Regulator puts on notice banks colluding to extort from clients

Tuesday March 24 2015

Insurance Regulatory Authority CEO Sammy Makove at a past event. FILE PHOTO | DIANA NGILA

Insurance Regulatory Authority CEO Sammy Makove at a past event. The insurance regulator has announced a new risk-based supervision to be effected by June 2018 to replace the compliance-based one. FILE PHOTO | DIANA NGILA | NATION MEDIA GROUP  

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The government could soon put a limit on the amount of money a commercial bank can make from selling products of a given insurer, in a move meant to enhance competition and safeguard the interests of customers.

The plan, proposed by the Insurance Regulatory Authority (IRA), is meant to shield clients from extortion by lenders who collude with specific underwriters to exclusively offer their insurance products.

A number of insurers operating in the country share ownership with commercial banks, opening loopholes for uncompetitive practices like price-fixing.

IRA Chief Executive Sammy Makove said the regulator had noted that some banks were forcing customers to take up insurance products from particular firms, ultimately denying them the freedom to go for conveniently priced options.

Mr Makove said a draft paper is currently under discussion to prescribe guidelines on how bancassurance - the business of jointly offering banking and insurance products - will be operated.

“We have noted instances where a bank gives more business to one underwriter thus denying customers the chance to make choices and this is extremely unfair,” said Mr Makove.


Part of the proposal is to prescribe a fixed maximum percentage revenue that a bank can make from one underwriter in a given accounting period.

This will then compel banks to partner with multiple insurance underwriters, thus offering a variety of choices to clients.

Mr Makove said the lack of regulations guiding bancassurance has resulted in the creation of unclear hidden costs that are being passed on to customers.  He spoke yesterday during a conference to discuss bancassurance in Kenya.

In most mature markets where the business is well developed, lenders are barred from making over 25 per cent of their insurance business revenue from one underwriter, which promotes healthy partnerships.

An inaugural bancassurance survey by Llyod Africa Markets released yesterday showed that Britam commands 40 per cent of the business in the country, with Equity Bank emerging most dominant with more than 37 per cent of the banked population.

The survey puts AAR Insurance (23 per cent) as the second most dominant underwriter in bancassurance, with Pan Africa Life Insurance coming third with 14 per cent share.

Since the change in the law to allow banks to sell insurance products, most commercial institutions have established insurance agencies to sell policies to their retail, mortgage and corporate clients.

Equity, for instance, has an underwriting subsidiary named Equity Insurance Agency Ltd while Kenya Commercial Bank has KCB Insurance Agency, and NIC Bank has NIC Insurance Agents, among other institutions.