Govt green-lights long- awaited bancassurance

The government has approved guidelines for introducing insurance products through commercial banks, according to official documents, as bancassurance is expected to serve as a shot in the arm for the country's insurance sector.  
Previously, two regulators -- the Insurance Development and Regulatory Authority (IDRA) and the Bangladesh Bank -- drafted separate guidelines on the matter. 
However, some stakeholders raised concerns and requested amendments. 
Subsequently, on December 3, the Financial Institutions Division issued two letters to the regulators, incorporating their suggestions and finalising the framework for launching the system in the local market. 
The Financial Express has obtained a copy of the letter.
'Bancassurance' is a partnership business model between banks and insurance companies. Under this arrangement, banks offer their customers the option to buy insurance products. 
More specifically, it is a relationship between a bank and an insurance company aimed at providing insurance products or benefits to the bank's customers. 
This alternative selling model originated in France in the 1970s. In bancassurance, bank staff and tellers become the point of sale and contact for the customer.
The revised framework focuses on life insurance policies and aims to increase their sales through the banking channel. 
Officials at the IDRA told the FE on Thursday last week that they would issue an order to insurance companies shortly. The Bangladesh Bank will also issue a separate circular regarding the launching of the model.
The amended guidelines restrict the business opportunities for non-life insurance companies. While previously all non-life products were allowed, the revised framework permits only specific products, such as motor, travel, health and agricultural and crop insurance. Two key non-life products -- fire and marine insurance -- are set aside.  
In contrast, all life insurance products are now eligible under the model. 
Corporate agents, in this case banks, will receive a 15 per cent commission on group insurance business.
Insurance companies are expected to get more clients and broader penetration of their products, leading to increased revenue alongside that of banks.
Bancassurance is simply a partnership between banks and insurance companies designed to offer insurance products to bank customers. This partnership requires no equity investment from banks, according to a Bangladesh Bank presentation.
For banks, this system, already available in most South Asian economies, will reduce risk-based capital requirements for the same level of revenue. Besides, it will secure a more stable income stream through diversification, reducing banks' reliance on interest spreads as the primary source of income.
"With bancassurance, the insurance and banking industries can make significant progress in implementing the Sustainable Development Goals (SDGs) for the insurance sector," says a presentation prepared by the central bank earlier.
Also, increased insurance coverage will enhance the population's financial prudence and provide financial support in the event of a disaster. 
The IDRA believes bancassurance will help raise the insurance penetration rate in the country, which currently stands at less than 1.0 per cent of the gross domestic product (GDP).
Bangladesh currently has 82 insurance companies, including two state-owned insurers.

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