Insurance distribution in the Middle East has traditionally been procured through the insurance intermediary markets, such as brokers and insurance agents despite the fast-growing alternative distribution channels available to insurance providers. Bancassurance is one of the fastest growing distribution channels of insurance in the Gulf Cooperation Countries (GCC), in addition to the influence of technology platforms, such as insurance market aggregators.
This publication focuses on Bancassurance regulations in the GCC with the growing trend and potential scope for Middle East insurance providers to seek wider distribution of their products and banks to source new avenues of income.
Bancassurance is dependent on a mutual partnership between a bank and insurance provider offering insurance products or insurance benefits to the bank's customers thereby providing an alternative distribution channel for insurance providers. Often, in many jurisdictions, commissions are shared between banks and insurance providers related to the sold products. The bank is the client point of contact although some regulators do not permit such arrangements [see below].
Kingdom of Saudi Arabia
The Kingdom of Saudi Arabia is possibly and perhaps the most developed of GCC markets when it comes to a legal framework for bancassurance.
Insurance Intermediaries Regulation of 2011 governs the conduct of bancassurance, which restricts the selling of insurance products through an insurance agency approved and licensed by the Saudi Arabian Monetary Agency (SAMA). Qualification is a key requirement and the staff of approved agencies must have minimum insurance qualifications and receive regular training. Importantly, to avoid mis-selling, staff are not permitted to sell both insurance and bank products but are limited to only selling either insurance or bank products as one line of sale and bank products must not be mingled with insurance products.
While the legal framework is a welcome measure to consumer protection, there is suggestion that the Insurance Intermediaries Regulation of 2011 have in fact slowed down growth of the Saudi bancassurance market in terms of the additional financial burdens placed on banks. Achieving a regulatory and commercial balance is always a challenge for regulators however, it seems certain that bancassurance will grow in Saudi and offer benefits to all concerned parties including, paradoxically, SAMA which is leading the way in regulating bancassurance in the GCC.
The legal framework for bancassurance is Bahrain is regulated through the Central Bank of Bahrain’s (CBB) Rule Book - section GR-9 in Volume 3 which outlines the key provisions for appointed representatives. Appointed Representatives are permitted to sell through the banks if they are appropriately qualified in insurance services.
Bahrain follows an appointed representative model, which places an emphasis on a well-qualified sales force. The chief regulator of Bahrain’s insurance market is the CBB, the successor to the Bahrain Monetary Agency. From 2003 to 2004, the CBB undertook the development of new comprehensive regulations for the insurance sector in line with the International Association of Insurance Supervisors (IAIS) concepts. The CBB is also the only MENA representative on the executive committee of the IAIS. The bank has encouraged the expansion of international insurance companies operating in Bahrain.
Appointed representatives are governed by the rules of section GR-9 in Volume 3 CBB, which outlines the key provisions for appointed representatives. An appointed representative is defined as “an agent, who is not licensed by the CBB as insurance firm, insurance broker or insurance consultant, appointed by an insurance firm (licensed principal) as its representative according to the rules in Chapter GR-9. Insurance providers therefore use appointed representatives with the insurance expertise to sell and market the products through the banks with commission sharing agreements in place. Bancassurance is developing well in Bahrain albeit a relatively small market. With strict conduct of business regulations through the CBB Rule Book and laws, bancassurance is highly regulated and offers solid consumer protection.
There is no legal framework in Kuwait for the distribution of bancassurance and Kuwait is yet to develop and promulgate a regulatory framework for this form of insurance distribution. Law No. (24) of 1961 (1) regarding Insurance Companies and Agents regulates the activities of insurance and reinsurance. In addition, the Kuwait Civil Code (Decree No 67 of 1980) is also part of this regulatory framework.
Insurance brokers and insurance agents must be authorised by the Insurance Department of the Ministry of Commerce and Industry (MOCI). There are generally no restrictions on the marketing or sale of insurance services to policyholders other than restrictions on insurance providers dealing with and placing insurance through unlicensed insurance intermediaries.
Although there is no legal framework for bancassurance in Kuwait, Law No 39 of 2014 relating to Consumer Protection (Consumer Protection Law), does provide protection for consumer rights, which is relevant to bancassurance. It is anticipated that Kuwait will eventually provide a regulatory framework for bancassurance in time given that this distribution channel is also growing in Kuwait in context of growing FinTech platforms in the region.
The Law of the Qatar Central Bank and the Regulation of Financial Institutions (“Financial Institutes Law”) designates the QCB as the supreme regulatory authority for the financial services industry, including oversight of the insurance/reinsurance markets. The Qatar Financial Centre (QFC), is a separate off-shore financial centre within Qatar, regulated under Law No. 7 of 2005 as amended (QFC Law). It has its own legal and regulatory regime and does regulated bancassurance through QFC Law. The Financial Institutions Law and QFC Law fall in line with international industry standards and the Insurance Core Principles set by the International Association of Insurance Supervisors (IAIS).
