Thursday, March 7, 2013

Bancassurance in Oman

Bancassurance is the arrangement between a bank and an insurance company for the sale of insurance products by the bank. This arrangement is widely used around the world and helps insurance companies maintain smaller sales teams by benefitting from the branch and sales network of their partner banks.

This bank-insurance company arrangement is also prevalent in the Sultanate of Oman, and the Central Bank of Oman (the "CBO") and the Capital Market Authority (the "CMA") permit such arrangements to be put in place, subject to the terms and restrictions specified in the relevant Omani laws and regulations.

In respect to bancassurance arrangements in the Sultanate of Oman, Circular BM 971 (the "Circular"), and an administrative decision issued by the CMA, Administrative Decision No E/21/2010 (the "Administrative Decision"), are most relevant and prescribe the mandatory terms of a bancassurance agreement between a bank and an insurance company in Oman.

The above-mentioned Circular and Administrative Decision require that the bancassurance agreement should comprise all the terms and conditions relating to the arrangement, scope of coverage, assistance in training, the method and procedures of sales management, the branches of the bank involved in the insurance sales, the terms of commission, the share of marketing expenses, the training for bank employees, and the obligations and duties of the insurance company and the bank.

These rules also underscore the need for the bank’s customers to have the freedom of choice in respect of insurance products without their relationship with the bank affecting their decision-making in this respect in any manner.

Moreover, it is important that the banks act only as agents and not as brokers of the insurance companies, and the bancassurance agreements should be structured to reflect this in clear terms.

Furthermore, the sale of the insurance products of an insurance company by a bank should not create any legal relationship in relation to the insurance policy in question between the customer/insured person and the bank; in addition, all documents, including publicity materials, are required to stipulate that the insurance contract is between the insurance company and the insured person and not between the bank and the insured person.

In terms of the types of insurance products that can be the subject of bancassurance arrangements, the banks in Oman are permitted to sell products related to life insurance and general insurance and may tie up with two insurance companies at the most, one for life insurance and the other for general insurance. The Circular forbids banks from selling the same line of products of two distinct insurance companies. The Circular further notes that this move is intended to preclude banks from acting as brokers without a licence.

Pursuant to the introduction of Islamic banking in the country, the CMA is now working towards the introduction of rules and regulations related to Takaful insurance in Oman. In this respect, an initial draft of the regulations has been published by CMA for input from insurance companies and other relevant stakeholders. It is anticipated that these regulations might be issued later this year. We expect such move to lead to the introduction of Banca-Takaful arrangements in Oman as well.