Insurance premium growth slows

Insurance premium growth decelerated in 2023 as people's purchasing power eroded amid higher inflationary pressure, despite the sector's immense potential in a country that has one of the lowest penetration rates in the world.

The gross premium of life and non-life insurance companies grew 9.16 percent year-on-year to Tk 17,484 crore last year. In the previous year, it rose 10.6 percent to Tk 16,018 crore, according to data from the Insurance Development and Regulatory Authority (Idra).

"As the cost of living rose due to higher inflation, people might have either opened fewer policies or might not have continued paying premiums regularly," said Prof Md Main Uddin, a former chairman of the Department of Banking and Insurance at the University of Dhaka.

The Consumer Price Index rose 9.02 percent in 2022-23 against the government's revised target of 7.5 percent. This was the highest average inflation rate in 12 years.

"This has squeezed people's buying capacity, impacting insurance premiums," Prof Main said, adding that the income level of people is directly connected with premium collections.

Zahangir Alam, spokesperson of the Idra, said the gross premium income growth has slowed due to the overall slowdown in business.

Although the premium growth declined, insurers' assets and investments increased.

Most insurance companies cut their expenses following an Idra direction, said Alam. The regulator has also beefed up vigilance so that insurers can't exceed the management expenses limit.

"Therefore, their assets rose."

Another reason behind the increase in assets and investments is that some companies have not settled insurance claims on time.

"As a result, a part of their income has remained in the form of wealth," Alam added.

Although the total gross premium income has increased, one of the factors behind the decline in growth was that fire insurance was lower last year, said Sheikh Kabir Hossain, president of the Bangladesh Insurance Association, a platform for insurance companies.

He also said thanks to the strong step of the Idra, many companies no longer can spend like they did in the past. This has given a jump to assets and investments.

Combined investments of insurance companies rose 10.29 percent to Tk 51,266 crore in 2023. Assets surged 14 percent to Tk 72,576 crore, Idra data showed.

Despite the growing premiums and a significant number of insurers, penetration has been disappointing.

The penetration rate, which refers to the ratio of total insurance premiums to gross domestic product, is 0.50 percent in Bangladesh, the lowest in the Asia-Pacific region, according to the Switzerland-based research organisation Swiss Re Institute.

Today, Bangladesh observes National Insurance Day to commemorate Bangabandhu Sheikh Mujibur Rahman's joining of then-Alpha Insurance Company on the same day in 1960.

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

One of the major factors hampering Bangladesh's insurance sector's growth is the lack of trust.

"Customers don't have a clear idea about how insurers are doing financially," said Ala Ahmad, chief executive officer of MetLife Bangladesh.

He says an insurer with solid financial strength should not face any problems in meeting customer obligations and settling claims.

Nura Alam Siddikie Ovee, CEO of Alpha Islami Life Insurance, blamed the current tight economic situation for the fall in the growth of gross premiums.

If the number of claim settlements drops in a year, the volume of assets may widen despite the slow growth in premium incomes, according to Mohammad Abu Bakar Siddique, CEO of Meghna Insurance.

Insurance claims dropped 7 percent to Tk 15,700 crore in 2023. Accordingly, claim settlements dipped around 1 percent to Tk 10,332 crore, according to the Idra.

Tarik ur Rahman, a consultant of Green Delta Insurance, said insurance companies used to breach rules and pay extra commissions to agents in the past.

"Now, many of them are making the payments to agents in line with the directive of the regulator."

In 2012, the Idra limited agents' commission to 15 percent. Many insurers used to pay up to 80 percent commissions in the initial years of a policy to attract clients.

Still, many did not follow it, prompting the regulator to beef up its monitoring last year to force insurers to comply.

"This has saved a lot of money for the companies," Rahman said.

Sheikh Rakibul Karim, CEO of Guardian Life Insurance, said insurers might have pursued more aggressive investment strategies, seeking higher returns in alternative asset classes, as they aim to maximise returns and expand their asset base.

This might have contributed to an increase in assets and investments.

Md Tohidul Alam, chairman of the banking and insurance department at Rajshahi University, said people are not aware of the importance of insurance. Besides, the claim settlement ratio is low.

"As a result, people are not interested in insurance."