Banks to sell insurance in boost for the fledgling sector

Bangladesh yesterday rolled out bancassurance as the central bank allowed banks to sell insurance products, a move that could help the fledgling sector expand its reach in a country where penetration is one of the lowest in the world.

Bancassurance is an arrangement between a bank and an insurer, allowing the former to sell the products of the latter through its vast network.

It might be new in Bangladesh, but bancassurance appears to have begun in France in the 1970s, according to Investopedia. Since then, it has been embraced by most countries, particularly those in the Asia-Pacific region.

According to research and consulting firm IMARC Group, the global bancassurance market reached a value of $1.268 trillion in 2021.

Bangladesh embraced the concept as it looks to bring more people under insurance coverage through the banking channel. Industry people say both banks and insurance firms will benefit from the tie-up.

In a notice yesterday, the central bank said banks will be able to engage in the marketing and sales of insurance as the corporate agents of insurers. The directive came into effect immediately.

This means depositors of banks will be able to buy insurance policies and deposit premiums through the country's 11,239 branches of banks.

"Both banks and insurance companies will benefit thanks to the introduction of bancassurance," said Mohammad Ali, managing director of Pubali Bank.

He says thanks to the partnership, insurance companies will be able to cut operational costs and people's confidence in insurers will increase. "At the same time, deposits at banks will go up."

Monirul Islam, who works for a software company, says he is covered by the group insurance of his employer. "But I will buy a policy for my wife once banks begin to sell the products."

Insurance is a major sector in developed countries but it has not received due attention in Bangladesh, so the sector has not thrived in the populous nation.

Currently, there are 35 life insurance and 46 non-life insurance companies in Bangladesh.

The ratio of the premium collected by insurance companies to GDP is only 0.4 percent while it is more than 4 percent in India, according to recent data from Switzerland-based research organisation Swiss Re Institute.

One of the reasons for the low insurance penetration in Bangladesh has been the low claims settlement ratio.

For example, payments against claims of around 10 lakh policyholders are hanging in the balance as 29 life insurance companies are not clearing dues owing to a liquidity crisis. The unsettled claims involved Tk 3,050 crore in the four years to the second quarter of 2023, data from the Insurance Development and Regulatory Authority (Idra) showed.

"Once banks start selling insurance products, it will help insurers generate more profits. This will enhance their capacity to win back people's trust," said Mohammad Ali.

Jalalul Azim, chief executive officer of Pragati Life Insurance, feels that the model should have been launched earlier. "Still, there is a huge opportunity to enhance the image of insurance companies."

He also said both insurers and banks will benefit from bancassurance if they do business following the instructions of regulators instead of engaging in unhealthy competition.

Istiaque Mahmud, head of the bancassurance department of Guardian Life, said the bancassurance distribution channel will open up business opportunities for the hugely untapped insurance market, which is estimated to be worth Tk 5,000 crore.

"Now, it will be easier for customers to purchase reliable insurance products."

Ala Ahmad, CEO of MetLife Bangladesh, said bancassurance has the potential to give a boost to the insurance sector. And as a new channel to sell insurance products, it will bring more people under the coverage of insurance.

"MetLife Bangladesh is committed to investing in the development of bancassurance while continuing to support its existing agent base."

Main Uddin, a professor at the banking and insurance department in the University of Dhaka, says agents of most insurance companies gave incorrect or exaggerated information to policyholders while selling policies.

Besides, they did not properly share rules. As a result, they have lost the trust of customers, hurting the reputation of their companies. "Now, the general public has a negative perception about the industry."

"Since banks are more trustworthy to people than insurance companies, bancassurance will improve insurers' acceptability."

Toufic Ahmed Choudhury, a former director-general of the Bangladesh Institute of Bank Management, said the new distribution channel would help banks generate more revenues.

"However, banks should focus more on their core areas."

Two insurance agents based in Dhaka said they think that the model will prove to be beneficial for the industry.

"People's trust in the insurance sector will come back and the business will expand," said one of them.

There were 530,360 agents across the country in 2022 while policy numbers stood at nearly 90 lakh, according to the Idra.

Sheikh Kabir Hossain, president of the Bangladesh Insurance Association, a platform for insurance companies, said: "This is good news for the entire industry, especially for the life insurance sector."

Mohammad Zainul Bari, chairman of the Idra, said the regulator will initiate various preparatory activities, including workshops, for the officials of banks and insurance companies so that they can offer the bancassurance facility as soon as possible.