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Licensing and Supervision of Insurance Business, Licensing of Insurance Broker (Directive No. 106/2020)

National Bank Of Ethiopia106/2020

Summary

This directive establishes the requirements, procedures, and responsibilities for licensing and supervising insurance brokers in Ethiopia. It details the conditions for establishment, general requirements for applicants and chief executive officers, required information, place of business, duties and responsibilities, prohibitions, professional indemnity insurance requirements, fees, renewal processes, and penalties for non-compliance. It also repeals Directive No. SIB/29/2007.

Who's affected

Individuals and business organizations seeking to operate as insurance brokers in Ethiopia.

Action required

Entities intending to operate as insurance brokers must review the directive, ensure they meet all specified requirements, and submit the necessary application forms and supporting documents to the National Bank of Ethiopia.

Key points

7
  • Establishes licensing and supervision framework for insurance brokers.
  • Defines eligibility criteria, including nationality and professional qualifications for Chief Executive Officers.
  • Mandates professional indemnity insurance with specific coverage limits.
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    • Outlines broker duties, responsibilities, and prohibits conflicts of interest.
    • Specifies fees for application, licensing, and renewal.
    • Details penalties for non-compliance, including fines and license cancellation.
    • Repeals Directive No. SIB/29/2007.

Requirements

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  • Applicants must be Ethiopian nationals or fully Ethiopian-owned businesses.
  • Applicants or owners must not have been convicted of dishonesty offenses.
  • Applicants must demonstrate honesty, integrity, and reputation to the Bank's satisfaction.
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    • Chief Executive Officers must hold at least a diploma in insurance or a related business field and have a minimum of eight years of managerial experience in an insurance company's head office.
    • Chief Executive Officers of newly licensed brokers must meet specific educational and experience criteria, with exceptions for those licensed before the directive's effective date.
    • Applicants must provide professional indemnity insurance policies.
    • Applicants must submit specific personal and organizational information, including photographs, CVs, and organizational documents.
    • Insurance brokers must maintain a principal place of business and notify the Bank of any branch openings or closures.
    • Insurance brokers must collect premiums, issue cover notes, and settle claims only up to pre-agreed limits.
    • Insurance brokers must ensure all work is supervised by the Chief Executive Officer.
    • Insurance brokers must clearly explain insurance options to clients and conduct thorough analyses of insurer proposals.
    • Insurance brokers must obtain client consent before placing business with an insurer.
    • Insurance brokers must make clients aware of disclosure obligations and legal consequences of non-disclosure.
    • Insurance brokers must conscientiously discharge fiduciary responsibilities.
    • Insurance brokers must maintain detailed records of clients and transactions.
    • Insurance brokers must maintain a valid professional indemnity insurance cover with a minimum limit of indemnity.
    • Insurance brokers must promptly file copies of their professional indemnity insurance policies with the Bank.
    • An investigation fee of Birr 550 must be paid for license applications.
    • An initial license fee and annual renewal fee of Birr 1,000 must be paid.
    • Licenses must be renewed annually, with renewal applications submitted within one month of expiry.
    • Late renewal applications are subject to a penalty of Birr 500.
    • Failure to apply for renewal within 12 months results in automatic license cancellation.

Rights and permissions

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  • Policyholders have the right to seek redress from a broker for damages if the broker fails to disclose material facts to an insurer after the client has provided full information.
  • Brokers may collect premiums, issue cover notes, and settle claims up to a pre-agreed limit, subject to an agreement with the insurer.
  • Brokers may place risks with an insurer chosen by the insured, provided a written statement is secured from the insured.
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    • Brokers have the right to renew their licenses annually.

Restrictions

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  • Insurance brokers cannot have any equity interest in insurance companies, loss-adjusting firms, or actuary firms, nor can their spouses or first-degree relatives.
  • Brokers must obtain prior notice to the Bank for opening any branch office and provide reasons for closure and plans for pending business.
  • Brokers must not place business with an insurer without first providing the client with detailed information and securing full consent.
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    • Brokers must ensure clients understand the legal consequences of failing to disclose material facts.

Penalties

4
  • Failure to comply with directives or Proclamation No. 86/1994 can result in a fine of Birr 5,000 with a written warning for the first offense.
  • Cancellation of the license upon failure to pay the fine within the specified time or upon a second violation.
  • Automatic cancellation of a license for failing to maintain a valid professional indemnity insurance policy.
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    • Automatic cancellation of a license for failing to apply for renewal within 12 calendar months after expiry.

Objectives

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  • To set forth the conditions and procedures for licensing and supervising insurance brokers.
  • To ensure that insurance brokers operate with honesty, integrity, and professionalism.
  • To protect policyholders and the insurance market by establishing clear operational standards and requirements.
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    • To define the duties, responsibilities, rights, and restrictions of insurance brokers.

Organizations

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  • National Bank of Ethiopia

Legal references

4
  • Article 27 of the National Bank of Ethiopia Establishment (as Amended) Proclamation No. 591/2008
  • Article 42(j) of the Licensing and Supervision of Insurance Business Proclamation No. 86/1994
  • Commercial Code of Ethiopia
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    • Directive No. SIB/29/2007
Original sourcehttps://justice.gov.et/en/directives/licensing-and-supervision-of-insurance-business-licensing-of-insurance-broker-directive-no-106-2020/
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