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Banks dealt blow in fight over bancassurance charges ban
KBA wanted the court to declare the circular unconstitutional, stop its enforcement permanently and suspend it through conservatory orders pending determination of the case.
The Kenya Bankers Association (KBA) has suffered a setback after the High Court rejected its request to have a circular by the Commissioner of Insurance banning service-based fees paid by insurance firms to subsidiaries of commercial banks suspended.
The High Court disallowed a suit filed by the sector lobby, saying the matter would best be handled by the Insurance Appeals Tribunal rather than a constitutional court.
"I find that the petitioner has approached this court prematurely. The dispute falls squarely within the jurisdiction of the Insurance Appeals Tribunal. The statutory pathway is both available and appropriate. Respect for institutional roles, statutory design and constitutional discipline requires that this court decline jurisdiction,” the court said.
The case was based on rules affecting the insurance industry, which generated about Sh129.5 billion in gross written premiums in the first quarter of 2025, with the bankers' lobby arguing the circular unlawfully affected bancassurance business and exceeded the regulator's statutory powers. The association argued that the circular breached the members’ right to property.
The court struck out the petition without determining the legality of the circular itself. It held that the row was fundamentally regulatory and should first be heard through the statutory mechanism set up under the Insurance Act.
The association had sought to quash Circular No. IC & RE 03/2025 dated March 20, 2025, arguing that it was issued outside the powers of the Commissioner of Insurance under Section 73 of the Insurance Act.
The circular directed insurers and insurance intermediaries to comply with the provisions of the Act and the Insurance Regulations, which prescribe the maximum commissions payable on insurance business and prohibit payment of excess commissions.
It reinforced statutory limits under the Insurance Act and Insurance Regulations that cap commissions payable on different classes of insurance business, including 50 percent of the first-year premium for most ordinary life policies, 20 percent in the second year and 5 per cent on third to tenth-year renewals, while bond investment business attracts a maximum four percent first-year commission.
The circular also reaffirmed that insurers cannot pay brokers or agents commissions above the prescribed ceilings and that brokers cannot pass on higher commissions to agents than the insurer itself could lawfully pay.
KBA wanted the court to declare the circular unconstitutional, stop its enforcement permanently and suspend it through conservatory orders pending determination of the case.
The petition argued that the circular violated the right to fair administrative action under Article 47 of the Constitution and threatened banks' property rights under Article 40 by affecting bancassurance operations.
In dismissing the case, the court found that the dispute arose from the implementation of the Insurance Act rather than a constitutional question requiring intervention by the High Court.
"The dispute concerns the statutory basis, formulation and implementation of the impugned circular," the court said in the ruling.
The court said the petitioner's claims that Article 47 had not been complied with, that the circular rested on an erroneous interpretation of Section 73 and that Article 40 rights were threatened all stemmed from the respondent's exercise of statutory authority.
"They do not transform a regulatory disagreement into a constitutional controversy," it stated.
The court added that elevating such a dispute into a constitutional petition "would disregard the doctrine of constitutional avoidance and would risk turning this court into the first forum for every regulatory grievance dressed in constitutional language."
It also relied on correspondence exchanged before the case was filed.
"The applicant acknowledged that the circular largely mirrors the law, but expressed concern that its implementation would negatively affect bancassurance operations," the court said. "These are regulatory concerns."
In addition, the court said the letter demonstrated that the parties had failed to agree on the statutory underpinning of the circular rather than on any constitutional issue.
"That is precisely the kind of dispute the Insurance Appeals Tribunal established under Section 169 of the Act is designed to resolve," the court said.
It described the tribunal as "a specialised body entrusted with reviewing regulatory decisions under the Insurance Act" and said bypassing it disregarded both the statutory framework and constitutional principles requiring specialised mechanisms to be respected.
The judge said constitutional adjudication should remain "a matter of last resort" where alternative legal pathways exist.
"The doctrine does not oust jurisdiction. It guides courts to decline constitutional determination where statutory mechanisms are available and adequate," she said.
Justice Nyaundi concluded that the bankers' association had moved to court prematurely.
"The consequence of that finding is that I will down my pen instantly. All that is left is to strike out the petition."
