Rising policy lapses reflect growing public distrust in life insurers

Life insurance policy lapses (when clients stop paying premiums, ending coverage) in Bangladesh rose to around 337,000 in July–September, up nearly 4% from the previous quarter — a trend analysts attribute to high inflation, falling incomes, and declining trust in insurers.

At the end of September, active life insurance policies stood at 6.811 million, while companies reported total claims of Tk5,986 crore, of which only Tk2,106 crore were settled. This means insurers failed to pay about 65% of claims, Tk3,881 crore, deepening the confidence crisis among policyholders.

Analysts said soaring inflation has increased household expenses, making it difficult for policyholders to pay premiums. While new policy sales are rising, retaining existing customers remains the sector's biggest challenge. 

Weak claim settlements, delays in maturity payments, funds stuck in liquidity-stressed banks, mis-selling, agent switching, weak after-sales service, and limited digital renewal systems are all contributing to rising lapses, they said, adding that many policies are sold without aligning with customers' income capacity, making long-term continuation unsustainable.

Lack of professional agents major factor

SM Ibrahim Hossain, director of the Bangladesh Insurance Academy, told TBS that many policyholders move abroad after buying insurance and stop paying premiums, leading to lapses. Others purchase policies due to family or personal relationships, but after the first-year commissions, agents often lose contact with clients.

He noted that Bangladesh still lacks a professional insurance agent workforce, unlike neighbouring countries. Exceptions exist – for instance, at MetLife Bangladesh, many agents have maintained strong reputations for 30 to 40 years, exemplifying professionalism. 

Hossain emphasised that timely claim settlement is key to restoring public trust, gradually reducing policy lapses when customers receive claims promptly and without hassle.

He further said that regulators should structure the commission in a way that ensures agents remain engaged with the policyholder throughout the entire policy term. 

Currently, many agents stop monitoring the policy or keeping in touch with the customer after receiving the first-year commission, which often leads to policy lapses. If commissions or incentives are designed to encourage agents to maintain the policy until maturity, it would increase customer confidence and help reduce the rate of policy lapses, he added.

Claims, delays and mis-selling fuel lapses

Insurance expert SM Ziaul Hoque told TBS that when customers do not receive claims on time, they lose interest in buying insurance again. This negative experience spreads among families and communities, deepening distrust and accelerating lapses.

He also highlighted that many customers buy policies without fully understanding the terms, later realising they cannot afford regular premiums. Income shocks, such as job losses, business losses, or sudden household expenses, worsen the problem. 

Ziaul Hoque stressed that insurers must assess customers' income, expenses, and long-term financial capacity at the time of sale. Selling high-premium policies beyond a customer's means leads to defaults, while keeping premiums within a sustainable limit ensures both protection for the customer and stability for the insurer.

Field-level realities

Ala Ahmad, CEO of MetLife Bangladesh, said, "When policies lapse, customers lose the safety net designed to protect them against unforeseen events. For insurers, lapses result in lost revenue and impact financial stability and customer relationships."

"Key reasons include a lack of awareness about regular premium payments and economic hardships. We have implemented initiatives such as proactive after-sales calls, SMS reminders, enhanced digital payment channels, and agent training to ensure customers remain fully protected," he said.

SM Nuruzzaman, CEO of Zenith Islami Life Insurance, said that the field situation is alarming. Many willing customers cannot continue policies due to high living costs and limited incomes, leaving no savings after household expenses. Delays in maturity claims or profit payments discourage customers from taking new policies, creating a sector-wide confidence crisis.

Nuruzzaman further noted that companies failing to settle claims on time damage even those insurers with good records, affecting the credibility of the entire sector. Consequently, new business growth slows, and existing policies face a higher risk of lapsing.