KBA Challenges Regulator Over 'Illegal' Bancassurance Fee Ban

The legal confrontation between the Kenya Bankers Association (KBA) and the Insurance Regulatory Authority (IRA) marks a significant escalation in the tension between banking institutions and financial regulators over the lucrative bancassurance model. At the heart of the dispute is an IRA circular that effectively outlawed the payment of service-based fees—including override commissions, administration fees, and profit-sharing arrangements—by insurance companies to their bank-led subsidiaries. The KBA's decision to seek judicial intervention underscores the high stakes for a sector that has become a cornerstone of non-funded income for Kenyan lenders.

Bancassurance has evolved from a niche offering into a critical pillar of the Kenyan financial landscape. Currently accounting for approximately 10% of the total insurance industry, the model generates at least Sh35 billion in gross written premiums annually. For the 24 registered bancassurance intermediaries in the country, the IRA's directive represents more than just a procedural change; it is an existential threat to their current revenue models. By requiring that all premiums be remitted to insurers in full rather than net of commissions, the regulator is attempting to decouple the banking and insurance functions, a move the KBA argues is both unlawful and economically disruptive.

“

Currently accounting for approximately 10% of the total insurance industry, the model generates at least Sh35 billion in gross written premiums annually.

The KBA’s legal counsel, Georgiadis Khaseke, has argued that the IRA’s interpretation of these fees as 'unlawful' lacks a proper legal foundation and fails to account for the auxiliary services provided by banks. These services, which range from marketing and distribution to administrative support, are essential for maintaining the current levels of insurance penetration in Kenya. The association contends that if the circular is enforced, it will lead to an 'irreversible disruption' of the sub-sector, potentially reversing years of progress in expanding financial inclusion through bank branches.

Beyond the immediate revenue loss, the banking sector is deeply concerned about the timing of the IRA’s enforcement actions. The regulator has signaled its intent to conduct audits of insurance firms and their intermediaries by the end of March 2026 to ensure compliance with the new directive. The KBA warns that these audits could result in qualified financial statements for its members, as auditors relying on the IRA's circular may flag previously standard fee arrangements as non-compliant. This could have ripple effects on bank valuations and investor confidence, particularly for those institutions where bancassurance contributes a significant portion of the bottom line.