Bangladesh's insurance industry remains beset with chronic problems that have been unresolved for long. Poor claim-settlement ratio, higher management expenses, improper investment of life funds, lack of innovative insurance products, solvency-margin rule, and job guidelines are a few of such ills facing the industry that holds high potential in a graduating economy.
Of course, the regulator - the Insurance Development and Regulatory Authority or IDRA --- has taken some measures on some issues over the years. But there has been no significant development as yet. The regulatory body, formed sometime in 2011, shied away from issuing solvency-margin rules and job guidelines for the industry. Solvency-margin and job guidelines are very much important for the industry to thrive on.
The insurance industry, having penetration at around 0.4 per cent of the country's GDP, needs to be cured of the inherent problems for the sake of its long-and short-term sustainability.
Official data available with Bangladesh Bureau of Statistics (BBS) indicate that the economy is rapidly shifting from agricultural to services sector. So insurance sector's contribution to the economy should have been increased. But it is not reflected in the state of insurance industry.
Inherited problems have, meanwhile, bred trust deficit in the industry. Skilled and qualified people stay away from the industry for lack of job guidelines.
Let's delve into the insurance market's chronic problems. First comes solvency-margin ratio which gives insights into the company's cash flow as well as whether this cash flow is capable of meeting liabilities - both long-term and short-term ones.
Soon after the establishment of the IDRA, its then chairman, Mr. M. Shefaque Ahmed, took initiative to issue a solvency-margin rule for the industry. But, finally, it did not happen. Since then, there has been no move made in preparing such a rule. A number of life insurers have been continuously failing to meet the liabilities simply because of the absence of such rule to comply with which actually ensures adequate funds for future liabilities.
However, currently, there are few insurers (I know) who maintain a fund for meeting their future liabilities as per the recommendations made by their respective actuaries. The actuaries actually follow the solvency-margin rule of India in absence of the same in Bangladesh. India issued the rule sometime in 2000.
The life-insurance industry has an around 40,000-strong manpower. Almost all the people entered the market without any screening. State-owned life insurer --- JibanBima Corporation (JBC)--and MetLife usually hire people by following recruitment process. On the other hand, some 33 out of 35 life insurers hire people without any screening. As a result, there are no quality people and services in the industry.
MetLife's share in the life segment of the industry in Bangladesh is almost 30 per cent. The once-titled American Life Insurance Company or ALICO has over 300 employees. The remaining 39,700 people work for the remaining 70-percent market share. This clearly indicates poor productivity of the majority employees, i.e., 39,700 people. MetLIfe applies digital platforms to procure business and settle claims while the local counterparts cannot do the same. One of the reasons behind it is the unskilled manpower in the industry.
There are three main bets for attracting merit-based people for the industry: (1) attractive remuneration package (2) job ladders and (3) post-employment benefits. Unfortunately, all three look to be a far-fetched dream here.
There is a role of the IDRA in issuing guidelines for hiring for the sector. The central bank of Bangladesh does have guidelines. Even it has recently given a lower limit of benefits. The Bangladesh Bank has fixed a minimum wage of Tk39,000 for private bank officials subject to completion of their probation period. According to the notification, the minimum monthly wage for trainee assistant officers (general and cash) will be Tk28,000 during their probation period. Also, office assistants, including security guards, cleaners and messengers, will get Tk24,000 as the minimum wage.
Claim-settlement ratio plays key role in choosing the policies. This is a percentage of claims that an insurer has paid out against the number of outstanding claims during a fiscal year. According to the latest report prepared by the insurance regulator of Bangladesh - IDRA - the claim settlement is around 70 per cent.
Higher management expense is another entrenched problem. This means that insurers procure business at higher costs amidst the digital environment. There are many digital platforms to procure business. Mobile financial services platforms can be used for collecting premiums, which is more cost-effective than the conventional methods. And this is also a transparent methodology to maintain the ledger.
Insurance companies invest their funds through a rule issued by the IDRA. They have to invest in government securities which are risk-free at about 30 per cent. They can invest 20 per cent of their assets in undisputed immovable assets located within city corporations and municipalities. A significant amount can be invested in FDRs, including in non-bank financial institutions. The returns on the investments have shrunk due to the fall in the interest rate for the FDRs. Actually, the investment of the insurers should be monitored strictly as many invest in some risky areas by violating the rule.
Bangladesh has huge insurance products that differ in name only, not in nature. As a result, clients are not showing interest. The industry needs innovative and time-worthy products. Insurance for children and health insurance are among products imperative for a sustainable industry.
And last, but not the least, by any means, there is now need to conduct a reform to eradicate the chronic problems. This is not easy to do and even it may need commitment from the government high-ups otherwise the reforms processes will be stamped out.
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