Obinna Chima
The Central Bank of Nigeria (CBN) has advised banks under its regulation not to offer products that incorporate insurance features. The banking sector regulator also urged the financial institutions not to offer free premium payments as a feature of any of their products.
The CBN stated this in its “Revised Guidelines on Bancassurance Model,” obtained on its website.
Bancassurance is arrangement in which insurance companies leverage on the customer base of banks to sell insurance products to banks’ customers. Also, referral model is a model whereby 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.
But, the central bank warned that banks should not provide the bancassurance referral service in a manner that contravenes these 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. The referral model of bancassurance arrangement 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 shall 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.
“Banks shall conduct a thorough due diligence/periodic assessment for the selection of partner insurance companies, which would be restricted to two insurance companies. Banks shall ensure that only insurance products approved by NAICOM are offered by their partner insurance companies to their customers,” it added.
Furthermore, the guidelines stated that banks shall not enter into bancassurance agreement with insurance companies who do not hold a valid operational license from National Insurance Commission (NAICOM).
The offering of bancassurance referral services by a bank is subject to the CBN’s approval. According to the CBN, a bank that intends to offer bancassurance referral services is required to submit the following alongside its application: Extract of Board resolution approving the service; the Bancassurance Agreement between the bank and the insurance company, which should at the minimum set out; and the bancassurance products to be offered by the insuranc ecompany.
Others include the duties and responsibilities of each of the parties under the arrangement during and upon termination of the contract; the conditions for the termination of the agreement; and the commission to be charged for the referral services should be as approved by NAICOM.
“Any amendment to the bancassurance agreement shall be subject to the approval of the CBN. Upon the termination of the agreement, the bank shall notify the CBN stating the reason(s) for the termination. Banks shall only refer their customers to insurance companies. Thus, marketing of the insurance products shall be done by the staff of the insurance companies.
“The referral document shall contain a disclaimer that the products shall be underwritten by the insurance company with no recourse to the bank in terms of claims or any legal proceedings between the insurance company and the bank’s customer,” it added.
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 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 considered it necessary to issue these guidelines on Bancassurance.
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