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The insurance gap in Bangladesh relative to its GDP is the highest in the world, which poses a major economic risk for the country in case of a catastrophe, warns a global report of Lloyd's.
Affordability, lack of understanding and lack of trust in insurance companies are the major reasons preventing greater penetration of insurance services in the country, said the latest global underinsurance report, which came out recently.
The Lloyd's report has termed Bangladesh the 'most underinsured country,' which has the largest insurance gap at 2.1 per cent of the country's Gross Domestic Product (GDP).
In absolute terms, however, Bangladesh has an insurance gap of US$ 5.5 billion, which is the sixth highest in the world after China, India, Indonesia, Turkey and Mexico.
The country also has an insurance penetration of only 0.2 per cent, which is the lowest among all countries included in the ranking.
The country with the highest expected annual loss from natural disasters also has the largest insurance gap relative to GDP (2.1 per cent), Lloyd's noted in its latest global underinsurance report titled "A work at Risk Closing the Insurance Gap".
This represents a significant share of the country's economy and major potential loss in case of a catastrophe, the global insurance giant has warned.
"Today, the insurance premium per capita in Bangladesh is just US$ 8, a statistic that masks the fact that most people have no insurance at all," Llyod said.
"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," it said.
The Llyod report also found Bangladesh has the highest expected losses from natural disasters with an expected annual loss of 0.8 per cent of GDP.
Combined with Bangladesh's low insurance penetration levels, this leaves the country highly exposed to the impacts of natural catastrophes, it said.
Under the current conditions, it is expected that sea levels will rise by 30cm by 2040, which the World Bank estimates could result in the loss of about 11 per cent of crop production in the Southeast Asia region, the report pointed out.
When asked, industry insiders insisted the lack of awareness and mistrust about insurance companies are the major reasons for lower insurance penetration in the country.
"Two most important factors for the growth of insurance sector is affordability and awareness of the people," said Syed Shahriyar Ahsan, managing director of Sadharan Bima Corporation, the lone state-owned general insurance firm in the country.
"In our country, although the affordability has increased, awareness about insurance is not there," said Mr Ahsan.
"Even the government properties including the railways and transports and major establishments are not insured," he said, calling for mandatory insurance coverage of state properties.
Insiders also blamed the lack of skilled and trained professionals within the industry for poor growth of insurance sector.
"It has been only seven years that a proper regulatory body has been formed for insurance in the country while the related laws have been enacted in 2010," said Gokul Chand Das, member of the Insurance Development and Regulatory Authority (IDRA).
The Llyod global research, however, noted Bangladesh is making some good moves in improving its insurance penetration.
For example, it noted, in 2017, Bangladesh in partnership with the World Bank, 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.
Meanwhile, Lloyd's second underinsurance report also found that globally, there is an insurance gap of US$162.5 billion in 2018.
This shows there is a significant gap between the level of insurance in place to cover global risks, and the actual cost to businesses and governments of rebuilding and recovering from major catastrophes.
The Llyod report also noted that there is a marked split between emerging and developed economies.
"Of the gap identified, some US$ 160 billion comes from emerging nations, and just US$ 2.5 billion in developed countries".
This is partly because developed nations tend to buy more insurance, and partly because they tend not to be as prone to natural disasters.
The study also found that globally, real estate is the best insured sector while manufacturing sector has the lowest insurance penetration despite its exposure to various risks.
Starting its journey in 1688, Lloyd's has been a pioneer in insurance and has grown over 330 years to become a worldwide familiar name in insurance.
Located in London, Lloyd's is now the world's leading insurance firm, providing specialist insurance services to businesses in over 200 countries and territories.