The initiatives so far taken by the government over the decades to boost the non-responsive life insurance sector of Bangladesh have not been enough to drive any radical change, other than a few steps taken in the last four years or so by the IDRA (Insurance Development and Regulatory Authority), which has come into force under the Insurance Development and Regulatory Authority Act, 2010.
However, the news of implementation of the 2013 regulatory order for allowing 60 per cent foreign direct investment (FDI) in the insurance sector is positive enough for the nation's financial services industry, because new entrants will introduce competitively priced and need-based products for easy acquisition and/or retention of consumers and thus the service standard will get a lot better. IDRA Chairman Shefaq Ahmed said that the local market would be more competitive, if the foreign insurance companies enter the market. If the LIC and Taiyo Life transfer their technical know-how and advance management techniques to Bangladesh, the local insurance industry would be benefited, he added.
FDI in other jurisdictions: Out of 24 life insurance companies in India, Life Insurance Corporation of India (LIC) is the public one and the rest are mostly in operation through joint ventures with global insurers. Only 0.2 per cent of the total population of India is covered under the Medi-claim insurance services whereas the rate in a developed country like the USA is 75 per cent. Foreign participation in an Indian insurance company was restricted to 26.0 per cent of its equity/ordinary share capital until March 2006. However, in the budget for the year 2014-2015, the limit for FDI has been increased to 49.0 per cent in order to attract more investments in insurance. Thus the government of India pressurises the insurance company for more penetration through customised products and services.
In Indonesia, foreigners may invest in an Indonesian insurer up to 80 per cent of the capital requirement under the current insurance laws. With the prior approval from the government, the investors can increase the shareholding beyond that percentage, if the local investors cannot afford the remaining 20 per cent. Moreover, they must have experience of writing the same line of business as intended to invest in. Additionally the investors must have a minimum 'A' rating from an internationally-recognised ratings agency and have the capital of at least five times their investment.
FDI in Bangladesh market: In a recent move, two foreign insurance companies achieved preliminary approval from the IDRA. One is Taiyo Summit Life Insurance Company, a joint venture with the local Summit Group, and the other is Life Insurance Company (LIC) of Bangladesh, which is sponsored by Pioneer Insurance Company Limited, a sister concern of Square Group, Bangladesh. The government has plans for increasing the limit for FDI to 83 per cent and the paid-up capital requirement to BDT 1.0 billion (100 crore) for life companies (currently the paid-up capital requirement is BDT 40 crore or 400 million). The additional paid-up capital requirement may compel local insurers to establish global partnership as is done in Indonesia and Botswana, which will bring more investments in the sector.
The market structure: Following the independence of Bangladesh in 1971, the insurance industry was nationalised in 1972 and the government established four insurance corporations and in 1973 the structural arrangement of nationalisation was changed into two corporations: (a) Sadharan Bima Corporation for transacting non-life insurance business; and (b) Jiban Bima Corporation for transacting life insurance business. In 1984 following changes in the government policies, private insurers were allowed. Currently, there are 32 life insurance providers (01 in the public sector, 30 private and 01 foreign) in the country. But insurance penetration in comparison with neighbouring countries is still very low owing to the fact that the industry is faced with the challenges like creativity in need-based product design, determining affordable prices, delivering excellent claims services and, above all, an acute lack of skilled insurance professionals across the sector. With the advent of two newly-established companies, the number of foreign insurers will reach three. They are supposed to make use of their international experiences while dealing with the local policyholders. Resultantly, the existing insurers will leave no stone unturned to retain their market share through innovation and professionalism.
Prospect for investors: As the customer currently gets no risk improvement advice other than conventional and non-focused insurance solution based on the premium rate set by the Central Rating Committee (CRC), a wing of IDRA, the expectations of the customers exclusively revolve round the cost-effective and tailor-made products and the prompt settlement of claims. Now-a-days they want online services such as online policy issuance, online complaint submission, online claim handling as well as settlement as has already been in place in the banking sector. Innovative marketing methods and distribution channels i.e., Bancassurace can also be introduced as the existing penetration rate indicates great potential for professional insurers.
To-do list for existing insurers: Because of the new entrants in the market, the level of competition amongst the players will be greater than before. No doubt, the fittest will survive. The companies should pay heed to the core businesses such as offering tailor-made products, dedicated customer services, online payment gateways, sophistication in claims handling, advertising, and modern marketing techniques.
To sum up, the increasing FDI in the insurance sector will pave the way for a major shift in product designs and standard of customer services. The enhanced customer protection and innovative life insurance products definitely will increase the penetration rate in the life insurance segment, which will create saving habits among the vast majority of the uncovered population. As a result of the increase in national savings, new funds will result in more investment and development of the country and simultaneously protection from risks.
The writer, associated with the Reliance Insurance Limited, Dhaka, is a member of the Chartered Insurance Institute (CII), London. abdulkadir@reliance-bd.com
Welcoming FDI in insurance sector
Abdul Kadir Dip | Published: June 11, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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