Life insurance — a ‘sunrise industry’ in Bangladesh

Posted on 27 February, 2020

Living in a high growth era, people in Bangladesh are on the path of experiencing prosperity through increase in per capita income, entrepreneurship development, consumption growth and rapid urbanisation. The emerging Asian Tiger is reaching out at the global stage and competing with some of the finest businesses with its appetite for growth and overall development.

As the economy grows and standard of living improves, insurance is considered to be a vital risk-mitigating weapon. Life insurance, in particular, supports sustainable development by mobilising long-term capital that leads to wide-scale infrastructure building and creation of more jobs. The cycle of protection, savings, investment and more protection is at the heart of life insurance.

Currently, overall insurance penetration in the country is approximately 0.57 per cent compared to Thailand’s average of 5.27 per cent, Malaysia’s 4.77 per cent, China’s 4.22 per cent, India’s 3.7 per cent, Indonesia’s 1.95 per cent and Sri Lanka’s 1.15 per cent. This indicates that emerging Asia Pacific economies are leveraging the benefits of insurance for growth and development.

While there is a reason to be worried about lower level of insurance penetration in Bangladesh, there is the bigger picture – an opportunity which is unexplored and which represents huge potential in view of the economic growth in excess of 8.0 per cent. With rapid poverty reduction and a growing size of the middle class, the country is witnessing an upsurge in domestic consumption coupled with bigger dreams and aspirations of the youth.

A society which is witnessing a shift from ‘survival mode’ to ‘thriving actions’ needs support of a structured financial management tool in the form of insurance. The Bangladesh people today are more educated, and determined to take risks, participating in competition at global platforms. Young entrepreneurs are creating employment opportunities and continuously focused on upgrading their lifestyle. The country’s economic progress has empowered the people with higher purchasing power and hence, insurance as a tool becomes necessary to safeguard them from financial risks.

There are 78 insurance companies – 32 life and 46 non-life – operating in the country at present. In 2018, Bangladesh’s insurance premium earnings rose by 11.06 per cent to Tk 124.165 billion, according to data available with the Insurance Development and Regulatory Authority (IDRA). The gross premium from life insurances stood at Tk 90.20 billion in the year, up by 10.10 per cent while premium of non-life insurance stood at Tk 33.97 billion showing 13.92 per cent rise. Life insurers disbursed a total claim payment of Tk 65.71 billion with the claim settlement ratio of 88.51 per cent.

While experts claim the key reasons for the current state of the industry include mistrust, lack of awareness, perceived negative image and non-diversified products, we need to commend the IDRA’s initiatives for creating a disciplined business environment, providing directions through timely guidelines and regulations, reaching out to common people alongside insurers and developing confidence for stakeholders who are in the business for long-term.

We can certainly expect accelerated pace of change to capitalise on the demographic dividend of the country. It is of utmost importance to realise the potential of the life insurance industry, develop a roadmap for growth with specific milestones and ensure participation of insurers, regulators, policymakers, opinion makers and community leaders for attaining a common objective of making a society which will not suffer for loss of bread-winner, where dreams of children will be guaranteed and the retirement will be one of enjoyments.

After the telecom sector, the next industry which can potentially take the mantle of being the sunrise industry for the country is INSURANCE, and life insurance in particular shall emerge as potential gateway for long-term capital generation and providing large-scale income opportunities.

With a total investment of approximate Tk 308.55 billion, the life insurers have invested more than 45 per cent in government securities and related instruments. The life insurance industry currently employs about 23,530 full-time employees and another 600,000 financial associates who are responsible for rendering door-step services to the customers.

I think, encouraging competition in a professional and transparent environment will enable an environment of trust and belief in common people. To expand the market size, it is critical to have players who adopt a professional approach towards business conduct and adhere to higher standards of corporate governance.

An inclusive regulatory environment can prevent unfairness and plays a decisive role in enhancing accountability towards customer service and claim payments. In the modern business world, what is required for sustained growth of an industry is customer-centric strategy and its practice.

In a world, which is going to be driven by artificial intelligence (AI) and unlimited knowledge and information available at the click of a button, the life insurance industry has to adopt technology in its full form the way other countries did. The industry has to go digital in providing customer services, making procurement and designing need-based solutions. This shall result in reduced cost of operation, better returns to customers and shareholders and create a platform for long-term sustainable growth.

Of course, time has to come to move away from only conventional products to innovative products. Need-based innovative products fulfil various needs of customers at different stages of life. Flexibility, choice and competitive pricing are key elements for attracting customers to this old but essential financial product.

In the fast-changing world, business models are evolving at a much faster pace than before. Life insurance industry needs to witness emergence of newer distribution channels such as ‘partnership distribution’ and ‘bancassurance’ for deeper penetration, building trust and faster growth. Online/e-commerce, direct to customers, etc. are popular proprietary distribution channels across the world.

Bangladesh is a leader in terms of GDP growth. The country is set to graduate from least developed country (LDC) status by 2024. Its demography is dominated by the youth and this the country has a huge potential to keep up the growth.

However, with the recent increase in life expectancy, around 20 per cent of the population will be older people (65 years and beyond). From an economic perspective, a growing senior population will mean reallocating economic and other resources from research and development, improving educational system, and technological advancements to care for the elderly, more funds to pay for healthcare, and maintaining social safety programmes.

Bangladesh is yet to establish a sustainable social security programme for the elderly people. Except for the government service-holders and few other social safety net programmes, the country does not have massive coverage of social security services. In this context, insurance is such an industry that has the capability of complementing the government programmes for ensuring sustainable development.

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