Why most Bangladeshis are not covered by insurance

The history of the insurance industry in this country of a former British colony goes back more than a century. The journey began in 1907. But even now, the popularity of insurance among Bangladeshis is one of the lowest in the world. 

According to a Sigma report by the Swiss Re Institute, insurance penetration in Bangladesh is only 0.4 percent while the insurance sector makes up 4.2 and 1.2 percent of the GDP of neighbouring India and Sri Lanka respectively. 

Launched in 1975, the Bhutanese insurance sector has expanded its coverage wider than that of Bangladesh. More than 25 percent of Bhutanese have an insurance policy while less than four per thousand Bangladeshis have been brought under insurance coverage. 

With about $2.5 trillion collected in the form of premiums, the United States was ranked top among countries with an insurance industry followed by China, Japan, the UK and Germany in 2020. What was Bangladesh's position? The country is ranked 69th, with the premiums standing only at $1,323 million.     

The figures have been mentioned here only to illustrate how far the insurance sector of Bangladesh lags behind despite having huge potential.  

The Business Standard sat down with Professor Md Mizanur Rahman of the Department of Marketing, University of Dhaka and Sheikh Kabir Hossain, President of the Bangladesh Insurance Association to talk about what ails the sector and what can be the way forward.

The Business Standard: Is insurance coverage indicative of a country's development? 

Md Mizanur Rahman: Yes, it is. The more people are brought under insurance coverage the more the people have guarantees of economic relief and protection of property.  

We know that service income is a part of GDP. When people pay a premium, it certainly helps increase GDP growth. 

An insurance policy, moreover, saves the buyers from going bankrupt. However, people of the country, in general, have little interest in formal ways of income security as well as protection of property. They are not aware of either of the benefits.

A 2019 study revealed that per capita expenditure for buying life insurance policy in Bangladesh is only Tk150. If we consider the amount in Bangladeshi currency, it was Tk51,928 in Singapore and Tk3,693 in Malaysia. The insurance penetration in Bangladesh reveals how far behind we are from the developed countries. 

TBS: What are the reasons behind the low popularity of insurance in our country? 

MMR: There is a common perception that people here lack awareness about insurance. However, lack of trustworthiness, shortage of skilled manpower, unattractive insurance products and broadly, negligence of law enforcement and poor coordination among the government bodies, are responsible for the unpopularity of the insurance sector.

However, it is a good thing that the government is thinking about the development of the insurance industry. The Insurance Development and Regulatory Authority (IDRA) has been established. 

A lack of integration still persists. For example, driving a car without insurance is unimaginable in any country except Bangladesh. Neither the third party insurance provision nor the first-party insurance is implemented here. 

The IDRA has made this provision mandatory. But the traffic police do not fine vehicles without insurance as they say that they receive no such instructions. I think the BRTA, Home Ministry, ACC and the finance ministry need to coordinate more. If the car insurance policy is implemented strictly, more people will come under insurance coverage. 

TBS: How can the insurance sector bring more people under insurance coverage?

MMR: Product diversification is a must. We have been talking about this need for a long time but we are yet to witness any remarkable changes. 

The construction industry should be brought under insurance coverage on a priority basis. There should be a rule that the landowners or constructors must have insurance for the building first before applying for a home loan or starting construction. Construction workers should also have insurance. 

Moreover, people with hazardous jobs have never been facilitated with insurance in our country. Although the insurance coverage for the RMG workers is now a compliance issue, very few factory owners pay heed to this necessity. 

The same protection is needed for the fishermen, particularly those involved in marine fisheries, as they often risk their lives in fishing. There is a list of fishermen. Why does the government not bring them under insurance coverage?

With nominal premium, students of schools, colleges and universities can be brought under insurance. Recently, the Dhaka University authority has taken such an initiative. This is good news for sure. The other educational institutions can facilitate insurance for their students too.

Bangladesh is a natural disaster-prone area where farmers remain in constant fear of crop loss due to flooding or tidal surge. Moreover, every natural calamity takes a huge toll on cattle and poultry. Hence, crop insurance or insurance for cattle and poultry should be introduced here as well.

Gain-based insurance policies should be announced to attract more buyers, especially from the private sector. The insurance companies can give interest on the premium they receive with policy owners from their annual profits. 

TBS: Will the marginalised buy policy even if it ensures protection? 

MMR: Members of underprivileged communities including peasants and fishermen are used to depending on aid during any extraordinary situation. As they are mostly low-earners, they seldom can save money for future emergencies. Now, if they are requested to buy a premium, their response would not be very positive 

That is why the government should help. For example, the government can subsidise insurance policies by paying up to 70 percent of the premium up front and then the rest can be paid by the policyholders. In phases, the policyholders will be able to pay the total premium.

TBS: Why do the local companies not provide insurance for megaprojects?

Sheikh Kabir Hossain: Earlier, the government needed insurance support from foreign ventures as it was the provision for the foreign-funded projects. Now, there is a change. Local insurers can provide the required insurance support. 

On behalf of the Bangladesh Insurance Association, we proposed to Prime Minister Sheikh Hasina to utilise the premium of life insurances in the construction of the Padma Bridge. The volume of life premium so far is adequate to cover such mega projects. 

However, financing the bridge construction has been done through the exchequer. Even though we are ready to invest.  

TBS: Why is insurance product diversity poor in Bangladesh?

SKH: Since the country's insurance sector lacks skilled actuaries and researchers. There is a dearth of policy designers. Insurance policies need to be innovative as well as attractive to the people.

TBS: Why is there no insurance to provide support to the agricultural sector?

SKH:  Insurance for crops or cattle is not possible in the country, at least for the time being. The existing weather forecast system is confusing. Besides, insurance coverage for the agriculture sector requires huge amounts of investment. No single insurance company in the country can entertain insurance claims against a loss in the farming sector. 

A collaboration among the international donor agencies and the government is needed to facilitate insurance coverage in the agriculture and livestock sectors. 

TBS: What is your recommendation to make insurance popular? 

SKH: We have requested the City Corporation authorities in Dhaka to make building insurance mandatory. 

The provision will also ensure adherence to building safety measures because an insurer, before selling a policy, will always survey the construction site to examine whether it has fire safety measures as well as other necessary safety measures in place or not. 

The building construction sector has the potential to be a huge source of premium.   

Other than this, insurance companies need to entertain insurance claims as early as possible. Clients should not face harassment. Better service will help the industry gain people's trust. 

TBS: How do you evaluate the government's support? 

SKH: Until 2009, the insurance sector remained neglected. The incumbent government has brought a lot of changes to this industry. 

The Insurance Development and Regulatory Authority (IDRA) was established in 2011. Now, we have an authority that sets and monitors the criteria for recruitment in an insurance company and policy design. Recently, the IDRA initiated the digitisation of the industry. 

Soon, the insurers will need to provide e-receipt to the policyholders.