Digitalisation in BD insurance industry

Currently, 78 insurance companies-- 32 life and 46 non-life are operating in Bangladesh. However, contribution of insurance sector to the country's GDP is not in line with the economic development.

According to Swiss Re, Bangladesh's overall insurance penetration (ratio of premium underwritten in a year to the GDP) stood at a 0.57 per cent in 2018, the lowest in the emerging Asian Countries. In the year 2017, the penetration was 0.55 per cent.

In Bangladesh, insurance is not yet a priority or essential financial management tool as there is mistrust, lack of awareness and non-diversified products.

Insurance companies sell their products to policyholders but in some cases, it appears that policyholders may not be benefited from that product as  the products  are not sold as per policyholders' requirement. Life insurance provides financial security to the clients as well as facilitates creation of long term capital in the market. Insurers need to develop new customer oriented and innovative products to meet customers' need.

Need assessment is a systematic process for determining and addressing needs, or "gaps" between current conditions and desired conditions or "wants". The discrepancy between the current condition and wanted condition must be measured to appropriately identify the need. The need can be a desire to improve current performance or to correct a deficiency. Need assessment information has the quality of reliability when it is free from material error and bias.

E-commerce and technological innovation can substantially change insurance market structure. The coronavirus pandemic forced many of the insurers to re-evaluate their digital capability in handling sales, underwriting, risk assessment and claims.

Swiss Re's latest consumer surveys show COVID-19 has been a catalyst for greater uptake of online insurance. The raise in online purchase is generating large volumes of data which insurers can process using latest machine intelligence techniques, to strengthen their underwriting capabilities.

Fitch Rating says, the ability to harness "big data" and accelerate digitalisation and automation will be a key determinant of long-term winners and losers in the financial institutions sector.

Stated below are some of the basic areas to be addressed:

PRODUCT DEVELOPMENT: Insurance company need to develop customer oriented and innovative products for their business success. New product development will highly depend on the extent of operational integration between digital technology and insurance practices. The application of technologies such as big data, artificial intelligence, cloud computing and block chains will help insurers to launch more new products to meet their customers' demands in an innovative and timely fashion.

PRODUCT DISTRIBUTION: Insurance companies may change their distribution model from a traditional agent approach to digital platforms. Insurers need to be more proactive in building partnership with digital service providers. They will also need to allocate more resources to upgrade or construct digital platforms to acquire customers as the younger generation prefers to make purchases online.

COST AFFECTED PERFORMANCE: Current investment in technology will need to compare with favourable business prospect under digital insurance. It takes time for insurers to produce a satisfactory level of financial return to justify the capital (one time cost plus maintenance expenses) put in by their shareholders.

ROLES OF STAKEHOLDERS: All key stakeholders - insurers, insurTechs and regulators - have to work together to ensure the best experience for the end customers and thereby ensure the success of the industry.

ONLINE INSURANCE RISK: Insurance Companies need to govern emerging risks associated with business conducted through digital platforms. They may formulate a risk management committee (RMC) to conduct annual comprehensive assurance audit.

POSSIBLE ACTION PLAN FOR SUCCESSFUL DIGITALISATION PROCESS: A policy guideline may be required from Insurance Development and Regulatory Authority (IDRA). Insurance Companies should have specific commitment and budget toward digitalisation to take care of all necessary aspects including risk management.