Home ›› 12 Dec 2021 ›› Opinion
Insurance sector in Bangladesh emerged with two (two) nationalised insurance companies- one is life and another is general. The insurance sector began its operation just after independence. Afterwards, private sector insurance companies started fuelling its expansion. The country has a total of 78 life and non-life insurance companies. It is important to note that the insurance companies are being operated under Insurance Act 2010. Despite having more than six dozen insurance firms in Bangladesh, the contribution of insurance firms on the economy is very little. It can be safely said that the banking sector is the driving force of economy.
Basically, Insurance firms confirm financial protection for insurance clients. Despite being aware about insurance facilities, the overwhelming majority of the people are still not being connected with insurance policies. Only one per cent of total population in Bangladesh enjoys insurance services.
It needs to be noted that the sector is considered as an ailing sector in Bangladesh. The sector had been struggling to survive with its low penetration rate– the lowest among the South Asian countries. It is a matter of grave concern that the sector could not attract people with various types of products. But, in developed countries, the insurance sector is ahead compared to banking sector in terms of the number of customers. In Bangladesh, the banking sector is being seen as leading one. With decades-old insurance products, it is tough to attract people. Besides, the sector could not create confidence among the people. On the contrary, the banking world has become a much more reliable place to the citizens in terms of keeping cash or gold ornaments.
It is sad to note that Bangladesh is ranked the lowest in terms of life insurance penetration rate which is now less than 1.0 per cent of the gross domestic product (GDP). A study carried out by PwC revealed around 5.3 per cent life insurance penetration rate in Singapore, 4.10 per cent in Thailand, 3.30 per cent in Malaysia, 3.10 per cent in India, 1.20 per cent in Indonesia and Philippines, 0.70 per cent in Vietnam, 0.50 per cent in Brunei. According to Swiss Re, Bangladesh’s insurance penetration was 0.57 per cent in 2018, the lowest among the emerging Asian countries.
Among South Asian countries, Bangladesh has the lowest premium per capita. According to the World Bank the average gross premium income as a percentage of its GDP was 2.7 per cent in India , 1.27 per cent in Sri Lanka whereas only 0.51 per cent in Bangladesh . Globally Bangladesh ranks 86th out of 88 countries in terms of its premium per capita (US dollars) and 85th out of 88 countries in terms of its premium as a percentage of its GDP. Health insurance in Bangladesh in both private and public sector is virtually non-existent. The percentage of GDP spent on health is only 2.64 per cent - the lowest in South Asia. Close to nine per cent of households pay huge healthcare payments and seven per cent have to finance their healthcare costs by selling their assets.
The world’s regional distribution for life insurance premiums for 2015 shows 30.8 per cent in North America, 30.3 per cent in Western Europe, 19.6 per cent in Asia Pacific, 11.6 per cent in emerging Asia, 3.6 per cent in Latin America, 1.6 per cent in Eastern Europe, 1.3 per cent in MENA and 1.2 per cent in Sub Saharan Africa. In insurance sector, North America and Western Europe are much advanced compared to other regions. Premium growth depends on the demand for insurance products. According to OECD, in the life sector, the growth rate of gross premiums ranged from 29.9 per cent (Russia) to 13.0 per cent (Ireland) in 2018. Moreover, Latvia recorded the strongest increase in non-life gross premium in real terms in 2018 (18.9 per cent) followed by Sweden (12.7 per cent), Estonia (12.4 per cent), Egypt ( 10.1 per cent ).
With the aim of raising insurance penetration rate in Bangladesh, the central bank and the Insurance Development and Regulatory Authority (IDRA) are carrying out studies. As part of the move for raising insurance penetration rate, bancassurance concept could have been introduced sooner. Bancassurance means selling insurance products through banks. The concept is not old at all. Bancassurance concept first came into operation in France in 1980. The USA welcomed this concept in 1999. South Asian countries- India, Pakistan and Sri Lanka are now enjoying the benefits of bancassurance. India launched this service in 2000. Bancassurance is a win-win strategy for the banks, insurance companies and also the customers. It is mentionable here that the global market size of Bancassurance reached around $ 1,166 billion in 2018. The study shows that around 40 to 50 per cent of insurance markets is controlled by banks in Europe. In France and Portugal, around 70 per cent of insurance products are sold through banking channel, while in Spain it is 60 per cent.
It is good news that the insurance regulator, IDRA (Insurance Development and Regulatory Authority) set the target of reaching 4.0 per cent insurance penetration in the country by 2021 through kick-starting the bancassurance concept.
The risks that are associated with bancassurance concept have to be minimised. The policy guidelines related to bancassurance framed by IDRA has to brief regarding details. It is alleged that insurance firms make delays in settling claims lodged by the clients. If the claims remain unresolved for a long period, bancassurance concept might not be successful. The banking sector is set to experience more than expected deposit volume through selling insurance products. So, it can be said that both insurance firms and banks would equally be benefitted through the introduction of bancassurance. Shortly after getting the nod from finance ministry, the central bank might send necessary directives to banks for taking elementary preparations aiming to sell insurance products. Arranging programmes, workshops and training sessions on the bancassurance concepts is a must if we look forward to a good outcome from the concept. Bangladesh might borrow ideas from India and Nepal regarding the bancassurance issue. India and Nepal became successful after introducing bancassurance concept within the shortest possible time.
Bangladesh need not be worried about the new concept. Bangladesh is likely to be successful in the matter of bancassurance concept since its per capita income coupled with disposable income is growing day by day.
The writer is an economic affairs analyst. He can be contacted at: mazadul1985@gmail.com
