Sorry state of Bangladesh’s insurance sector

The high economic development of Bangladesh seems to have no relation with the insurance sector, a puzzle that needs to be solved to take the country towards a path of sustainable growth.

Insurance, which is described as an enabler for people and companies to take risks, is struggling with low penetration rate at a time when the economy is growing at over 8 percent and the number of insurers have risen to 79.

In a recent analysis, research firm LightCastle Partners found that Bangladesh is the most underinsured country in the non-life insurance category, despite standing to lose as much as 0.8 percent of its GDP to natural disasters a year.

It said the insurance gap of the country, which indicates assets at risk that are not covered by insurance, stands at $5.5 billion, or 2.1 percent of the GDP.

Data by Swiss Re Institute, a leading global re-insurer, also shows overall insurance penetration in Bangladesh stood at a meagre 0.57 percent in 2018 – the lowest among emerging Asian countries. Penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.

Insurance penetration was 5.27 percent in Thailand in 2018, followed by 4.77 percent in Malaysia, 4.22 percent in China, 3.70 percent in India, 2.42 percent in Vietnam, 1.95 percent in Indonesia, 1.82 percent in the Philippines and 1.15 percent in Sri Lanka. Taiwan has the highest penetration rate with 18 percent.

Gokul Chand Das, member of the Insurance Development and Regulatory Authority (IDRA), attributed the low insurance penetration rate on absence of any compulsory insurance, poor awareness and trust gap.

"In Bangladesh, there is no compulsory insurance system. Countries that have done well in insurance have multiple compulsory insurance systems. Also, the government gives subsidies on insurance," Gokul told The Business Standard.

"Lack of awareness is another big reason," he said, adding that is why they have taken an initiative to celebrate the National Insurance Day from this year. 

He said the IDRA is trying to make crop insurance, railway passengers' insurance, building insurance, cattle insurance, education insurance, and health insurance for government service holders mandatory.

"If we get this policy support from the government, insurance penetration will increase considerably," he added. 

According to IDRA data, the number of policies decreased by 11 percent to 1.21 crore last year from 1.36 crore a year ago. Now total beneficiaries stand at 2 crore. A policyholder might have multiple policies.

Claim settlement, which is an important indicator for the sector, also shows a positive trend, said Gokul, a former bureaucrat.

In 2019, policy holders placed a total of Tk9,371 crore claims to their respective life and non-life insurers. Of the claims, Tk7,743 crore has been settled – Tk6,510 crore by life and Tk1,233 crore by non-life insurance companies.

Settlement rate was 82 percent last year, up from 75 percent a year ago.

Md Samsur Rahman, a financial associate of Metlife, said, "Many potential clients are not aware of the life insurance policy. They think it gives benefits after their death."

He also said some clients are interested in buying short-term policy, but insurers want long-term policy.

"Things are changing now, albeit slowly, as some educated people want to buy policies for their children," he said.

Farzanah Chowdhury, managing director of Green Delta Insurance Company, said they are going forward with innovative products and strong determination.

"But we need up to date policy support which will ensure good governance."

On March 1, 1960, Bangabandhu Sheikh Mujibur Rahman started his professional life at the then Alpha Insurance Company. To mark that day, the government has declared March 1 as the National Insurance Day.