Home ›› 01 Feb 2022 ›› Opinion
In Bangladesh during the 1970s, the government owned Jiban Bima Corporation (JBC) and Sadharan Bima Corporation (SBC) were the only providers of life and general insurance coverage for individuals and business properties. At that time, the industry did not take innovative measures for product development. In Bangladesh, the first private insurance company was set up in 1985. At present there are 79 insurance companies operating in the country of which there are 33 life and 46 non-life companies. In a developing country like Bangladesh insurance companies can play a very important role in the economy. Though insurance industry has very good prospect in the economy, for some reasons it has failed to achieve its goals. If we know the real reasons then we can take the necessary steps to remove them. There are 79 insurance companies operating in Bangladesh.
The population of the country is about 170 million and only 10 million people have life insurance policies. In non-life sector 79,754 small and medium enterprises are in operation out of which 93.6 per cent are small and 6.4 per cent are medium. According to the Bangladesh Road Transport Authority (BRTA) statistics, at this moment there are 50,00,000 vehicles which are registered. Only a few of these have first party insurance. More than 5,000 garments industries are doing business in our country and those have group insurance. Thousands of launches are plying in the waterways everyday in our country and they need insurance for passengers. Bus and railway passengers also need insurance. In addition to this, all fixed assets like building and factory need insurance coverage.
Insurance penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP. Insurance penetration in Bangladesh is very low at only 0.59 per cent. This rate is the lowest in the South Asia. Low insurance penetration and high protection gap indicate a significant deficiency across the entire insurance ecosystem in Bangladesh.
Insurance density is used as an indicator for the development of insurance within a country and is calculated by the ratio of total insurance premium to whole population of a given country. Insurance density in Bangladesh is only $8.75 where as in India this rate is more than $80.
A vast majority of the people, especially in rural areas are left outside the insurance coverage. This mainly results from the awareness level among people. A large number of the people do not have the minimum idea about insurance. In other words, the negative attitude from the people is preventing them from opting for insurance coverage.
Most of the insurance companies in our country are located in urban areas and there are only a few branches in rural areas. They apparently do not consider the fact that the majority of our population reside in rural areas. So this centralization policy acts as an obstruction for the growth of insurance business in our country.
Lack of financial literacy adversely affects the marketing of insurance. About 70 per cent of the population is floating in the sea of ignorance, when it comes to insurance. Lack of financial literacy leads one to think that insurance is some sort of deception, it is of no value in life and they do not know what is insurance and what its importance is as security for future.
Many insurance agents are not skilled enough. These agents cannot perform their jobs properly to make the people aware of the benefits of life insurance.
The insurance companies are facing higher cost of business nowadays. They say that government tax, house rent, utility bills, commission fees, stationeries costs are growing day by day. But their business is not growing at that rate. Most of the insurance companies of our country are facing financial problems. Recently, the government is trying to take initiatives to close some of the insurance companies because they are not maintaining the minimum standard. For poor financial condition the insurance companies are also unable to increase the number of their branches which is a barrier for the growth of insurance business in Bangladesh. Many people of Bangladesh have a very small saving potentiality and have little or no disposable income. Their income may not deem to be sufficient for the payment of premium. So this factor discourages them to buy life insurance policies.
Lack of surveillance from relevant government ministries encourages many insurance companies to adopt unethical practices like harassing policy holders and tampering with the financial statements. Sometimes, the government imposes some conflicting rules and regulations without discussing with insurance companies’ regulating body. It creates conflict between insurance companies and the government and this in one of the main hindrances regarding boosting insurance business.
To take an insurance policy there are a great number of rules and regulations which must be adhered to by the insured person. This rules and regulations are full of complexities. So the people are often discouraged to take an insurance policy.
Almost all the insurers and policy holders have reservations about the licensing system for insurance companies. They identified it as a major hurdle faced by new insurance businesses. The government does not evaluate their documents of application with due consideration and unnecessary delays of approval.
Bangladesh is one of the fastest growing economies in South Asia with an ever expanding GDP. However insurance penetration (0.59) has not grown in line with GDP growth and it is one of the lowest in global emerging economies. In line with the government’s vision of driving insurance penetration in the country, the insurance regulator IDRA (Insurance Development and Regulatory Authority) of Bangladesh aims to develop the insurance market in Bangladesh by addressing root level issues. As well as the problems mentioned above, there are many good signs for the insurance business in Bangladesh. The GDP of our country is resulting in increase of per capita income. So this growing GDP and income holds bright prospects for insurance companies.
There are so many new businesses starting every day and the manufacturing sector is booming with global demand. There is a big opportunity lying ahead for the insurance companies as the population of our country is increasing day by day. This growth of population opens greater scope for every kind of insurance business. And that results in growing prospect for insurance companies.
Micro insurance can be a great prospective area for the insurance business in our country. Most of the people in our country are unable to have costly and long term insurance policies. Micro insurance can be provided to individuals small business owners against low insurance premiums with easy terms and conditions.
Nowadays, along with traditional insurance services companies can offer various non-traditional insurance services to their customer. Target market of insurance company may expand and they can offer different types of non- traditional insurance services such as health insurance, personal accident insurance, travel insurance, burglary insurance and pension schemes.
Insurance companies can usually make profit from investment activities than from their regular insurance business. The private insurance companies are realising this fact and planning their future role in the financial market. They are making large investments in government bonds, ICB projects and in private sector business.
Insurance is not just a tool of risk coverage. It is also an attractive way of savings. The mixture of risk coverage with savings gives the opportunity for innovative product designing which means service diversification. In a dynamic insurance market one can expect to see new products being promoted at regular intervals.
Sadharan Bima Corporation (SBC) has long been the sole reinsurer in Bangladesh and private insurance companies were legally obliged to place 100 per cent of their reinsurance business with SBC. In 1990 the government amended the relevant provisions of the Insurance Act allowing 50 per cent of all reinsurance of general insurance business to be placed compulsorily with SBC and the rest to private locally companies. About 70 per cent of premium income from general insurance business in Bangladesh in retention reinsurance and the rest 30 per cent goes in to reinsurers abroad. Permissions to private insurance companies to act as reinsures will open up new opportunities to them.
The economy of Bangladesh is predominantly an agrarian one, with a huge number of people engaged in farming and fishing. The uncertainty of agriculture due to crop failure caused by climate variation, drought, cyclone and flood affects farmers’ income as well as government revenue. Various agriculture insurance services are becoming common these days. Demand for insurance protection against crop loans, livestock loans, fisheries loans and equipment loans are also increasing day by day.
Nowadays in Bangladesh the SME sector plays an important role in economic development. But they are deprived from taking large amount of loans from banks. If insurance business focuses on this sector in Bangladesh they are able to contribute more to the economy. Thus insurance business has a bright prospect in business sector in a developing country like Bangladesh.
Insurance is very important to the business sector and also for individual citizens. Most of the companies provide more or less the same services. For this reasons competition is increasing day by day between the insurance companies. At present a company cannot be established properly without developing a high-tech information technology infrastructure. People search their desired requirement through the internet. So, insurance companies need to develop internet visibility to increase both foreign and local investors.
Recently IDRA (Insurance development and Regulatory Authority) circulated some rules and regulations to ensure the transparency, accountability, accuracy and compliance of all government and private sector insurance companies. It is hoped that these measures will bring positive changes in the sector.
The writer is Director, Insurance Development and Regulatory Authority of Bangladesh.
He can be contacted at [email protected]
