Bancassurance set to give much-needed fillip to insurance sector

The government has taken an initiative to roll out bancassurance for the first time in the country with a view to bringing ordinary citizens under insurance coverage through banks.

Bancassurance is a partnership between a bank and an insurance company whereby the latter uses a bank's sales channel in order to sell insurance products to the lender's client base.

Depositors of banks will be able to avail insurance policies and deposit their premiums through the country's 10,803 bank branches under the arrangement. At present, banks have 12.35 crore accounts.

Both the Bangladesh Bank and the Insurance Development and Regulatory Authority have taken a joint initiative under the guidance of the finance ministry.

Although the government has been working on the issue for the last two years as a part of its efforts to fulfil the Sustainable Development Goals of the insurance sector, the initiative gained tempo in the last couple of months.

A 14-member technical committee was formed last month which gave a presentation on the issue at the ministry on February 3.

Mohammad Ashfaqur Rahman, a joint director of the BB and also the member secretary of the committee, presented details of the potentials of bancassurance.

A yearlong pilot programme is scheduled to commence from July before the arrangement is adopted in a full-fledged manner, said a Bangladesh Bank official.

Both the BB and the IDRA will submit preliminary guidelines on bancassurance within a month to the finance ministry.

Every branch of banks will set up dedicated units to provide insurance services to clients.

"The new arrangement will raise awareness among people about the importance of insurance," said Wafi Shafique Menhaz Khan, a deputy managing director of Green Delta Insurance Company.

"It will also encourage people to buy insurance policies."

Originated in Europe in the 1980s, bancassurance has now become popular across the globe.

Many nations, including India, Myanmar, Bhutan, Nepal and Sri Lanka, have introduced the practice in order to expand their social safety nets.

The ratio of the premium collected by Bangladeshi insurance companies to GDP is only 0.4 per cent while it is more than 4 per cent in India, according to data from Switzerland-based research organisation Swiss Re Institute.

Clients adopting insurance policies paid premiums amounting to Tk 11,300 crore in 2020.

The government has taken up a plan to lift the premium to GDP ratio to 4 per cent in the next couple of years.

A joint regulatory committee comprising high officials of the BB and the IDRA will be formed to resolve disputes or complaints of clients. There will be little scope for anomaly since the whole process will be run through digital platforms, said a BB official.

Menhaz Khan, also a member of the technical committee, said 81 insurance companies now operate their business in the country but the network of banks was larger.

"So, the new arrangement will help bring people under insurance coverage at a faster clip."

Banks, alongside insurance companies, will also be able to rake in hefty profits by providing the services as they will enjoy a portion of commissions derived from the insurance products, said Emranul Huq, managing director of Dhaka Bank.

"This means the non-funded income will push up the profitability of banks."

Indian banks now mobilise a hefty amount of profit by selling insurance products to clients, he said, adding that the same would be brought about in the country.

Banks will also design more credit and deposit products when bancassurance is rolled out in the country, he said.

For instance, many depositors are compelled to encash their pension schemes midway through the maturity period if they face any crisis, including that related to health.

"The premature encashment can be stopped if an insurance policy is tagged with the scheme. The insurance company will take all responsibility if the depositor faces any complication," Huq explained.

Fahim Islam, head of product and solutions of MetLife Bangladesh, said bancassurance would help sell insurance policies through digital platforms.

In some cases, people show reluctance in taking up insurance policies through agents, he said.

"The confidence level will rise manifold when banks offer the services."

Sheikh Kabir Hossain, president of the Bangladesh Insurance Association, said they had long demanded the introduction of bancassurance.

"The insurance sector will grow tremendously thanks to the latest initiative of the government."