Will bancassurance improve Bangladesh's insurance landscape?

The insurance companies in the country have long been suffering from image crisis and lack of trust, as a result of which the insurance penetration rate is low. The insurance penetration in Bangladesh is only 0.40 percent, when in neighbouring India the rate is 4 percent, according to the Swiss Re Institute's 2022 report.

In July this year, the Financial Institutions Division of the Finance Ministry approved a plan to roll out bancassurance in the country. 

The Financial Institutions Division instructed the Bangladesh Bank to publish a gazette for its 'Bancassurance Guideline' for scheduled banks, based on which they would operate as insurance agents. Last month, the Ministry of Finance wrote to Insurance Development and Regulatory Authority (IDRA) and the Bangladesh Bank to modify their draft guidelines as per the changes agreed upon by the stakeholders, and the IDRA did accordingly. 

The ultimate guidelines, based on which bancassurance operations would run, now await the ministry's approval. IDRA chairman Mohammad Jainul Bari said that bancassurance will be launched soon.

The concept of bancassurance is to sell the insurance service through the banks' customer base. The insurance company chooses banks as a channel for selling their insurance products, while the bank will receive commission on selling the products. The target for the insurance companies is to build up a wider customer base. This is done to expand the business and to increase the insurance penetration rate.   

"If the insurance companies were transparent and they could settle the claims of the customers, and the customers were happy with the companies, then there would be no question of needing bancassurance," said Professor Main Uddin of the Department of Banking and Insurance at Dhaka University.   

If the insurance companies were transparent and they could settle the claims of the customers, and the customers were happy with the companies, then there would be no question of needing bancassurance.

Professor Main Uddin

Trust and transparency impact insurance penetration  

The banks in our country have a better reputation than insurance companies. There are many banks that are performing very well. If these private banks sell insurance products, they will do so considering their goodwill in the market. They will try to maintain the quality while providing the service.

As a result, the lack of trust in the insurance companies is expected to be minimised to a great extent. 

When it comes to the bancassurance, if a company does not settle the insurance claims, along with the insurance products, the other products of a bank will be affected. The insurance performance will affect the total banking performance. 

For this reason, banks will never want to do bad in terms of insurance and taint its goodwill in the process. Insurance products are after all their secondary products.

As the number of insurance companies in our country is twice of what is necessary for an economy the size of ours, all the insurance companies may not survive in the competition. As a result, the number of insurance companies will be rationalised.

"If banks sell insurance products, I think, claims settlement rate and competition will increase along with transparency," said Professor Main Uddin.

If banks sell insurance products, I think, claims settlement rate and competition will increase along with transparency.

Professor Main Uddin.

Conventionally, insurance agents are blamed for using misinformation in the documents, in the hopes of getting a higher portion of commission in the first years from the company.

"I think the degree of misinformation will come down through bancassurance. Bankers will not fill in the form with misinformation and if it happens, you have the scope of going to the bank manager," said Main Uddin.     

Lion's share of asset insurance remains in the hands of insurance companies

Bancassurance will not include two non-life insurance products: fire and marine insurance. These two non-insurance products make up 74 percent of the non-life insurance sector.

"I think it is alright in the sense that the bank's main products are banking service. If all windows of the insurance are open for banks, then the insurance company can demand that banking services should be made open to them," said Professor Main Uddin.

When asked, Sheikh Kabir Hossain, the president of Bangladesh Insurance Association told The Business Standard that it was a good initiative for life insurance. 

He said that insurance companies cannot encourage people living in the rural areas across the country to buy life insurance products. But banks have branches across the country. 

"When they approach a customer to sell insurance products, people will believe them," said Sheikh Kabir Hossain.

"I believe that it is an important step for life insurance. Life insurance is insurance in the real sense of the word," he added.

When asked about the exclusion of fire and marine insurance, Kabir Hossain said that when banks give loans, they informally recommend the customers insure with a specific company.

"It already exists between banks and insurance companies informally," said Sheikh Kabir Hossain.

He said that mega projects around the world are implemented with the money from insurance. He said it will play an important role in the economy and increase growth.

Sheikh Kabir Hossain said that when the bank will sell insurance products, the rate of claims settlement will increase, and insurance companies can not appropriate the money. The money will be kept in the bank. There is a matter of reputation of the bank here.

He said that the insurance sector will see a positive growth and at the same time, people's trust in insurance will increase. 

It will be a win-win situation for banks as well as the insurance companies

SM Ibrahim Hossain.

A win-win situation 

State-run think-tank Bangladesh Insurance Academy's director SM Ibrahim Hossain said that insurance companies will get ready customers from banks, and at the same time, people will trust the insurance because banks are providing the products. Banks will not need any additional set up for selling insurance products. 

"It will be a win-win situation for banks as well as the insurance companies," said SM Ibrahim Hossain. 

Some insurance agents can think that their business may come down. He said that some of their business will come down, but it does not matter, because when their company's insurance will be sold through banks, the image of the company will improve and these agents will be benefitted.

Ibrahim Hossain also said there are many places in the country where there are no bank branches, and in those places, NGOs can work as a corporate agent for insurance companies.