AN ANALYSIS OF THE REVISED GUIDELINES ON BANCASSURANCE REFERRAL MODEL ISSUED BY THE CENTRAL BANK OF NIGERIA (CBN) IN MARCH 2017
The Central Bank of Nigeria (CBN) is a National financial institution that has the function of supervising and regulating the financial system of the country in order to promote monetary stability for a sound financial system, and maintain the external reserve and value of the legal tender of the country to safeguard its international value. The bank serves as a banker and financier to the federal government and other banks within the country and abroad. The bank was established by the CBN Act of 1958 and commenced its operations on July1, 1959.
Following the CBN’s responsibility to ensure a sound financial system in the country, the CBN from time to time makes rules and policies to regulate the operations of financial institution. The Central Bank advises the government on regulations or amendment to regulations as may be necessary to strengthen the financial system of the country.
- REVISED GUIDELINES ON BANCASSURANCE REFERRAL MODEL
This revised guidelines on Bancassurance was issued by the Banking Supervision Department of the Central Bank of Nigeria in March 2017 in exercise of the CBN’s power under section 33(1) (b) of the CBN Act 2007 and the provision of part 2, section 3, item (I) of the CBN Scope, Conditions & Minimum Standards for Commercial Banks Regulation No. 01, 2010.
The guidelines are a replacement of the one issued in March 2015, and are in furtherance of the CBN’s effort to ensure that banks comply with the regulation on the Scope of Banking Activities & Ancillary Matters, No. 3, 2010, and to address developments both in the banking and insurance sectors. They also set out the regulatory framework for the offering of Bancassurance products through the non-integrated referral model.
Bancassurance is an arrangement in which insurance companies leverage on the customer base of banks to sell insurance products to banks’ customers. The referral model is to the effect that a bank refers its customers to its partner insurance companies, and in return, receives a commission on each lead closed by the insurance company. The bank is not involved in marketing the products.
- PROHIBITED BUSINESSES IN THE REFERRAL MODEL
Notwithstanding the CBN’s grant of the Bancassurance model, the CBN has placed some restrictions on the participation in the Referral model. The CBN has categorically stated that banks shall not engage in any other model of Bancassurance other than that permitted under these guidelines, or even offer products that incorporate insurance features. Banks are also not allowed to offer free premium payments as a feature of any of their products or provide the Bancassurance referral service in a manner that contravenes the guidelines. Bank are prohibited from entering into Bancassurance agreements with insurance companies that do not hold a valid operational license from the National Insurance Commission (NAICOM)
- BANCASSURANCE AGREEMENTS
The Bancassurance referral arrangement shall not be valid and binding without a duly executed Bancassurance agreement. It is apparent for an agreement/written contract to be executed so as to prevent avoidable disputes that are likely to arise between the insurance company and the bank.
- RELEVANCE OF THE BANCASSURANCE REFERRAL MODEL
The Bancassurance referral model is a haven of opportunities for the benefiting customer, the middleman bank, and the marketing insurance company. This is so because an opportunity has been created for:
- The customers of the bank to become aware of all available insurance products, benefits of such products, and the best suited one for purchase.
- The bank to make extra money by simply making available to the insurance company, its customer base. The bank does not participate in the marketing of the insurance products as that is solely the responsibility of the insurance company, but gets payment in form of a commission every time the insurance company finalizes an agreement with a customer. The role played by the bank is simply that of a middleman.
- The insurance company to market its available products to the customers of its partner bank, and enter into agreements with interested customers. The insurance company would have a broader range of audience to market its products to; as it is not limited to only customers it is opportune to come across. The insurance company has both the authorization of the CBN and the partner bank to contact the customers of the partner bank and market available products.
In my opinion, the guidelines issued are highly relevant and appropriate because it is a win-win for all the parties involved.
The prohibitions outlined in the guidelines on the use of the referral model are a wonderful way to checkmate the activities of the parties involved. This is so because there is the likelihood of the banks creating their signature Bancassurance products to the exclusion of the insurance companies, or getting directly involved in the Bancassurance arrangement between the customer and the Insurance Company for full benefits. The express prohibition by the CBN would prevent it from occurring.
Most importantly, the offering of the Bancassurance referral services is subject to the approval of the CBN. The entire transaction would be monitored by the CBN which means that there would be no room for fraud.
In conclusion, the revised guidelines on Bancassurance Referral Model issued by the CBN to Financial Institutions in March 2017 is relevant and beneficial on all levels to all the parties involved. The customer has been given an opportunity to be informed on available insurance products, the bank has been given an opportunity to make extra money (commissions) from doing little or nothing, and the insurance company has been given an opportunity to broadly market its products and secure deals with interested customers.
The likelihood of disputes arising between the partner bank and the insurance company has been ruled out by the CBN by inputting the clauses on the approval and prohibition of the Bancassurance model. Those clauses will checkmate the transactions of the parties to enable a win-win arrangement. Contact us
ALASA AISHA OCHUWA