The Financial Institutions Law is yet to be put in place. Nevertheless, it is anticipated that the law will covers both prudential and business conduct requirements for insurers including rules and requirements in respect of marketing and distribution of insurance products. It is anticipated that approvals will be required for policy terms, rules for advertising, product disclosure rules and general oversight including information and disclosures on distributors charges.
Currently there is no prescriptive legal/regulatory requirements for on-shore bancassurance in Qatar other than general consumer protection laws obligations under QCB laws. Banks in Qatar traditionally sell insurance through dedicated teams with insurance expertise, normally via their websites and these include multiple retail lines of risk.
Growth has been slow in Qatar in respect of bancassurance related to very few compulsory insurance requirements in Qatar. Third-party motor liability and professional liability for engineers are the only two categories currently obligatory, unlike other GCC countries. This, however, is set to change with new categories of insurance likely to become mandatory.
It is anticipated that new statutory provisions will recognise distribution methods such as online and direct marketing distribution, which in turn may lead to prescriptive bancassurance regulations.
Bancassurance in Oman provides a stable regulatory framework pursuant to Capital Market Authority Administrative Decision N. E/21/2010 and Circular BM 971.
The Central Bank of Oman (the "CBO") and the Capital Market Authority (the "CMA") regulate bancassurance in Oman and permit this distribution model through compliance with certain obligations, limitations and restrictions imposed on banks and insurance companies.
Capital Market Authority Administrative Decision N. E/21/2010 and Circular BM 971 (‘the Law”), prescribe the bank and insurance provider enter into agreements to regulate their relationships. The agreements must set out the party’s obligations, including the terms and conditions, the insurance lines and scope of insurance offered, training requirements of the staff and competency in insurance services -both bank and insurance staff, marketing and sale procedures signed off by management, disclosure of commission payments, the share of marketing costs between the bank and insurance company and the details of any branch distribution from the bank.
Customers must have a free choice and no conflicts or interests arising out of the customer’s relationship with the bank must influence the customer’s choice of insurance products. There must be certainty of contract only between the insurance company and the customer and the bank should not be a contracting party to the insurance policy. Banks are only permitted to act as insurance agents in broad terms and not as insurance brokers and there must be contractual provisions in the agreement between the banks and insurance companies to reflect this position.
The Law permits the sale and distribution of life insurance and general insurance and banks are only permitted to enter into agreements with two insurance companies for distribution of their products, one for life and the other for general insurance. The Law prohibits banks to sell the same line of insurance from more than one insurer as the CMA would deem such conduct in breach of the requirements given that the banks would be for all intents and purposes acting as a broker.
It is expected that Takaful bancassurance arrangements will be put in place in Oman in the next few years.
United Arab Emirates
The UAE regulator, the Insurance Authority (IA) issued a circular in September 2011 setting out rules and guidance for insurance providers to follow pending a proposed draft resolution regulating the marketing of insurance policies by banks. On May 23rd, 2018, IA issued Decision No. (13) of 2018 regulating bancassurance in the UAE (the "Circular").
The Circular is far reaching in that it provides limitations on the bank’s capacity to act as “insurance agency, insurance brokerage, insurance consultancy, or any insurance-related profession” and these regulatory requirements must be set out in the contractual language of the agreement between the bank and the insurance provider. This limits banks as a pure marketing channel unlike Oman and KSA bancassurance.
Insurance providers and banks will need to be authorised by the IA and UAE Central Bank respectively to carry out activities of bancassurance. This obligation is specified in Article 2 of the Circular and licenses can be obtained for a period of one year and renewable thereafter.
Pursuant to Article 2 of the new instructions of the IA, no insurance company will be able to conduct bancassurance without obtaining the prior approval from the IA.The Circular requires all insurance providers wishing to market insurance policies through banks to be established in the UAE, and to be licensed to operate in the UAE (whether through a branch, foreign branch or an insurance agent). This will prohibit foreign unlicensed insurance providers from setting up arrangements with UAE banks, which has historically happened.
Certain prescribed contractual terms must be in place in a written agreement between the bank and the insurance provider. These include commission arrangements including calculations, procedures for collection and payment dates; written statements showing that the bank is authorised to receive insurance premiums; obligation of the bank to transfer all premiums to the insurance provider providing regular detailed statements.
For the first time, the IA will be permitted to inspect and audit banks in respect of their bancassurance arrangement to enforce the compliance requirements, subject to approval of the UAE Central Bank.
Bancassurance in the UAE is a very well-developed market despite the recent enactment of the Circular. That said, the new rules will take time to play out and change current attitudes where banks and insurance providers will need to comply with the strict limitations in the Circular.
While bancassurance is still developing in the GCC, the potential for growth is enormous. Regulators need to find a balance between regulatory oversight set against a developing insurance distribution market in order not to discourage banks and insurance providers to reach a wider consumer base allowing consumers greater access to insurance products.