IRA issues draft regulations for banks to sell insurance

The wreckage of a car involved in an accident. Owners of such cars would be some of beneficiaries of the new regulations. File photo

What you need to know:

  • Banks will also be required to hire people responsible for selling these products otherwise they could have their Bancassurance licences revoked.
  • Insurance companies and brokers noted that in the short term, there would be implementation challenges because of the competition and large size of some banks.

Kampala – The Insurance Regulatory Authority (IRA) has issued draft regulations to be used by commercial banks in the selling of insurance products. This is in part to operationalise the amendments to the Financial Institutions Act, 2016 that allows commercial banks to start selling insurance. The draft Insurance (Bancassurance) Regulations, 2016 were released today by the IRA at a workshop with commercial banks, insurance companies, and insurance brokers.

“Under the previous Financial Institutions Act, commercial banks were not allowed to sell insurance products. This constrained the expansion of insurance penetration. With the amendments to the law and issuance of regulations, this should boost insurance penetration in Uganda,” said Mr Kaddunabbi Ibrahim Lubega, the chief executive officer IRA on the sidelines of the workshop.
Uganda’s insurance penetration is at 0.8 percent of GDP, according to 2015 statistics from IRA. Some of the reasons cited for the low penetration are limited knowledge of the sector and the reputation of the industry in settling claims. According to the deputy director of commercial banking supervision at Bank of Uganda, Mr Geodfrey Yiga, the reach of licensed financial institutions compared to insurance companies is much bigger, which increases the potential increased penetration.

“We wanted to enlarge services that can be issued by financial institutions for them to become a one-stop-centre for financial products,” he added.
In the regulations, banks will have to submit an application to the regulator if they intend to sell insurance products developed by insurance companies. The regulations note that “Bancassurance is an arrangement between a financial institution and an insurer under which the financial institution distributes to its customers, through its distribution channels, an insurance product of the insurer.” Banks will earn a commission from insurance companies from selling products.

Banks will also be required to hire people responsible for selling these products otherwise they could have their Bancassurance licences revoked. One of the more contentious clauses in the regulations is that without notice, IRA can revoke a licence from a bank to sell insurance products if they violate the rules. There is also a fine of Shs50m for banks that are involved in undercutting and payment of commissions beyond what is approved by IRA.
Banks were also opposed to the 24-hour deadline to remit insurance premiums to insurance companies from the time of receipt.

“We request that we are given more time because 24 hours is a short period. Our proposal is for that time to be adjusted to a month when we do most of our reconciliation,” one banker noted during the workshop.
However, IRA rejected this proposal, noting that it complicates the payment of claims that may arise before the end of the reporting month.
Insurance companies and brokers noted that in the short term, there would be implementation challenges because of the competition and large size of some banks.
The regulations are expected to become operational by December 2016, once they are gazetted.