Bangladesh is the most underinsured country in the non-life insurance category, standing to lose as much as 0.8 percent of GDP from natural disasters a year, said Lloyd's of London, one of the leading insurance markertplaces in the world.
The country is also one of the most exposed to risks such as climate change and the least able to fund recovery efforts, the company said in its latest global report on the insurance sector. The last edition of the report came out in 2012.
In the report, Lloyd's shed light on the underinsurance or insurance gap, which depicts the value of assets at risk not covered fully by insurance policies.
Among the 43 countries covered in the report, Bangladesh has the largest insurance gap, which stands at $5.5 billion, or 2.1 percent of the country's gross domestic product.
Insurance premium per capita in Bangladesh is just $8, a statistic that masks the fact that most people have no insurance at all, according to the report.
Aside from affordability, which is a major barrier to adoption in emerging economies, some of the reasons people choose not to take out insurance include little understanding about the value and a lack of trust in insurance companies.
The insurance penetration in Bangladesh remained static in the last six years to 2012 although 13 new companies entered the market during the period, bringing the total to 77. The number of non-life insurance companies is 45.
“The insurance penetration remained low just because of the unholy practice of the insurers to hide a big portion of premium collected as they have to share a percentage of their premium with the government,” said Mohammodi Khanam, chief executive of Prime Insurance Company.
Some insurers give up to 70 percent commission on the premiums collected by the agents to boost the company's income, which is unethical, she said.
Moreover, a lack of government initiative to bring all properties and businesses under the insurance coverage is also to blame for the low penetration, Khanam added.
A lack of trust on insurers, little knowledge about insurance and zero product diversification have caused the insurance premium to remain low, said Gokul Chand Das, a member of Insurance Development and Regulatory Authority (IDRA).
The country's insurers collected Tk 11,150 crore as premium in 2017, up 7.39 percent year-on-year, according to data from the IDRA. Of the total premium in 2017, the contribution of non-life insurance companies was Tk 2,934 crore.
“The insurance sector is not keeping pace with the GDP,” Das added.
The report also highlighted the insurance penetration, which measures the contribution of insurance premium to the GDP of a country in percentage terms.
Bangladesh fell one notch down to 43rd in the global ranking for insurance penetration from 2012, while the country's premium as a percentage of GDP remained the same as in 2012 at 0.2 percent.
Lloyd's, however, acknowledged Bangladesh's efforts to improve its insurance penetration.
“In 2017, in partnership with the World Bank, Bangladesh launched an initiative to develop its insurance sector, strengthening the capacity of the local regulator and state-owned insurance companies to increase insurance coverage across the country,” it said.
Lloyd's found that the major share of the global insurance gap is coming from the emerging countries.
Of the global gap identified, $160 billion comes from emerging nations and just $2.5 billion from developed countries.
The Netherlands remains the country with the highest insurance penetration at 7.7 percent. However, this is a decrease of 1.8 percent since 2012.