Opening doors to a bright future for insurance

Bangladesh is set to officially launch Bancassurance today, an arrangement between banks and insurance companies to sell insurance products. This move is expected to be a game-changer, improving confidence among people and ushering in a new era, thereby encouraging more individuals to embrace insurance.

According to industry insiders, Bancassurance brings insurance one step closer to becoming a part of the customer lifestyle, leveraging banks' established dominance in the sector.

Earlier on December 11, the central bank issued a circular allowing banks to sell insurance products on behalf of insurance companies through their extensive network.

"We can expect the wide branch network of the bank to help bring insurance products and services closer to the masses. Another important change is the improvement in regulation of the insurance industry due to Bancassurance," said Md Jalalul Azim, managing director of Pragati Life Insurance Ltd.

Azim suggested that the Bangladesh Bank and the Insurance Development and Regulatory Authority (IDRA) could work together to regulate Bancassurance activities, thereby increasing transparency in the insurance industry.

Bangladesh's insurance penetration is notably low. Bancassurance stands as a potent instrument to alter this reality. Leveraging the expansive reach and convenience of banks can render insurance more accessible, paving the way for a potential surge in penetration. This will not only improve the industry's image but also contribute to financial security for individuals and societies, he added.

Implementing bancassurance faces challenges such as the integration of insurance and banking systems, potential conflicts of interest between the bank and insurance operations, and the need for robust risk management frameworks, he said.

To overcome these challenges, it's crucial to establish regulatory guidelines, invest in advanced technology for seamless integration, ensure transparent communication and disclosure practices, and prioritize customer-centric approaches to build trust and mitigate conflicts of interest, he added.

For Bangladesh, bancassurance might be new, though it 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.

Presently, Bangladesh is home to 35 life insurance and 46 non-life insurance companies. According to the 2023 report from the Swiss Re Institute, Bangladesh ranks lowest in insurance penetration among Asia-Pacific countries. With a penetration ratio of just 0.50 percent, Bangladesh falls significantly below global standards.

Istiaque Mahmud, head of the bancassurance department at Guardian Life, anticipates that bancassurance will likely boost insurance penetration. He suggests that a 1 to 2 percent increase in insurance penetration could contribute to a 2 to 3 percent growth in GDP.

This, he argues, would bring Bangladesh closer to achieving the sustainable development goals.

Ala Ahmad, chief executive officer of MetLife Bangladesh, emphasized that everyone stands to gain from Bancassurance as it promises to enhance accessibility to insurance for the people of Bangladesh. It benefits consumers by offering the convenience of purchasing insurance through their banks.

Moreover, this benefits the existing agent channel as well, as heightened awareness about insurance among the populace will likely lead to increased interest and purchases, he stated.

Over the next five years, this integration could drive considerable growth within the sector, as bancassurance sets the stage for a more inclusive and accessible insurance ecosystem in Bangladesh, he concluded.

M Khorshed Anowar, deputy managing director of Eastern Bank Limited, highlighted that the collaboration between insurers and banks has the potential to drive the development of innovative insurance products tailored to the needs of bank customers.

Bancassurance can lead to a more seamless and integrated customer experience, allowing individuals to purchase insurance policies, manage their accounts, and access other financial services all in one place. This consolidation of services may enhance customer satisfaction and loyalty, he stated.

Regarding growth expectations over the next five years, Anowar stated that Bancassurance is poised to play a pivotal role in driving expansion within the insurance sector in Bangladesh.

Anowar emphasized the complexity of ensuring compliance with regulatory requirements governing Bancassurance activities. Banks and insurers must navigate regulatory frameworks related to licensing, product approval, distribution, and consumer protection, he said.

He also highlighted the importance of comprehensive training programs for bank staff to effectively sell insurance products and advise customers on their insurance needs, emphasizing the need for insurers to invest in equipping bank employees with the necessary knowledge and skills for Bancassurance.

Designing insurance products suitable for distribution through bank channels and meeting the diverse needs of customers can be challenging, according to Anowar.

He emphasized that insurers must tailor their product offerings to align with the preferences and financial capabilities of bank customers.

Ashanur Rahman, chief economist and country business manager of City Bank PLC, said Bancassurance indeed offers a promising avenue to address the confidence deficit in the insurance sector. However, its success relies on effective implementation, ethical practices, and addressing historical issues, he said.

Despite challenges, people maintain trust in banking institutions. Banks, like any industry, face transparency issues, distinguishing well-performing ones from others. Successful banks actively collaborate with premier insurance companies, recognizing the importance of honesty in insurance sales, he said.

In light of this, Bancassurance emerges as a promising avenue for banks to generate non-interest income. Educating the masses about insurance's significance is a primary hurdle, but Bancassurance offers substantial fee-based revenue opportunities. The market is expected to grow at a 6.66 percent compound annual growth rate from 2024 to 2029, he added.

Following the introduction of bancassurance, Sheikh Kabir Hossain, president of the Bangladesh Insurance Association, expressed optimism that village people will show increased interest in insurance, leading to a significant positive change in the insurance industry.

Mohammad Jainul Bari, chairman of the IDRA, stated that when insurance products are sold to bank customers through trained and skilled bank personnel, the number of insurance customers will increase, and policy lapse rates will decrease.

He further noted that insurance penetration will rise, and there will be a positive perception among people about the industry. Bari added, "I believe that the introduction of bancassurance will mark the beginning of a new chapter for this sector.

With the introduction of Bancassurance, an estimated 100 million people who have bank accounts will be able to purchase insurance products, deposit their premiums, and seek related information directly from the 11,000 branches of banks operating across Bangladesh," said Sabbir Ahmed, head of consumer, private, and business banking for Standard Chartered Bangladesh.

He further noted that insurance companies are likely to experience a surge in their customer base, while banks will also gain a new income stream from distributing insurance products.

In summary, Bancassurance leverages the strengths of both insurer and bank partners, offering a win-win solution for both financial institutions and their customers, he added.

"The banking sector of Bangladesh has been undergoing controlled transformation for many decades now, resulting in a more organized sector with a significant footprint covering over 60 percent of the population, thereby instilling greater confidence among the people," Ahmed said.

He emphasized that the collaboration between banks and insurance companies will allow these institutions to leverage their strengths and expertise to develop new and innovative products tailored to the needs of customers in Bangladesh. This, he believes, has the potential to revolutionize the insurance sector, promote competition, and lead to better services and lower costs for customers.