Five decades of the insurance industry

March 1 is National Insurance Day in Bangladesh; the date is the emblem to honor the Father of the Nation who joined the Alfa Insurance Company in 1960.

With the theme “Bimay Surokkito Thakle Agiye Jabo Sobai Mile” [If protected with insurance, we will advance together], this year’s celebration at the Bangabandhu International Conference Center was marked by the Prime Minister’s virtual presence from her official Gono Bhaban residence. “You have to make people understand what benefits they will get if they do insurance policies or what losses they will face in case of not doing the policies.”

She emphasized the accessibility of technology in depositing the premium and settling the insurance claim. The steps should concentrate on creating awareness among the ordinary people and a fair and balanced deal in settlement of claims in enhancing the people’s confidence in the insurance industry. The deposit should be regarded as “Amanat” of the people, and timely payment of insurance claims and other benefits could save many households from impending financial distress -- “ a system has to be developed so the clients can get their insurance claim in due time without any hassle.”

Her careful observation of third-party insurance and settlement of false claims concerning fire incidents in jute and RMG factories manifests her commitment to a burgeoning industry in Bangladesh. The Prime Minister greeted the insurance companies by introducing the state-of-the-art technology Unified Messaging Platform (UMP) to protect the customers’ interest and opening the “Bangabandhu Surokhya Bima’’ policy this year.

The contribution of the insurance industry in Bangladesh is about 0.4 percent in 2021; according to the estimate of the Swiss Re Group, the contribution in life insurance is 0.29 percent and non-life 0.11 percent. Surprisingly, this is less than that of a single item, Hilsa fish, with a one percent contribution to GDP. The insurance sector contribution in Pakistan, with 28 companies, is about 2 percent of the GDP; in India, the contribution is over 4 percent. The average value for developing countries is over 8 percent. The industry is still nascent, with immense growth potential; the sector lags behind the economy’s overall historical growth. However, the average life expectancy and per capita income trend could tell a different story than many countries. Insurance sector coverage is a trifle, hovering at about 4 percent. Lack of trust and fear significantly challenge the elasticity withholding even minimum growth. Yet, a country with over 30 percent of trade intensity should see positive change with expansion in the export-import business. A modest penetration could have salutatory impacts on macroeconomic variables such as employment, foreign direct investment, and overall growth. Confidence, trust, and the principal-agent problem are the underlying constraints in the insurance industry’s growth. The average claim settlement ratio is near 80 percent in Bangladesh compared to over 98 percent in India [the claim settlement ratio was 83 percent in 2019 and 78 percent in 2013]. The per capita insurance payment in 2021 was USD 9, which can be compared with the per capita insurance payment of USD 9 in 1970.

Establishing the Insurance Development and Regulatory Authority [ IDRA] with the enactment of the IDRA 2010 on January 26, 2011, could play a pivotal role in regulating the insurance industry and safeguarding the policyholder’s interest. The authority is working to systematically develop and regulate the insurance industry, intending to implement the ‘National Insurance Policy 2014. “The mandate of IDRA is to provide registration and certificate of insurer, re-insurer, mediator, and renewal, amendment, removal withheld, or cancellation of such registration. Inspection, inquiry, and investigation of insurance institutions, developing new policies, controlling the fund and investment, maintaining solvency margin and determining the proposed premium rate, giving advantage to insurer, settlement of dispute or claims and providing the procedure for preparing actuarial reports.” The portfolio covers areas that are essential for the sound development of the industry.

The private and public sectors pervade the insurance business: thirty-five life insurance [including 2 foreign units] and one public unit; 45 private general insurance companies against just one public unit. The growth of the private sector is stupendous, but the ineffectiveness may be in the tyranny of numbers and the industry’s inefficient competitive structure. After independence, the then-installed Awami League government’s nationalization episode of the insurance industry was steered by the election manifesto of the four fundamental principles of statehood. The nationalization of the insurance industry and the banking and other manufacturing units in 1973 were on the top priority list of the government. However, this drive did not bring the desired economic premium as the subsequent events unfolded in the insurance industry during the next decade. Chaos and confusion dampened the entrepreneurial appetite and spirit of many budding visionaries who could bring real revolution in the insurance industry, given the freedom and opportunity to bloom. Subsequent chaos in the insurance sector, the retreat, and the current state of the insurance sector’s contribution could guide future policy direction.

The insurance industry is still relatively small compared to GDP and international exposure. However, innovations, new products, and government policy shifts may spur dynamism and bring structural change from the public to the private entrepreneurial domain. The insurance industry could be a tangible outlet for private pension schemes with further openings in education, agriculture, health, transport, and social security for expatriate workers. The growth could be augmented by strict enforcement of regulations. Trust and market confidence must be the two gems through which insurance contribution to GDP may be augmented at a respectable level.

A well-educated and skilled workforce is also crucial for the growth of the insurance industry in Bangladesh. The perceptions and dexterity of insurance agents on the benefit against the impending cost need to be cultivated with a motivated and well-educated workforce.

“ I feel proud today that I have been able to render service to many people during my long association with the insurance industry. I have saved many families from possible ruination. During my association with this profession, I have created a great team of agents who have taken this profession and is rendering services with good income. ” [ Excerpt from the article, “Insurance as a career” by a legendary personality in the insurance industry, Khuda Bauksh].

The insurance industry warrants the development of professionalism through training and transparency, provides clear and comprehensive information about products and services, and excellent customer service. It ensures that the claims settlement process is fair and efficient, enhancing the public’s understanding of insurance benefits and fostering customer trust.

The writer teaches at BRAC University and BIDS as an adjunct Faculty in the Master’s Program in Economics. He can be contacted at mirobaidurr7@gmail.com.