Nearly 50% policy-holders discontinue premiums after first year

About 45 per cent of life insurance policyholders in Bangladesh don't pay premiums after the first year owing to a number of factors, including purchasing of higher value plans compared to their affordability and agents' tendency to not provide all key information to potential customers, said the top regulator. 

Mohammad Jainul Bari, chairman of the Insurance Development and Regulatory Authority (Idra), said many a time, agents don't share all the rules and regulations with potential customers when they sell policies.

Agents may also sell a product that may not suit the requirements of the customer or he or she may not have the strong financial capacity to continue it.

In addition, agents receive a higher percentage of commission on the premiums in the first year, so they are more interested in selling as many products as they can, said Bari, adding that there is a lack of awareness among customers about the benefit of insurance as well.

"So, for various reasons, many policy-holders don't continue the policy after the first year," he told The Daily Star in an interview recently.

About 70 per cent of policies are not being renewed at some companies in the second year.

"So, we have decided to revise the commission rate," he said.

For example, agents usually get about 30 per cent commissions on the premiums in the first year, 10 per cent in the second year and 5 per cent in each of the subsequent years before a policy becomes mature, according to two officials of two insurance companies. 

Bari described the discontinuation of policies after the first year as disappointing. "Insurance companies are being warned about this."

Despite being set up about 12 years ago, the Idra has not been able to elevate its capacity to the expected level.

"Maybe it is our failure," Bari said.

He said about 10 life insurers are at risk of making bad investments with policyholders' money. "I think these companies will be in crisis in the next two to four years."

"So far, board members of seven companies have been called. After knowing their latest situation, directives have been given to them to address their challenges," he said, adding that the companies have been asked to submit a strategy paper for three to five years.

There was a time when the Idra did not have the capacity to monitor the governance in the insurance sector. Now the situation has changed.

Companies are currently being closely monitored and there is no chance of getting away with committing irregularities, he said.

"A company has stopped selling new policies recently. If necessary, the company's licence will be cancelled."

Bari joined the Idra as its chairman on June 15, 2022.

"Since then, I have been able to identify major problems facing the sector."

The regulator has drawn up a roadmap to address them and the implementation has already begun.

Lack of corporate governance is one of the challenges confronting insurance companies, he said.

He said insurance companies have not been able to raise awareness about the benefits of insurance among the general public.

The chairman also said there are some weaknesses in laws and regulations.

Various steps have been taken to increase the efficiency and effectiveness of the officials of the Idra.

A proposal has been sent to the Financial Institutions Division of the finance ministry to raise the number of employees at the Idra.

Currently, 99 officials and staff are employed at the Idra against posts of 155. These officials are tasked with regulating 35 life insurance and 46 non-life insurance companies.

Bari also said digitalisation has not taken place in the insurance sector.

"If insurance products are marketed digitally and transparency is maintained, the public's perception of insurance will improve."

In Bangladesh, insurance penetration is one of the lowest in the world.

The Idra and the Bangladesh Bank have prepared policies to introduce the Bancassurance system, an arrangement between a bank and an insurance company through which the latter sells products to the customers of the former.

"We will be able to introduce the bancassurance system soon. I strongly believe that it will create a new dimension in insurance marketing," Bari said.