Bangladesh’s Insurance Landscape: Progress and Prospects

In 1972, Bangladesh nationalized its insurance industry through the Bangladesh Insurance (Nationalization) Order 1972, excepting postal life and foreign life insurance. All 49 insurance entities were placed under five corporations. Subsequently, the Insurance Corporations Act 1973 restructured this into two entities: Sadharan Bima Corporation for general business and Jiban Bima Corporation for life business. However, in 1984, the Government amended the Insurance Act of 1938 and the Insurance Corporation Act of 1973 to allow private insurance companies to conduct insurance business.

Over time, Bangladesh's insurance sector has witnessed significant growth. According to the latest data from the Insurance Development and Regulatory Authority (IDRA), the country hosts 81 insurance companies, comprising 35 life insurance firms and 46 non-life insurance entities. These insurers collectively provide coverage to approximately 18.97 million individuals across various policies.

In the life insurance sector, leading companies by market share include MetLife (American Life Insurance Company) at 27.10%, National Life Insurance Company Limited at 14.10%, Delta Life Insurance Company at 7.43%, Jiban Bima Corporation at 6.69%, and Popular Life Insurance Limited at 5.93%.

In the non-life insurance sector, prominent companies with the largest market share are Sadharan Bima Corporation at 11.03%, Green Delta Insurance Company Limited at 9.12%, Reliance Insurance Limited at 7.63%, Pioneer Insurance Company Limited at 6.52%, and Pragati Insurance Limited at 5.60%.

The insurance industry has witnessed a significant increase in the assets of both life and non-life insurance companies. By the end of 2022, the collective total assets of insurance companies rose to Tk 63,629.05 crores, marking a notable increase of 3.34% from the previous year's Tk 61,571.87 crores. Additionally, the investment amount for 2022 reached Tk 46,484.32 crores, reflecting a growth of 1.15% compared to the previous year.

Despite the promising outlook for Bangladesh's insurance sector, driven by economic expansion, rapid industrialization, increased per capita income, and improved life expectancy, overall insurance penetration remains low. Currently, the insurance penetration ratio stands at a mere 0.5 percent, significantly below global standards and trailing behind neighboring countries such as India (4.0), Sri Lanka (1.2), and Pakistan (0.8).

Industry insiders recognize specific reasons for the low penetration of insurance products and sluggish growth of the industry, including trust issues, a shortage of institutionally trained insurance professionals, and a lack of effective awareness programs.

Professor M. Muzahidul Islam from the Department of Banking and Insurance at the University of Dhaka points out, "Many companies show reluctance in settling claims for their customers once their products mature. Consequently, people harbor a lack of trust in genuinely benefiting from any insurance schemes."

He further underscores the critical necessity for modernization in the insurance sector, emphasizing that companies must take proactive measures to address existing issues of distrust. This includes initiatives to attract new policyholders while simultaneously ensuring the satisfaction of current consumers through the provision of dynamic and responsive services.

Shamima Nasrin, Vice President at Prime Insurance Co. Ltd., observes, "People perceive paying premiums over a specific period as an unnecessary expense if they don't experience any casualties in their lives or properties. Consequently, the number of policyholders remains significantly low in Bangladesh. However, people must recognize that insurance ensures economic certainty in the future."

Experts believe that incorporating the importance of insurance into educational curricula can alleviate the existing lack of awareness about it.

"Our curriculum lacks any emphasis on insurance as one of the fundamental services in our lives. We are essentially a nation with low insurance literacy. In our financial culture, insurance is perceived as less significant compared to the banking sector. Workers in insurance companies are often under-remunerated in contrast to those in banks. IDRA is not consistently active in inspecting all private insurance companies." Professor Islam adds.

Furthermore, as Bangladesh undergoes consistent economic and social development, there is a need for a corresponding evolution in risk management planning, predominantly in the insurance sector.

Istiaque Mahmud, Head of Bancassurance at Guardian Life Insurance, notes, "Our previous national economic challenges and ingrained social belief systems contribute to the lag in insurance penetration in Bangladesh. Continuous economic growth is pivotal; it can lead people towards sustainability and enable them to afford insurance products."

Additionally, the absence of a dedicated training center for the proper education of insurers leaves companies reliant on agents, who, in many instances, do not remain faithful to either the policyholders or their respective companies due to their informal and sporadic work arrangements.

Beyond the imperative awareness-building process to extend the reach of insurance to a broader audience, the government must play a crucial role in overseeing the sector. This oversight is essential for establishing transparent monitoring processes that create a win-win situation for both clients and companies.

"There exists a deficiency in transparency within the management of insurance entities, and it is crucial for the regulatory authority in the insurance sector to be active and dynamic," expresses Prof. Dr. Md. Rafiqul Islam from the Department of Banking and Insurance at the Faculty of Business Studies, University of Dhaka. He emphasizes the need for increased awareness among policyholders about the terms and conditions of insurance products, advocating for informed decisions when purchasing from reputable companies to fully understand the benefits of their chosen insurance products.

The government established the Insurance Development and Regulatory Authority (IDRA) in 2011 to oversee the insurance business and protect the interests of policyholders. In case of claim disputes, policyholders now have the option to file complaints with IDRA. In response to such complaints, IDRA has the authority to settle claims, with the limit increased to 5 lakh takas for life insurance customers and up to 20 lakh takas for general insurance (non-life) customers, respectively. This elevated settlement threshold, achieved without resorting to court proceedings, is considered a noteworthy step in favor of customers.

Furthermore, IDRA has recently issued instructions mandating that insurance companies must resolve any customer complaints within a maximum period of 30 days.

In a recent development, the Bangladesh Bank and the Insurance Development Regulatory Authority introduced Bancassurance agreements and accompanying guidelines in December,2023, indicating a potential transformation in the traditional insurance landscape in Bangladesh. Both banking and insurance industry experts foresee that banks, owing to their extensive trust and vast micro-level networks, could bring about substantial positive changes through collaboration with the insurance sector, thereby impacting the overall economy significantly.