Insurance penetration correlates positively with GDP

Md. Ashanur Rahman, Chief Economist and Country Business Manager at City Bank PLC, has played an important role in Bancassurance development in Bangladesh. As a member of Bangladesh Bank's Technical and Guideline Preparation Committees, his influence has been profound. Under his leadership, City Bank secured the first Bancassurance licence in the country from Bangladesh Bank and the Insurance Development and Regulatory Authority (IDRA). He talked to The Financial Express in an exclusive interview recently. Following is the full text of the interview:

Question: How will, you think, the partnership between banks and insurance companies promote bancassurance in Bangladesh?

Md. Ashanur Rahman: The collaboration between banks and insurance companies has significant potential, going beyond mere numerical addition. Public trust in banks as financial custodians remains strong. Bancassurance emerges as a strategic solution to transparency challenges, utilizing the trust and customer base of banks to educate customers and sell insurance policies. While initial hurdles may exist in conveying the value of insurance, bancassurance offers banks a promising opportunity to diversify revenue streams.

Furthermore, bancassurance has broader economic implications. Studies, like PwC's, demonstrate a positive correlation between insurance penetration and economic growth. A modest increase in insurance penetration can notably boost GDP, providing financial security and risk mitigation for individuals and businesses. Given Bangladesh's low insurance penetration, collaborative efforts between banks and insurance companies can drive financial inclusion, enhance transparency, and stimulate economic growth.

Question: What factors you think have hindered the growth of Bangladesh's insurance industry, given its low penetration rate compared to neighbouring countries like India?

Md. Ashanur Rahman: Bangladesh's insurance industry faces significant hurdles compared to counterparts in South Asia, East Asia, the USA, and Europe. With a 0.40% insurance penetration rate, lack of trust in insurance products persists, partly due to religious beliefs favouring divine protection. Sales pitches often focus on negative aspects without explaining risks, leading to consumer apprehension. Regulatory challenges, including shifts between ministries, result in coordination issues and delayed claim settlements, eroding trust. In contrast, India successfully implemented bancassurance in 2000, while Bangladesh has been slower to adopt it. Strengthening regulatory bodies and unifying oversight could improve governance. Aligning regulatory bodies' pace and ensuring autonomy are crucial for enhancing insurance penetration and trust in Bangladesh's insurance industry.

Question: How can banks reassure policyholders in Bangladesh amidst the erosion of trust in the insurance industry?

Md. Ashanur Rahman: In bancassurance, banks serve as vital intermediaries, facilitating the sale of insurance products to their clients. It's important to clarify that while banks actively promote insurance products, they don't bear the associated risks. Instead, they provide a platform for insurance transactions to occur, connecting clients with insurance offerings that meet their needs.

For individuals to engage in selling insurance policies under bancassurance, obtaining a licence from the Insurance Development and Regulatory Authority (IDRA) is crucial. This licensing process ensures that selling agents have a comprehensive understanding of insurance products, as well as the relevant rules and regulations. This thorough understanding is essential to prevent any unethical practices and to ensure that clients are well-informed about the products they are purchasing.

Moreover, selling agents need to understand why clients seek insurance and recommend the most suitable products based on their specific needs. It's imperative that agents also explain the conditions that determine when an insured individual can make a claim. This transparency helps build trust and ensures that clients fully comprehend the terms of their insurance coverage.

From the client's perspective, there may be a tendency to provide inaccurate information to minimize premiums, such as withholding details about medical conditions. However, this can lead to complications during the claims process, as insurance companies may reject claims based on undisclosed information. Therefore, it's essential for clients to accurately disclose all relevant information to avoid any potential issues in the future.

To address these challenges, insurance companies can focus on simplifying policy conditions and making them more understandable for clients. Additionally, there needs to be a concerted effort to increase awareness among both sellers and clients about the importance of accurate information disclosure and understanding policy terms. Through collaborative efforts and enhanced awareness, these challenges can be gradually mitigated over time, leading to a more robust and trustworthy insurance industry.

Question: Why were marine hull, marine cargo, and fire insurance, which constitute over 80% of non-life insurance premiums, excluded from bancassurance by the Bangladesh Insurance Association (BIA)?

Md. Ashanur Rahman: From my point of view, the decision to exclude non-life insurance products from bancassurance has both positive and negative implications. Strengthening the Insurance Development and Regulatory Authority (IDRA) could improve transparency and accountability in the insurance industry by regulating activities like claim settlements and enforcing penalties for deficiencies in reserves, reinsurance treaties, and management quality.

However, non-life insurance products pose greater complexity compared to life insurance, which may present challenges for bancassurance, especially in a market where the concept is still evolving. Initial focus on life insurance allows for smoother integration, enabling the industry to address challenges and gain insights into customer behaviour and market dynamics. This learning process will help take informed decisions in future and pave the way for gradually bringing non-life insurance products under bancassurance.

Navigating these challenges is crucial for successful adoption and sustainability of bancassurance. Continuous learning and adaptation will be essential to maximize insurance penetration in the market.

Question: How can banks devise strategies to bring the unbanked population, who are also unable to access insurance due to income inequality and lack of awareness, into both banking and insurance channels in Bangladesh?

Md. Ashanur Rahman: I agree that addressing various factors influencing insurance premiums in Bangladesh is vital for the success of bancassurance. The relatively low number of insured individuals contributes to higher premiums and can hinder claim settlements without substantial reserves. Increasing insurance uptake over time can help mitigate this issue through economies of scale.

Additionally, certain insurance products like Term Insurance are underutilized due to misconceptions and lack of awareness about their benefits. Educating the public about the importance and affordability of diverse insurance products is crucial to dispel such misconceptions and encourage uptake.

Efforts to raise awareness about the value of insurance and ensure transparent communication from policy sellers are essential to combatting the perception that insurance is unnecessary. Updating actuarial calculations to reflect current life expectancy in Bangladesh can also lead to more accurate premiums, further enhancing accessibility.

In conclusion, bancassurance can address these challenges by fostering collaboration between banks and insurance companies, promoting education, and enhancing transparency to make insurance more accessible and beneficial for the people of Bangladesh.

Question: How can banks harness InsurTech to make insurance more accessible and boost its prospects in Bangladesh, given IDRA's 2023 Sandbox Guidelines and collaboration with about 10 tech firms?

Md. Ashanur Rahman: The future of bancassurance hinges on embracing technology, with digital channels gaining traction among progressive banks. Placing insurance offerings on platforms like Citytouch streamlines processes and enhances accessibility for tech-savvy clients. However, recognising diverse preferences and access, physical channels remain crucial, especially for those in remote areas or with limited tech proficiency.

Efforts to enhance insurance literacy include addressing malpractices, preventing tied selling, and certifying insurance sellers to uphold ethical standards. Establishing a dispute settlement committee between banks and insurance companies aims to expedite claim resolutions and foster collaboration. Strong measures against malpractices underscore the commitment to transparency and ethics in the bancassurance landscape.

Question: How can insurance penetration in Bangladesh be improved?

Md. Ashanur Rahman: Improving insurance penetration in Bangladesh requires collaboration with regulatory bodies to encourage innovation and establish transparent guidelines for consumer protection. Exploring alternative distribution channels like bancassurance can extend coverage to underserved areas. Additionally, awareness campaigns through various platforms and the introduction of customizable products and microinsurance tailored to diverse needs can enhance accessibility. Embracing digital technologies further streamlines processes, especially in regions with limited infrastructure, ultimately increasing insurance coverage for the population.