Bancassurance, an alternative selling strategy of insurance products by banking institutions, is in the final stage of being introduced in the country, as both the central bank and the insurance regulator have positively toned on the matter.
The Insurance Development and Regulatory Authority (IDRA), the regulator of 78 insurance companies in Bangladesh, sent its opinions to the Financial Institutions Division (FID) under the Ministry of Finance later in June.
Earlier, the Bangladesh Bank (BB) constituted a high-powered committee and prepared a technical report on the issue. The IDRA gave its opinions on the BB technical report.
Sector insiders told the FE that they now need a government order to introduce it in Bangladesh.
"This [launching bancassurance] is in the financial stage, and the FID now needs to be instructed to allow it," said Istiaque Mahmud, head of bancassurance at Guardian Life Insurance Company and also a member of the BB-constituted committee.
Mr. Mahmud said after positive notes from the IDRA, there is no major hurdle now to introduce it in the country.
The IDRA's opinions, sent to the FID, said such alternative channels have conformity with the country's Insurance Act and Bank Company Act.
The IDRA report said bancassurance would help raise insurance penetration rate in the country, which is now less than 1.0 per cent of the gross domestic product (GDP).
It mentioned that the Insurance Policy, adopted in 2014, had a target of reaching 4.0 per cent insurance penetration in the country by 2021.
"The insurance policy approved both agency system and banking channel insurance product selling."
"The agency system is somewhat expensive, and its effectiveness is on the wane now," according to the report.
The IDRA report noted that both India and Nepal had introduced bancassurance much earlier and got good response from banking client base.
"The per capita income is on the rise in Bangladesh, and the disposable income (of people) is also increasing day by day. So, there is a chance for selling such products to the bank clients."
There is need for a modern channel to sell insurance products, and bancassurance is a good tool to this end.
The report added: "After getting approval from the Ministry of Finance, the IDRA will prepare a policy on the matter for the insurers."
Meanwhile, banking executives said bancassurance would open a new deposit source for them.
But, there are some risks associated with introducing it, as many insurance companies do not settle claims timely, they opined.
Syed Mahbubur Rahman, managing director and CEO at Mutual Trust Bank Limited (MTB), said: "Bancassurance will open a new deposit source for us, and help diversify banking services."
"It will help raise credibility of the insurers as well."
He, however, noted that they need to undertake a financial literacy programme - both for banking people and clients.
MetLife Bangladesh CEO Ala Ahmad said by utilising the unique strength of banking partners and insurance providers, bancassurance can greatly contribute towards the goal of increasing insurance penetration in the country.
"Bancassurance is a timely addition to complement the existing insurance sales channels, as people are now seeking additional financial protection against unforeseen health and wellness incidents in the wake of Covid-19 pandemic."
"We expect that the government will expedite its introduction," he mentioned.
Alamger Feroj Rana, deputy managing director at Popular Life Insurance Company Limited, told the FE: "This will encourage to develop quality life products in the market. The insurers' will compete for (providing) best products to a large client base, who are mostly educated".
Mr. Rana said banks have more trust of people than insurance firms in the country. "Definitely, our sales of products will increase through this new channel." Both life and non-life insurers can sell their products through banking channel, he added.
The country now has 78 life and non-life insurance firms. According to Swiss Re, Bangladesh's insurance penetration was 0.57 per cent in 2018, the lowest in the emerging Asian countries.