The Kenya Bankers Association (KBA) has moved to the High Court seeking suspension of a circular issued by the Insurance Regulatory Authority (IRA) that restricts bancassurance fee structures, escalating a regulatory dispute with direct implications for bank non-interest income and insurer distribution models.
The circular, issued on March 25, 2026, prohibits insurers from making payments to intermediaries beyond statutory limits defined under the Insurance Act. It classifies commissions, administrative fees, profit shares, and any similar payments exceeding prescribed thresholds as illegal when paid to bancassurance intermediaries, including bank subsidiaries. The regulator’s position is that such payments fall within regulated commission structures and must remain capped to prevent distortion of pricing and protection of policyholders.
KBA disputes this interpretation, arguing that the directive effectively invalidates existing contractual agreements between insurers and bancassurance intermediaries. The association maintains that service-based fees are commercially negotiated and represent distinct value-added services such as administration, distribution support, and customer acquisition. It argues these fees are not explicitly defined or governed under the Insurance Act and therefore should not be subject to commission caps.
The commercial stakes are significant. Bancassurance has become an important source of fee income for banks, particularly as interest margins face pressure across the sector. Service fees tied to insurance distribution allow banks to monetize existing customer relationships without deploying additional capital. A restriction on these fees would compress non-interest revenue and force banks to reprice their insurance distribution models.
The regulator, however, maintains that recent audits have identified cases where commissions paid exceeded legally prescribed limits. It argues that the circular is designed to standardize industry practices, improve compliance, and prevent excessive compensation structures that could ultimately disadvantage policyholders. The Commissioner of Insurance has also indicated that the directive targets transparency and proper classification of regulated payments rather than commercial disruption.
KBA has also raised concerns about enforcement clarity, noting that the regulator has not specified which entities are under violation or how compliance thresholds are being assessed. It further argues that the circular extends beyond the scope of the Insurance Act by attempting to regulate ancillary service fees that are separately contracted between insurers and intermediaries.
The High Court’s decision on whether to suspend the circular will determine the immediate operating environment for bancassurance. A suspension would preserve existing fee arrangements pending full adjudication, while enforcement would trigger immediate repricing, contract renegotiation, and potential restructuring of bancassurance revenue streams across the banking sector. (Start your investment journey today with the cytonn MMF, call+2540709101200 or email sales@cytonn.com)
