Bancassurance opens new avenues to achieving Vision 2041
Bancassurance would provide many more people access to insurance by taking advantage of the nationwide reach of banks’ branch networks
Bangladesh has made outstanding contributions in various fields of development in the last decade. In 2008, the government announced the aim of Digital Bangladesh as the main basis of 'Vision 2021'. 'Vision 2041' was adopted in coordination with 'Vision 2021' to accelerate the vision of development. One of the goals of this ambitious initiative is to end extreme poverty and graduate to upper-middle income status by 2031, and to become a developed nation by 2041.
The business of the financial sector is changing around the world which has a bigger role to play in implementation of Vision 2041. Insurance industries have also been adapting to the changing patterns of business trends in terms of corporate governance, responding to environmental factors and impacts, digitalization while establishing Insurtech, enhancing partnerships with different external partners and renovations that can ascertain sustainability in the long run.
One of these concepts is Bancassurance — providing banking and insurance together — a relatively new idea in the financial sector of Bangladesh. If implemented, Bancassurance will be the trigger to implement Vision 2041 by ensuring proper socioeconomic protection of the people.
The goals of Vision 2041 are to raise per capita income to $12,500 (more than $16,000 in 2041 value), eliminate poverty, maintaining 9% GDP growth, increasing investment-GDP ratio to 46.9%, raising income tax to 15% of GDP, achieving export diversification, increasing export earnings by $300 billion, increasing life expectancy to 80 years, providing universal health care to 75% of the total population, increasing adult literacy to 100% by 2041, reducing population growth to below 1%, framing effective tax and expenditure policies, and expediting decentralisation of economic and administrative power.
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According to Vision 2041, a healthy and skilled labour force will act as one of the key drivers of strengthening the economic wheels of the country. That is why the government has emphasised universal health insurance schemes at affordable prices. Consequently, the government has emphasised 100% coverage of employment-based accidental and health insurance schemes for all workers in the organised sector. Partial guarantee programs for SME and crop insurance for commercial agriculture will be implemented so that MSMEs can access the market for financing.
Bancassurance provides a new way of gaining revenue for banks and insurance companies by working together with similar aims. There is a huge untapped market as currently less than 1% of the total of 168 million population have insurance. Banks have enough information about their customers to facilitate cross-selling and increase sales of appropriate insurance products.
There are 61 scheduled banks licensed and operating in Bangladesh. These banks have a total of 10,937 branches as of December 2021. Meanwhile, there are 79 insurance companies operating in Bangladesh. These insurers have a total of 438,872 agents as of December 2019. Also, if permitted in Bangladesh, Bancassurance will help more people access insurance by leveraging the nationwide reach of bank branches to access insurance products.
Bancassurance would help many more people to have access to insurance by taking advantage of the nationwide reach of banks' branch networks to avail insurance products. In other words, all the potential clients of banks are the target group of Bancassurance and insurance products can be offered to the customer who has a bank account or eligible to have a bank account.
The Banking Companies Act, 1991 applies to the financial sector of the country and does not allow banks to engage in the insurance business. However, under Article 7 (3) of the amended Banking Act, banks may need to be registered as stock brokers, securities dealers, commercial bank portfolio managers, or approved directly by the Securities and Exchange Commission.
However, the Banking Companies Act allows Bangladesh Bank to develop and distribute Bancassurance regulations using Section 120 (2) / (3) of Ch8 under the Act. On the contrary, the Insurance Act 2010 allows companies to act as "insurance agents" after registering with the regulator.
The government has already felt the necessity of insurance for social protection, the result of which we have already seen in health insurance and crop insurance initiatives. As a result, the government has been allocating funds to the Health Economics Unit (HEU) under the Ministry of Health and Family Welfare for the implementation of the SSK (Shasthyo Surokhsha Karmasuchi).
It is a unique social health protection scheme being run by HEU in Kalihati, Ghatail and Madhupur upazilas of Tangail district since 2016. The project has been serving around 82,000 families and indirectly 650,000 people in Tangail district by providing treatment for around 78 pre-determined diseases.
In 1977, the first agricultural crop insurance was introduced in Bangladesh on a pilot basis by the national insurance company, Sadharan Bima Corporation (SBC). SBC also subsequently introduced livestock mortality insurance and aquaculture insurance (between 1981 and mid-1990s). However, due to poor enrollment results and lack of demand, the SBC discontinued the project at the turn of the century.
Prior to 2014, there was no precedence for commercial agricultural insurance from the private sector. Green Delta Insurance Company Limited, in collaboration with the World Bank Group's International Finance Corporation (IFC) launched Weather Indicator Based Agricultural Insurance as a pilot project in 2015 to reduce the risk of farmers.
Later in 2018, after three years of successful piloting in various geographical areas of Bangladesh, weather index based agricultural insurance was commercially launched for any crop in any season across Bangladesh.
To make the Bancassurance model successful like health and agricultural insurance in Bangladesh, banking and insurance regulators have created two sets of guidelines for implementing alternative marketing strategies for insurance products by banks with the goal of increasing sales for both. As insurers are expected to attract more customers to their products as they become more widespread, they will increase their bottom line which is similar for banks.
On the central bank side, a technical committee consisting of representatives of the Bangladesh Bank, the Insurance Development Regulatory Authority (IDRA), commercial banks, insurance companies and the consulting firm PricewaterhouseCoopers (PwC) has been formed to work on a decision of Bancassurance policy.
Once implemented, people will be able to purchase insurance products from approximately 11,000 branches of banks operating throughout Bangladesh. Banks will set up special counters for affiliated insurance companies to allow insurance customers to deposit premiums and obtain relevant information directly from the bank.
According to the directive, banks must enter into a contract with an insurance company to sell insurance products. A bank may be authorised as a Bancassurance agent for one or more life and non-life insurance companies.
Bancassurance sellers can't declare any fees, processing price, carrier price or some other price from the policyholder and the insurer can pay a fee for the Bancassurance agent primarily based totally on the fee shape of IDRA. Banks, as Corporate Agents, should propose, advertise, sell, distribute or marketplace coverage guidelines to their account holders/clients/preferred human beings through their branches, telemarketing centres, agent banking, virtual channels and websites. Banks should get a no objection certificate (NOC) from Bangladesh Bank to work as an agent of an insurance company.
The market share proportion of Bancassurance in India accelerated to 56% from 27% between 2011 and 2019. Agency income at some stage in this era declined from 42% to 24% according to Asia Insurance Review.
We can see that in eight years, the Indian insurance market has seen 29% growth. Since Bangladesh Financial Market is similar to Indian market, on this backdrop we can project that, in the next five years Bangladesh insurance market will earn $7,656.26 million gross premium with a growth of 15% by using Bancassurance channel which will increase additional 0.06% insurance contribution to GDP.
Vision 2041 is a national strategic plan to strengthen the socioeconomic position of the country. And to strengthen this plan, Bancassurance has the ability to play a significant role in the interest of the country and the nation. The insurance industry of the country in collaboration with the government will ensure socioeconomic development by realising the dream of Vision 2041 by bringing health insurance, agriculture insurance, unemployment insurance, life insurance and accident insurance to the doorsteps of the marginalised people of the country and opening a new door of immense possibilities.
Though Bancassurance has not yet been implemented, we are almost very close to the inauguration. Bancassurance needs technical assessment and adjustment with sufficient IT support, insurance product designing and aligning with banking products, providing necessary guidance and training to bank staff.
The author is a chartered insurer and the managing director and CEO of Green Delta Insurance Co. Ltd
