Mistrust, lack of awareness, non-diversified products remain the main hurdles
It took weeks before Mohammad Tuhin, an agent of a life insurance company, could finally make M Rahman understand why he should open an insurance policy for a secure life for him and his family.
When first told about life insurance, Rahman gave a blank look, not knowing what a policy was all about and why one would be needing it. Total ignorance and lack of trust hung heavy on him.
But, later, when told how an insurance policy could ensure a secure life for the next generation and how it could come to a great help in cases of emergency such as diseases and accidents, the necessity of having a policy at last dawned on him.
This is how tens of thousands of insurance agents and executives working in the country’s life and non-life insurance sector are still struggling to dispel the smoky screen of mistrust and information gap.
This goes a long way to explain why Bangladesh’s insurance penetration is the lowest among the emerging Asian countries — a situation, which does not tally with the country's economic growth and GDP size.
According to Swiss Re data, a leading global re-insurer, Bangladesh’s overall insurance penetration stood at a meagre 0.57% in 2018, the lowest in the emerging Asian communities. In the year 2017, the penetration was 0.55.
Of the penetration rate last year, 0.41% was accomplished by life and 0.19% by non-life insurance companies.
In 2018, insurance penetration in Thailand was 5.27% followed by Malaysia 4.77%, China 4.22%, India 3.70%, Vietnam 2.42%, Indonesia 1.95%, the Philippines 1.82% and Sri Lanka 1.15%.
According to Insurance Development and Regulatory Authority (IDRA) data, in the year 2018, Bangladesh's insurance premium earnings rose by 11.06% to Tk12,4,16.48 crore, which was Tk11,180 crore in the previous year.
Currently, 78 insurance companies — 32 life and 46 non-life — are operating in the country.
In 2018, the gross premium from life insurances stood at Tk9,020 crore, up by 10.10% from Tk8,199 crore while premium of non-life insurance stood at Tk3,397 crore, up by 13.92% from Tk2,981 crore.
Why low penetration
“In Bangladesh, insurance is not yet a top-priority financial management tool as there is lack of awareness and understanding about life insurance among people. With our economy thriving, our life insurance penetration is only 0.5% of GDP, which means that the vast majority of our fellow countrymen are not accessing all the options available to them,” says Syed Hammadul Karim, general manager, MetLife Bangladesh.
However, the regulator of the insurance sector mentions lack of diversified products as another reason for the low penetration.
“The insurance sector's contribution to GDP is not up to the expected level, not in line with the economic development and size of GDP,” IDRA member Gokul Chand Das told Dhaka Tribune.
This is for lack of insurance literacy and confidence, shortage of diversified products, while mistrust is another big reason for low penetration, Gokul points out.
Besides, there is no mandatory insurance in some areas such as health and agriculture in Bangladesh, whereas in India, the contribution of health insurance is about 50,000 crore rupee, he says.
Policy holders, however, blame delay in fixing claims and ambiguity in terms and conditions during opening a policy.
“Terms and conditions are not well explained during opening a policy, which creates mistrust. Moreover, hassles, procrastination and cumbersome process of fixing the claims are major reasons for low penetration,” Sohel Khan, a policy holder, has told Dhaka Tribune.
"Though the company paid my dues as per the policy, I found it hard to realize my policy," he recalls.
Bangladesh Insurance Association president Sheikh Kabir claims that the sector is not getting the expected policy support from the government such as bringing government establishments and organizations under the coverage.
On the part of the insurance companies, he says, they have their own lapses, which are causing low penetration.
“Steps are being taken to resolve the dispute,” he informs.
“Our experience and interactions with customers across the country have given us insights into some of the challenges customers are experiencing when it comes to insurance,” says Syed Hammadul Karim.
"We understand that many customers face difficulty in differentiating the features of banking and insurance products and a robust understanding will help customers choose between the right kind of financial products," Hammadul points out.
"Our regulators and companies are making big efforts to address these pain points and this is essential for both the customers and the industry," he adds.
How to boost coverage
First and foremost, insurance companies and regulators should come forward to build awareness of insurance services as an effective tool for managing financial needs.
Insurance companies should also look for diversified distribution channels and introducing new products to customers.
“There is massive deficiency in skilled human resources in the sector. So, the sector people and the government have to concentrate on creating skilled resources,” Shibli Rubayat Ul Islam, a Dhaka University professor at Banking and Insurance Department, tells Dhaka Tribune.
Now there is mo mandatory insurance except car insurance, which is done through third party and it does not bring benefits to owners, he says, adding that even the government property such as railway is not insured.
Suggesting mandatory insurance for government property and health insurance for all, he calls for stopping third party car insurance and eradicating corruption centring commission.
Without products and market diversification, Bangladesh will not be able to increase insurance coverage and if these issues are addressed, its contribution to GDP will go up to 1% within next two to three years, he thinks.
In reducing NPL, introduction of insurance on bank credit can be a great tool for the both party, Rubayat says, suggesting that the stakeholders should launch "bancassurance".
Bancassurance is a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank's customers.
Insurance has scope to grow faster
Bangladesh economy is growing steadily with an average over 6% growth in the last decade, while digitization of payment is another tool to bring more people under coverage in the sector.
“Where there is rise in income, there is more scope for insurance. Economic development creates opportunity for insurance against fire, car accident and naval insurance against uncertain losses of wealth,” former World Bank Bangladesh lead economist Zahid Hossain has told Dhaka Tribune.
As per BBS data, Bangladesh's per capita gross national income (GNI) stood at $1,909 in the last fiscal year, which was $1,751 a year ago.
On top of that, life threatening diseases such as cancer are increasing, which may lead more people to insurance coverage, says Zahid.
But tapping the potentials will depend on people's trust in insurance companies, he adds.
Franz Josef Hahn, CEO, Peak Reinsurance Company Limited, says the fast adoption of modern technologies in Asia creates a wealth of choices for customers and greatly enhances their overall purchasing power and product reach.
For life and health insurers, this trend elevates the opportunity curve, especially when they succeed in bundling their protection propositions with primary customer priorities such as health, family and lifestyle, he says, citing a report "Emerging Asia Life Insurance Pulse 2019".
Besides, Bangladesh’s higher GDP growth is an opportunity to pull out the sector from the bottom to grow further.
According to the forecast of the Swiss Re, the markets in emerging Asia will also grow as GDP per capita continues to increase rapidly, fuelling insurance demand. The insurance markets in the Asia-Pacific regions will count for 42% of the global premiums by 2029.
Bangladesh’s GDP growth was 8.13% in the last fiscal year, while the government has set a target to attain 8.2% in the current fiscal year.
Meanwhile, Finance Minister AHM Mustafa Kamal on Sunday stated that all kinds of structures, including buildings and flats, would be brought under insurance coverage in a bid develop the insurance sector in Bangladesh.
What non-life insurance covers
Non-life insurance, known as general insurance, or property and casualty insurance, is a policy that provides compensation for losses incurred from a specific financial event.
Non-life insurance policies cover automobile, house-owners, damage from fire, marine accidents, travel, theft and any catastrophe etc.
What life insurance covers
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person.
Besides, a person under life insurance coverage will be entitled to treatment expenses for a number of diseases and compensation for partial or permanent disability as per the contract.