A bank-insurance-partnership business model, nicknamed 'Bancassurance', comes as a hope-raiser for rejuvenating insurance through its wider penetration in the economy.
Prime Minister Sheikh Hasina is likely to announce the launch of Bancassurance today (Friday) when she formally inaugurates the National Insurance Day celebrations.
Bancassurance is a process of selling insurance products through banking channels. The hybridization is done by combining two words-- bank and insurance (in French)--which connotes the distribution of insurance products through banking operations.
This model gives banks, with their nationwide network of branches and a large number of customers and workforce, a better platform to sell insurance policies than the insurance companies themselves. Local people have much more trust in banks than in insurers, especially as function of some of them appears translucent.
Many sound upbeat in assuming that this model will help raise insurance penetration in terms of GDP, which now limps below 0.5 per cent. This will enhance financial inclusion by insuring the uninsured. Such partnership will provide insurance services under the banking umbrella and so ensure non-traditional revenues for banks which in turn also sometimes feel cash crunch.
However, there are many challenges associated with the bancassurance business in Bangladesh where the financial market has yet to circumvent umpteen adversities.
The number-one detractor is the overall perception of insurance is negative in people's mind. A prevalent notion is that the insurers do not settle claims timely. That is, there is mistrust on insurance and also is there image crisis. Many insurance firms are not financially sound as they have disproportionately higher management expenses.
The number two as a challenge is a lack of innovative and diversified products. Bangladesh now has over 500 insurance products. But they are, more or less, similar. Banks need their own products that will suit their customers. Here the products may vary bank to bank.
"And mostly interestingly, a number of the products available on the market are not derived from actuaries. Such products are available in micro-insurance, including DPS products," says one insider.
The insurers often allege that Bangladesh has few actuaries to make insurance products. However, the insurance regulator, IDRA, allows international actuaries for life-company valuation and product development. So any company can hire international actuaries.
The number-three drawback is many insurance companies still operate manually. They are not automated. There are some insurers who have online services, but there is still a lack of digitisation. On the other hand, the banking sector is much ahead in terms of going digital attuned with the changing global milieus.
The banking industry lacks people having a good understanding of insurance products and marketing. Experts feel they need to be trained before introducing bancassruance. Bangladesh Insurance Academy is a government-owned institute that may be an ideal place for the reskilling of bankers on the tricks of the new trade.
But there is also a number of opportunities to be derived from the partnership business. Some 61 banks are now in operation with a nationwide network of branches in both urban and rural areas with around 140 million bank accounts. The banks can facilitate the insurance business easily.
Banks have much public trust than insurance firms do. Both rural and urban economies are growing. The rate of literacy is growing in rural areas, too. Also going is financial literacy. Almost all banks are online and leading banks have mobile financial services or MFS and agent banking.
"There are huge beneficiaries of formal- channel remittance inflow. Their relatives and spouses may be brought under the insurance coverage," says many an economist.
Insurance penetration in Bangladesh remained one of the poorest in the world which is believed to be one of the measurements of assessing the development of the insurance business. Bangladesh has less than 0.5-percent penetration in terms of the GDP.
Bancassurance originated in Europe in the 1980s, and it has now become popular all over the world. The global bancassurance market reached around USD$ 1.2 billion in 2019.
Europe has the biggest market of the new-generation financial tool. it represents over 65 per cent of the premium income in life Insurance in Spain, 60 per cent in France, 50 per cent in Belgium and Italy.
Emerging markets such as China and India are exhibiting high growth potential for the bancassurance market. This bank-insurance coupling is available in SAARC countries Bhutan, India, Nepal, Sri Lanka, and Pakistan.
Currently, there are 61 commercial banks in Bangladesh operating under the Bank Company Act 1991 and regulated by Bangladesh Bank established under the Bangladesh Bank Order 1972.
On the other hand, there are 82 insurance companies --- 36 life and 46 non-life ---operating under the Insurance Act 2010 and regulated by the Insurance Development and Regulatory Authority (IDRA) established under the Insurance Act 2010.
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