Banks operating insurance coverage companies should clear all excellent premiums earlier than getting new licences for his or her bancassurance operations amid suspicion they’re holding on to money from prospects in what may render insurance policies invalid.
The Insurance coverage Regulatory Authority (IRA) has written to all bancassurance intermediaries—the banks and microfinance banks that promote insurance coverage in partnership with insurers— to clear any unremitted premium or danger being locked out of the enterprise.
The regulator reckons that banks are sitting on insurance coverage premiums obtained from folks looking for cowl towards dangers like hearth, accidents and loss of life.
This alerts that insurance coverage corporations may decline to honour claims for money not obtained from banks and microfinance establishments, exposing coverage holders to dangers.
The IRA’s warning signifies that bankers and microinsurers should clear the balances inside days as a result of they require new licences earlier than the top of September for the 12 months beginning January.
“Proof of clearance of excellent premiums for the interval ending December 2023 as per part 55 of the Insurance coverage Act,” says the August 9 round from Godfrey Kiptum, IRA chief government, with out specifying how a lot is excellent.
Part 156 of the Insurance coverage Act requires insurers to solely recognise dangers coming from prospects whose premiums have been obtained, making it essential for the regulator to push for a discount in pending funds.
Banks and microfinance corporations have protested the IRA situations tying licence renewal to settlement of the unpaid premiums, arguing that prospects are but to remit the total premiums.
Moreover the excellent premiums, the insurance coverage regulator is looking for Sh20,000 licence renewal payment and a financial institution assure or authorities bond of Sh10 million.
“The one premiums which might be excellent are excellent from prospects. We shouldn’t be penalised for patrons not honouring their premium funds,” stated Aggrey Mulumbi, chairperson at Bancassurance Affiliation of Kenya.
“Bancassurance laws stipulate that premiums needs to be paid to underwriters so when banking entities accumulate, they pay.”
IRA information reveals 17 banks and 6 microfinance banks are licensed to supply bancassurance. The licences will expire in December.
Mr Kiptum yesterday clarified in a cellphone interview that the unremitted premiums that IRA is looking for from banks have been obtained by the bancassurance intermediaries and must be wired to insurance coverage corporations.
The IRA has up to now issued related situations to insurance coverage brokers for excellent premiums that had piled and left prospects uncovered.
Excellent premiums linked to the brokers had risen to Sh41.77 billion in 2018 and dropped to Sh35.73 billion on the finish of 2019 after the regulator warned the brokers that it will not renew licence pending clearance of the unremitted quantities.
The determine has, nevertheless, been increase for the previous 4 years, hitting Sh45.25 billion on the finish of 2022 and Sh52.25 billion on the finish of June 2023.
All of the bancassurance gamers should renew their permits this month or pay a penalty of Sh20,000 for any late utility. Buying and selling and not using a legitimate licence attracts a penalty of Sh200,000 for each established incident.
Along with leaving prospects uncovered, unremitted premiums additionally damage the liquidity of insurers and reinsurers, compromising the power of a few of them to honour claims.
Some insurance coverage corporations have additionally been culprits, delaying funds to reinsurance corporations who help in settling a share of bigger and riskier claims. This factors to the extent of the issue of excellent premiums within the sector.
Newest monetary outcomes point out that the bancassurance enterprise is without doubt one of the fastest-growing for banks. A lot of the listed banks posted double-digit proportion progress in pre-tax earnings from their bancassurance subsidiaries within the monetary 12 months ended December 2023.
As an illustration, Absa Bancassurance Middleman Restricted, a completely owned subsidiary of Absa Kenya, posted a 41 % leap in pre-tax revenue to Sh1.32 billion to prime the bancassurance profitability chart.
Final 12 months additionally noticed Stanbic Financial institution Kenya’s bancassurance subsidiary submit a 97 % rise in gross revenue to Sh308 million as that of I&M Group elevated by 10.4 % to Sh260 million.
KCB’s bancassurance subsidiary noticed its pre-tax revenue rise by 16 % to Sh737 million final 12 months whereas that of NCBA grew by 83 % to Sh292 million.
Group credit score life enterprise has been the low-hanging fruit for banks getting into insurance coverage, particularly via bancassurance, since prospects coming for loans are simply bought the necessary cowl.
Banks even have an higher hand on motor insurance coverage as a result of they get to know prospects who wish to purchase autos earlier than insurers do and might use such a possibility to promote motor insurance coverage in addition to provide asset financing.
Provided that insurance coverage premiums are paid up entrance, banks even have an higher hand in counting on their very own mortgage e-book to supply premium financing.
