Regulators need to find a balance between regulatory oversight set against a developing insurance distribution market, says Dubai-headquartered law firm BSA Ahmad Bin Hezeem & Associates in its outline of regulations in the region covering bancassurance.
One reason is in order not to discourage banks and insurance providers to reach a wider consumer base allowing consumers greater access to insurance products, says the law firm, which notes that bancassurance is one of the fastest growing distribution channels of insurance in the GCC.
Giving an overview of bancassurance regulations in the GCC and its potential for growth, BSA says:
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.
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 because of 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.
The legal framework for bancassurance is Bahrain is regulated through the Central Bank of Bahrain's (CBB) Rule Book.
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.
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.
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.
The Central Bank of Oman (CBO) and the Capital Market Authority (CMA) regulate bancassurance in Oman and permit this distribution model through compliance with certain obligations, limitations and restrictions imposed on banks and insurance companies.
It is expected that Takaful bancassurance arrangements will be put in place in Oman in the next few years.
United Arab Emirates
Bancassurance in the UAE is a very well developed market. Nevertheless, the UAE Insurance Authority (IA) has tightened supervision of the distribution channel. The regulator issued a circular on 23 May 2018, regulating bancassurance in the UAE. 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 bancassurance in Oman and Saudi Arabia.
Insurance providers and banks will need to be authorised by the IA and UAE Central Bank respectively to carry out activities of bancassurance. Certain prescribed contractual terms must be in place in a written agreement between the bank and the insurance provider, for example, commission arrangements, procedures for collection and payment dates; 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.
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.