Insurance losing pace

Insurance penetration has been declining for the past several years, even though the country's major economic indicators have been growing steadily for over a decade now.

In Bangladesh, overall insurance penetration, both life and non-life, stood at 0.72 percent in 2015, down from 1.13 percent in 2010, according to Swiss Re, a leading global reinsurer.

Of the penetration rate last year, 0.53 percent came from life and 0.19 percent from non-life insurance companies.

The insurance penetration rate indicates the level of development of a country's insurance sector. It is measured as the ratio of premium underwritten in a particular year to the country's gross domestic product.

Data shows the penetration rate continued to slide down in Bangladesh since 2010. The rate was 1.02 percent in 2011, 0.95 percent in 2012, 0.85 percent in 2013 and 0.70 percent in 2014.

But the penetration rate is much higher in other South Asian countries and Bangladesh's peer nations across the world.

Insurance penetration was 3.4 percent in India last year and 1.06 percent in Sri Lanka. The penetration was much higher in Vietnam, Kenya, Angola and Pakistan, according to the Swiss Re report.

The industry players blamed a number of reasons for the poor insurance business in the country.

They are: lack of awareness, saturated market, falling private investment, declining premium income from multinational companies, no effort to bring untapped sectors into insurance and poor claim settlement records by insurers.

But some of the insurance companies' tendency not to show their real premium earnings in their books of accounts is the major reason behind the falling penetration rate.

No regulatory approach to developing the sector is another cause driving down the business, industry insiders said.

“The market is saturated with dozens of companies,” said Khaled Mamun, chief executive officer of Reliance Insurance.

Companies tend to do business with the traditional system and products and they are not investing in research and development to tap new business from hugely unexplored sectors, Mamun said.

For example, households and lakhs of flats in Dhaka and other big cities are still out of insurance coverage.

If 80 percent of motor insurance, which are done by third parties, come under comprehensive insurance, the premium will shoot up significantly.

Also, hundreds of passenger and cargo vessels in the country are not insured.

“Many insurers maintain two books of accounts to cover up the illegal rebate they spend in the name of commission. So, huge amounts of premiums are not booked in the accounts,” said the chief executive officer of an insurance company wishing not to be named.

“Some of the regulatory approaches are also not helping the industry grow,” he added.

M Shefaque Ahmed, chairman of the Insurance Development and Regulatory Authority, claimed the total insurance premium to be 0.90 percent of Bangladesh's GDP and not 0.72 percent quoted by Swiss Re.

Regardless, the penetration rate is much lower than its peer countries, he said.

“Bangladesh is a hugely untapped market. A lack of awareness among people about insurance is a major reason behind the poor premium growth.”

The IDRA chairman asked the companies to develop new products to bring more people into the sector.

A total of 77 insurance companies are operating in Bangladesh. Of which, 46 are non-life, including one state-owned company. There are 31 life insurers, including state-run Jiban Bima Corporation.