Bangladesh has one of worst lapse rates in insurance: regulator

Private insurers in Bangladesh have one of the worst lapse rates globally, due to policyholders' ignorance and companies' wrong strategies, according to the Insurance Development and Regulatory Authority or IDRA.

The lapse is the rate at which policyholders fail to pay their premiums in time, leading to cancellations of insurance coverage.

In Bangladesh, the first year lapse rate for private insurers is in the range of 60-70 percent, much higher than in other countries, the IDRA said citing data from the companies.

The rate is 10-15 percent in India, 40 percent in Sri Lanka and 45 percent in Pakistan. Hong Kong has a lapse rate of 10-20 percent. The rate is far lower in the developed world.

“Private companies are selling policies in rural areas, where people don't have much knowledge about insurance. Insurers are still unable to tap the richer segments of society,” said Ekramul Ameen, managing director of Best Life Insurance, a new company that hit the market last year.

Ameen has a long career in the industry including experience in heading National Life Insurance and Fareast Life Insurance.

“The insurance sector faces a severe shortage of skilled manpower. There is also no campaign to sensitise people about insurance,” he said, explaining the high lapse rate in the country.

The IDRA blamed the private insurers' wrong strategies for the worst lapse rate.

“Many insurers make false policies to show inflated premiums. Later, these policies end up as lapsed,” said a senior IDRA official.

Some private insurance companies also backdate many policies; for example, someone opens a policy in April or May of 2014, but insurers show it in the account books of December 2013. When the insurer wants renewal fees in next December (after 6-8 months), policyholders get puzzled as one year had not passed then. Ultimately, the policyholder does not renew the policy.

Private players entered the market three decades ago; only two companies -- state-owned Jibon Bima Corporation and foreign-owned MetLife (former Alico) -- were previously in the market. At present, 31 private companies are in the market, of which, 12 were given licences in 2013.

There were 80 lakh policyholders in Bangladesh, according to the last count in December by the IDRA. The total life fund of these policyholders stood at Tk 25,000 crore ($3.5 billion). 

MetLife, which has been in operation here since 1952, is the market leader with over 14 lakh policyholders. MetLife's average lapse rate is only 0.52 percent, according to a senior official of the company.

He, however, said MetLife's first year lapse rate will be higher than its average rate.

According to IDRA, the first year lapse rate of the company will be 10-15 percent, which is also on par with global standards.

“Our business strategy and efforts give us results, which is reflected in the low lapse rate,” said Munirul Islam, head of communications of MetLife.

“Discontinuation of a policy is a loss for the company as well. We undertook renewal campaigns to reinstate the lapsed policies,” Islam said, adding that the campaign yielded good results.

The IDRA has taken some moves to reduce the lapses of private insurers.

“We told insurers not to backdate any policy,” said Shefaque Ahmed, chairman of IDRA. “Every insurer has been asked to submit information on its annual business by January 30, so that they cannot backdate any business.”