Insurance & Reinsurance
In this month's banking updater, we review the Bancassurance Guidelines for Banks and Financial Institutions (the Guidelines) which were published on 13 May 2019. This updater should be read in conjunction with our updater of May 2019 in which we reviewed the Insurance (Bancassurance) Regulations (the Regulations).
As the Tanzanian insurance sector continues to expand and develop, there has been a concerted effort from the Tanzanian government to enable this growth in a coordinated and regulated manner. The inclusion of banks and financial institutions in the Bancassurance business provides significant opportunities for both the banking and insurance sectors in Tanzania.
In order to encourage banks and financial institutions to market insurance products and services in a manner that protects operators and consumers alike, guidelines have been produced by the Bank of Tanzania in order to provide banks and financial institutions confidence to enter a market in which regulation is necessary.
Below are some key highlights of the Guidelines:
In order to engage in Bancassurance business, a bank or financial institution must obtain approval from the Bank of Tanzania and a licence from the Tanzania Insurance Regulatory Authority. In seeking this approval, a bank or financial institution must submit certain bits of key information to the Bank of Tanzania, and other information as may be necessary.
In its consideration of granting approval to engage in Bancassurance business, the Bank of Tanzania shall consider a number of factors, including:
Whether the bank or financial institution meets the minimum legal and regulatory capital requirements
The viability of the Bancassurance business plan
The adequacy of the risk assessment and accompanying mitigants
The ability of the bank or financial institution to conduct Bancassurance business in a prudent manner
Any amendment to a Bancassurance agreement must be approved by the Bank of Tanzania. This includes amendments to a Bancassurance Agency Agreement which is a legal contract between a bank or financial institution and an insurer, under which the former acts as the insurance agent of the latter.
There are a number of reporting requirements for banks or financial institutions engaged in Bancassurance business:
Quarterly returns on the performance of the Bancassurance business must be submitted to the Bank of Tanzania one month after the end of each quarter
Notes to annual financial statements must disclose the income and expenses associated with the provision of the Bancassurance business
The Guidelines also propose how banks and financial institutions should operate to regulate and maximise success in the insurance sector. The purpose here is to ensure that customers are suitably informed of the products available to them. As such, staff are expected to have the requisite training to enable them to explain the key attributes of insurance products and should be aware of the risk of misrepresentation and misleading statements when selling such products.
The Guidelines are explicit about what should be standard expectations of a non-insurer entity marketing insurance services. For example, a bank or financial institution must make it known that it does not underwrite risk or act as an insurer in any capacity whatsoever, as well as the need to inform the customer of the premium being charged.
Supporting the theme of consumer protection that was established in the Regulations with the ban of tied-selling, the Guidelines lay out a number of measures to safeguard the interests of consumers. These are typical of an entity marketing insurance products, ranging from confidentiality obligations to the need to avoid customer coercion.
Whilst there has always been collaboration between the banking and insurance sectors, it will be interesting to see how both sectors work together to take advantage of what is a fast developing business, whilst at the same time, maintaining an awareness of the need to protect consumers. As such, simple compliance measures have been put in place to ensure their interests are not jeopardised. For example, banks and financial institutions must not offer different rates to those offered by the insurer and must be cautious when it comes to branding, ensuring that insurance documents are not branded by the bank or financial institution's name, logo or corporate colours.
Should the Guidelines not be adhered to, the Bank of Tanzania has the authority to impose a number of wide-ranging sanctions:
A monetary penalty (unlimited)
Suspension from engaging in the Bancassurance business
Suspension from accessing the credit facilities of the Bank of Tanzania
Suspension of lending and investment operations
Suspension of capital expenditure
Suspension of the privilege to accept new deposits
Suspension from office of the defaulting director, officer or employee
Disqualification from any position in any bank or financial institution in Tanzania
Revocation of banking licence
It is fair to say that whilst the Bancassurance business presents huge opportunities for both banks and insurers alike, both sectors, but particularly the banking sector, must be aware of the obligations and requirements in place when marketing insurance products.