Insurance coverage in Bangladesh: A long way to go

MS Siddiqui   | Published: January 05, 2019 21:14:49 | Updated: January 09, 2019 21:20:35

The major concerns for the nation can be grouped under five categories. These are: Finance, Economics and Trade Risks; Geopolitics and Security; Natural Catastrophe and Climate; Technology and Space; and, Health and Humanity. The most dangerous threats come from natural disasters and events like earthquake, tropical and temperate windstorm, tsunami, flood, volcanic eruption, drought, cold and heat waves etc. These account for a major portion of annual economic loss. Other risks emerge from digitisation, and urbanisation followed by concentration of economic activities in the cities.

Climate change is a growing concern. It is changing the course of weather leading to extreme weather events. The best solution for climate change events and natural disasters is insurance coverage against probable disaster and losses caused by them.

People of third world countries including Bangladesh are not yet sufficiently motivated for adapting to the practice of insurance coverage despite different risks and visible impacts from natural and other disasters. It has been observed that on average, only one-third of global economic disaster losses are insured and the rest fall under the protection gap.

Insurance protection gaps are prevalent in developing and emerging markets where combined insurance still fall significantly short of developing countries' share in global Gross Domestic Product (GDP).

Insurance protection gap is defined as 'the difference between the amount of insurance that is economically beneficial and the amount of coverage actually purchased'. The insurance protection gap is hard to measure and can be subjective. Recently, it has been replaced by an indicator comparing covered loss to total economic loss.

The uninsured natural disaster losses are at the root of the protection gap discussion, making the most frequent headlines. The root causes and prevalence of insurance protection gaps vary widely across the globe, reflecting different stages of economic development as well as social, institutional and cultural peculiarities.

Insurance can be divided into two categories- life and non-life. Life insurance covers the death and injury of body while non-life insurance covers a wide range of assets including property, casualty, motor and health etc. which faces risks of losses from catastrophic events either natural or manmade.

Developing nations like Bangladesh which are disaster-prone face crippling losses when storms, floods or earthquakes strike. Their losses could have been compensated to some extent if they had insurance and other prevention and protection. Many countries with the lowest levels of insurance are also among those most exposed to risks from climate change impacts, and are least able to fund disaster recovery efforts.

Some of the notable incidence of meteorological and geophysical disasters events include cyclone in Bangladesh (1970), super-typhoons in the Pacific basin in 2014, earthquakes in Nepal (April, 2015) and Italy (August, 2016), air traffic disruption following the eruption of Mt Sinabung, Indonesia (June, 2015), and floods in UK and Northern Europe. Droughts continue in western US, southern Africa, and Serra da Cantareira of Brazil.

Bangladesh, India, Vietnam, Philippines, Indonesia, Egypt and Nigeria all have an insurance penetration rate of less than one per cent. These countries are also among the most exposed countries to risks such as climate change and natural and manmade disasters. A recent study has observed that real estate remains the best insured sector globally with an industrial insurance penetration rate of 0.74 per cent, followed by transportation and storage (0.60 per cent) and agriculture, forestry and fishing (0.60 per cent). Globally, the manufacturing sector has the lowest insurance penetration among all sectors, at just 0.17 per cent.

On a micro level, citizens of Bangladesh subscribe to life insurance policies not because they prioritise financial security of family and personal budget, but because of aggressive marketing campaigns by these companies. Bangladesh is yet to initiate social insurance coverage for its citizens.

The ever-increasing risk of natural disasters continues to impact global underinsurance rates, particularly in Asia, according to new research from Lloyd's, the world's specialist insurance and reinsurance market, and the Centre for Economics and Business Research (CEBR). Lloyd's 'Underin-surance Report 2018' observed that underinsurance continues to represent a significant threat to global economic development with an estimated US$ 163bn of assets underinsured in the world today. Among other things, the report also revealed that China has the largest insurance gap (US$ 76bn) due to the size of its economy and its developing insurance market.

It has been observed that since Lloyd's 2012 underinsurance report, the risk profile of the top 10 countries facing the highest risk as a proportion of GDP has hardly changed. In absolute terms, China has the biggest insurance gap (US$ 76.4 billion) followed by India (US$ 27 billion) and Indonesia (US$ 14.6 billion). Bangladesh, also has the largest insurance gap relative to GDP (2.1 per cent), in dollar values of almost $ 6bn causing highest probable annual loss from natural disasters.

The first edition of Lloyd's Underinsurance Report had revealed in 2012 that there was US$ 168bn-worth of underinsured assets globally. This number decreased by almost three per cent in six years till 2018. But the gap for Asian countries has widened by 9.4 per cent to US$ 134bn in 2018 from US$ 122.5bn in 2012.

At the same time, the number of risks across the world are increasing rapidly at pace with economic growth. There is a noticeable increasing trend of natural catastrophes with 2017 being one of the costliest years for natural catastrophes in the past decade.

Asian Disaster Preparedness Centre (ADPC) is an intergovernmental organisation that works to build the resilience of people and institutions against disasters and climate change impacts in Asia and the Pacific. Established in 1986, the ADPC ranks Bangladesh as one of the most disaster-prone countries in the world. More than two-thirds of the country's 64 districts are prone to natural disasters like cyclones, floods, landslides, tornadoes and drought. Information from their database showed that there were 234 disaster events between 1980 till 2010. Sixty-eight of these events were floods that killed nearly 200,000 people. Disasters cost the country more than half a billion US dollars per year. The physical, social as well as economic conditions of Bangladesh are similar to any of the most vulnerable countries to natural disasters in the world. The adverse effects of climate change - especially high temperature, sea-level rise, cyclones and storm surges, salinity intrusion, heavy monsoon downpours etc.-have aggravated the overall economic development scenario of the country to a great extent.

At present, more than 80 per cent of the population is potentially exposed to natural disasters like floods, earthquakes and droughts, and more than 70 per cent to cyclones. On average, the country experiences severe tropical cyclone every three years, and about 25 per cent of the land mass is often flooded. Severe flooding occurs every four to five years, covering 60 per cent of the land mass. Bangladesh's flat topography, low-lying and climatic features, combined with its population density and socio-economic environment, makes it highly vulnerable to many natural hazards. Dhaka, with high population density, rapid urbanisation and ground water usage for industrial and household purposes, is one of the most at-risk cities in the world.

Insurance does not reduce the immediate impacts of disaster, but it does provide indemnification against losses. Recently a new insurance scheme in Bangladesh by an insurance company with support from Non-governmental Organisations (NGOs) showed hope to poor people in flood-prone Bangladesh. This is a symbolic scheme. Bangladesh has a long way to go to bring resources under insurance coverage from natural disasters.

MS Siddiqui is a legal economist.



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