In 2010, the CBN Regulation on the Scope of Banking Activities and Ancillary Matters No. 3, 2010 was issued to repeal the Universal Banking Model, which hitherto permitted banks to engage in non-core banking financial activities either directly or indirectly through designated subsidiaries.
In the light of developments and the need to ensure synergy in the financial system, the Central Bank of Nigeria (CBN) in exercise of its power under Section 33(1)(b) of the CBN Act 2007 and the provision of Part 2, Section 3, Item (l) of the CBN Scope, Conditions & Minimum Standards for Commercial Banks Regulations No. 01, 2010 has considered it necessary to issue these guidelines on Bancassurance.
The guidelines set out the regulatory framework for the offering of bancassurance products through the non-integrated referral model. The choice of this model is premised on the fact that it does not preclude banks from focusing on their core banking businesses and does not undermine the essence of the CBN’s New Banking Model.
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This article will thus be looking into the notable provisions of the CBN Bancassurance guidelines.
What are the definitions of some important terms regularly highlighted or used by the guidelines?
Bancassurance – An arrangement in which insurance companies leverage on the customer base of banks to sell insurance products to banks’ customers.
Referral Model – In this model, a bank refers its customers to its partner insurance companies. In return, the bank receives a commission on each lead closed by the insurance company. The bank is not involved in marketing the products.
Bancassurance Agreement – A contract duly executed between a bank and an insurance company to engage in the referral model of bancassurance.
Bancassurance Products – Insurance products which fall under the General and Life insurance business that would be sold to banks’ customers by the insurance company under a bancassurance referral model agreement. The product is distinct from insurance covers that serve as mitigants for losses against credit and other risks.
Commission – Referral fee payable to the bank by the insurance company in line with the provisions of the Bancassurance Agreement.
Which activities are classified as “Prohibited Business” under the Bancassurance guidelines?
The following businesses are prohibited under the guidelines:-
-Banks shall not engage in any other model of bancassurance other than that permitted under these guidelines and for which approval has been obtained from the CBN.
-Banks shall not offer banking products that incorporate insurance features.
– Banks shall not offer free premium payments as a feature of any of their products.
-Banks shall not provide the bancassurance referral service in a manner that contravenes these guidelines.
What is the provision of the CBN Guidelines regarding bancassurance arrangements between banks and insurance companies?
The guidelines provide that the referral model of bancassurance arrangements between a bank and an insurance company shall not be valid without an executed Bancassurance Agreement.
Banks shall not undertake any insurance marketing, underwriting or claim settlement. This must be clearly stated in the Bancassurance Agreement.
Banks are also to ensure that no risks are transferred to it and shall not assume any fiduciary responsibility or liability for any consequences, financial or otherwise, arising from the subscription to insurance policies by their customers under the Bancassurance Referral Model.
Is there a need for regulatory approval from the CBN regarding bancassurance arrangements?
Yes, there is. The offering of bancassurance referral services by a bank is subject to the CBN’s approval. A bank that intends to offer bancassurance referral services is required to submit the following alongside its application:
- An extract of Board resolution approving the service.
- The Bancassurance Agreement between the bank and the insurance company.
- The bank’s assessment of risks and mitigants put in place.
What are the provisions of the guidelines on the marketing of bancassurance products and policy documents?
– The insurance products to be sold shall be strictly the products of the insurance company.
– The bank’s name or logo shall not appear in any of the policy documents.
-The insurance marketers may be allowed to occupy a space in the banking hall of the bank.
– Banks shall maintain adequate records of all transactions which will be reviewed during supervisory activities.
What are the provisions of the guidelines on claims handling and settlement?
-Banks shall not be responsible for claims handling and settlement as these are the responsibilities of the insurance companies.
-The insurance companies shall be solely responsible for the collection of necessary documents and information related to claims.
What are some of the notable Consumer Protection Safeguards provided by the guidelines?
-The referral shall be based on the needs of the customers as assessed by the banks and would be advisory in nature. This shall be made known to the customer.
– Banks are prohibited from influencing or compelling customers in any way to take up insurance products from insurance companies they have bancassurance referral agreement with.
-Banks shall not charge their customers service fee, processing fee, administration charge or any other fee for the referral.
-Banks shall ensure the confidentiality of consumer data and information.
-Banks shall ensure that the insurance company has in place an appropriate complaints redress mechanism.
What are the provisions of the guidelines on annual disclosures?
Banks shall disclose in the notes to the annual financial statements referral commission earned from bancassurance services.
What are the provisions of the guidelines on non-compliance?
Banks should ensure compliance with these guidelines as any breach of the Guidelines shall attract sanctions in accordance with the relevant sections of the Banks and Other Financial Institutions (BOFIA) Act. In addition, the bank may be prohibited from offering bancassurance referral services.