KBA sues regulator over 'illegal' bancassurance fee ban

Kenya Bankers Association CEO Raimond Molenje at the launch of the banking sector's sustainability reporting template in April last year. [Wilberforce Okwiri, Standard]

A dispute between banks and the Insurance Regulatory Authority (IRA) over fees paid by insurance companies to their subsidiaries has spilt into the courts.

The Kenya Bankers Association (KBA) has filed a case in the High Court, alleging that IRA unlawfully changed the bancassurance sector by ruling that it is illegal to pay service-based fees by its members.

Bancassurance is a model where banks act as insurance agents, selling insurance products such as motor vehicle, health, and life covers.

It accounts for 10 per cent of the industry and has, over the years, grown to contribute at least Sh35 billion to gross written premiums. There are at least 24 registered bancassurances in the country. KBA lawyer Georgiadis Khaseke told the court that last year, the IRA released a circular indicating that all the premiums should be remitted to insurers in full and not net of the commissions.

He further said the regulator would investigate insurance firms and their intermediaries to ensure compliance with its directive.

According to the lawyer, the agency claimed that the override commissions, administration fees, and profit share are unlawful.

“The petitioners and their members are aggrieved by the circular because its implementation will irreversibly disrupt the bancassurance sub-sector and affect the penetration of the insurance services within the country, as it declares illegal all service-based fees which are paid by insurers to bancassurance intermediaries for provision of auxiliary services,” argued Khaseke.

He further said his clients are apprehensive that the IRA will conduct audits by the end of this month, which will have an adverse outcome for them.

“Consequently, the bancassurance intermediaries will be highly prejudiced, as the auditors relying on the circular are likely to give qualified financial reports and recommend audit adjustment of the financial statements, which will lead to loss of revenue from service-based fees,” continued Khaseke.

He also stated that KBA had tried to resolve the dispute with the IRA, but unsuccessfully. According to him, the circular also reportedly created uncertainty about the legal status of the existing contracts, investment decisions, and business operations of the agencies. While supporting the case, KBA Chief Executive Officer (CEO) Raimond Molenje told the court that on July 17 last year, bancassurances wrote to the  IRArequesting that it review its position in the circular.