Govt gives go-ahead to 'bancassurance'

The government on Tuesday granted approval for the introduction of 'bancassurance,' a system enabling the sale of insurance products through the banking channel in the country.

It means there is no bar or restriction to launching such model in the country's financial market.

The Financial Institutions Division (FID) of the Ministry of Finance issued an order in this regard on the day asking the insurance regulator -- IDRA -- and banking regulator -- Bangladesh Bank -- to launch such type of partnership business to boost insurance business.

The banks will act as corporate agents of the insurance firms.

A senior official of the FID told the FE: "Now the IDRA and the central bank of Bangladesh will take necessary steps to launch bancassurance, as we have approved their guidelines."

The FID has also sent the letter to both the regulators on the day.

The IDRA (Insurance Development and Regulatory Authority of Bangladesh) had earlier prepared two separate guidelines to this end.

He said: "To my mind, they may take some time as they also need to prepare some directives for the respective banks and insurers."

This is an alternative selling strategy for insurance products through banking institutions with sights set on revenue boost for both.

Insurance companies are expected to get more clients for their products with wider penetration, leading to rise in their revenues, and banks', too.

This type of alternative selling of insurance products is popularly called 'bancassurance', originating in France in the 1970s.

This is simply a relationship between bankers and insurers that is aimed at offering insurance products to the bank clients.

This will require no equity investment for banks, according to a presentation of the Bangladesh Bank.

Such system, available in almost all south Asian economies, will reduce the risk-based capital requirement for the same level of revenue.

This will secure an additional and more stable stream of income through diversification into insurance and reduce the reliance on interest spreads as the major source of income.

"With bancassurance, the insurance and banking industries can make significant progress in implementing the SDGs for the insurance sector," said a presentation prepared by BB earlier.

Also, the increased insurance coverage will add to the fiscal prudence of the population and provide financial support in the event of a calamity.

Earlier, the IDRA, the regulator of 81 insurance companies in Bangladesh, sent its opinions to the FID in June, 2021.

The IDRA thinks 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).

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