other requirement that TIRA may deem fit as necessary.
- Bancassurance agents shall have a principal officer and a specified person who shall meet the guidelines set out in the Regulations.
- Bancassurance agents are to issue non-life policies within 10 days from the date of payment of premium to the insurer, and life policies are to be issued within 20 days from date of fulfilment of underwriting requirements.
- Bancassurance agents shall not engage in “tied-selling" – this is explained in detail below.
- Insurers shall work jointly with bancassurance agents to settle any complaints which arise as a result of a fault in the provision of the bancassurance business.
- Licences may be suspended or cancelled for a number of reasons including:
- Non-remittance of premiums to insurers;
- Failure to furnish to TIRA any information relating to bancassurance business:
- Furnishing false information or failure to disclose material facts to TIRA;
- Failure to submit financial returns to TIRA;
- Failure to resolve complaints of a policy holder which falls within its jurisdiction or inability to give justification for such failure to TIRA;
- Failure to comply with the requirements of inspection;
- Acting in a manner which threatens the interest of a policy holder, insurance industry or the public; and
- Contravening the Regulations.
Insurers and bancassurance agents shall participate in public awareness campaigns to develop bancassurance business.
Some additional points to note regarding the Regulations are that the insurers require TIRA approval before offering the relevant bancassurance product; and bancassurance agents can only sell the products as they do not have any room to develop or package a bancassurance product without involving the insurer specified in the bancassurance agency agreement.
In the spirit of consumer protection, bancassurance agents are prohibited from engaging in the practice of tied-selling, i.e. where a customer must purchase an insurance product if a bank product is purchased or vice versa.
Reporting obligations and powers of inspection
Bancassurance agents have a number of reporting obligations and also may be visited for inspection by TIRA.
Bancassurance agents have to maintain detailed records including names of policy holders, products and services offered by that agent, value of the insured matter, premiums charged etc. All such information has to be stored at a specified office of the bancassurance agent and such records shall be available for inspection by TIRA officers.
TIRA may inspect the bancassurance agent’s records to ascertain compliance with the Insurance Act, the Regulations and other laws. What is interesting to note is that TIRA’s power of inspection may be used with or without notice if the circumstances justify the inspection; but also that the power of inspection is not specifically limited to bancassurance product records. This gives TIRA a wide ambit to step in and review the actions of bancassurance agents which may include banking or finance related business, although it is likely that their interest will relate to the bancassurance business only.
As these widely anticipated Regulations have finally been released to the public it will likely be some time before we see the fruits of this niche market – it will certainly be interesting to see the overlap between banking and insurance business. Insurance companies may benefit since they could gain new clients without having to spend a significant amount more to market their products, while the banking sector may benefit as it increases the number of customers and also creates somewhat risk-free income.