Banking and insurance regulators are framing two sets of guidelines on introducing 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.
To this end, the Financial Institutions Division (FID) of the Ministry of Finance held a meeting on February 03 with all key stakeholders.
Apart from the insurance regulator, IDRA, representatives from two bank-related organisations-BAB and ABB-were also present at the meeting held virtually with FID secretary Sheikh Md Salim Ullah in the chair.
People who had joined the meeting told the FE Saturday that the two guidelines being prepared as per the meeting decision would have to be submitted to the FID by February 20.
"We're now preparing guidelines and do hope that will submit to the FID within the timeframe," says an official al at Bangladesh Bank. He says after official announcement there will be no more restrictions by law on introducing the system by the central bank.
He mentions that getting notification from the government under sec 7 (chapter 2) of the Bank Company Act 1991 will empower the Bangladesh Bank to formulate and circulate regulations on Bancassurance for banks.
In India, the Indian government issued notification on August 03, 2000 by exercising the powers under section 6 of the Banking Regulations Act of 1949.
A Bangladesh Bank presentation states that introduction of Bancassurance will lead to higher penetration of insurance leading to better risk coverage of other financial products.
This will require no equity investment for banks.
Such system, available in almost all south Asian economies, will reduce the risk-based capital requirement for the same level of revenue. It says 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," the presentation says on an upbeat note about the prospect.
Also, the increased insurance coverage will add to the fiscal prudence of the population and provide financial supports in the event of a calamity.
This also would help many more people have access to the insurance products by taking advantage of the nationwide reach of bank-branch networks.
Bangladesh Bank official Dr Ismail presented the keynote on the new bank-insurance twin tool.
Earlier, 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 in 2021.
The Bangladesh Bank had constituted a high-powered committee and prepared a technical report on the issue. The IDRA gave its opinions on the BB technical report.
IDRA's opinions, sent to the FID, say such alternative channels have conformity with the country's Insurance Act and Bank Company Act.
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).
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.
jasimharoon@yahoo.com