The country's insurance regulator will come up with its guidelines next year, paving the way for expanding the insurance market through banking channels, according to industry insiders.
Insurance Development and Regulatory Authority (IDRA) has already drafted a set of guidelines for bancassurance which had opened for public opinions.
Industry insiders are hopeful that bancassurance will create a win-win situation for both the banks and financial institutions as well as insurance companies.
"We will consult with stakeholders after getting public opinions. Then bancassurance will be introduced next year, once other formalities are done," IDRA Chairman Dr. Mosharraf Hossain told the FE.
Bancassurance is a term coined by combining two words--bank and insurance (in French)--connotes distribution of insurance products through banking channels.
Bancassurance is considered the simplest and smartest way of distribution of insurance products through a bank distribution channel. It is basically selling insurance products and services by leveraging the vast customer base of a bank and fulfilling the banking and insurance needs of the customers at the same time.
Dr. Hossain also said bancassurance exists in almost all the insurance industries. It tries to exploit synergies between both the insurers and banks, he added.
"Bank will get a licence as a corporate insurance agent and earn non-funded revenue."
The IDRA chief said insurance companies will have to give a lesser amount of commission to the banks than they usually give.
According to draft guidelines, interested banks will get licences for selling insurance products for three years. The licence fee is Tk3,000 and renewal fee is Tk1,000.
Banks and financial institutions will have to sign agreements with certain insurance companies for selling their products.
The draft guidelines also said a bancassurance agent cannot sign agreements with more than three insurance companies.
Both the insurance companies and banks are required to get approval from their respective regulators for entering into agreements.
Bangladesh Insurance Association (BIA) President Sheikh Kabir Hossain said the draft guidelines are the consequence of their demand.
"We have long been demanding that bancassurance be introduced, but banks weren't much interested."
He added: "I am aware of the draft guidelines but will comment after going through the drafts."
Chairman of Association of Bankers, Bangladesh (ABB) Ali Reza Iftekhar said banks are more trusted in Bangladesh than the insurance companies.
"So, the insurance sector will greatly benefit from the alliance of banks and insurance companies."
Bancassurance is quite popular in developed economies, but Bangladesh is late in this regard, he said, adding that not only banks and insurance, insurance clients will also be greatly benefited.
The ABB chairman, however, said certainly banks will not sell all the insurance products prevailing in the market.
Banks will be mostly interested to sell life insurance products, he predicted.
The insurance industry in Bangladesh comprises 79 insurers (one received licence in 2020) including 33 life insurers whereas the banking industry comprises 58 banks operating nationwide through their 10,000 plus branches.
In Bangladesh, only 12 million out of 160 million people have life insurance policies and their various kinds of assets and other belongings are excluded from insurance coverage.
Hence, the insurance penetration rate here is the lowest in South Asia which is only 0.57 whereas this rate is 3.70 in India and 1.15in Sri Lanka.
These data suggest that millions of people and their assets are yet to be brought under the insurance coverage.
bdsmile@gmail.com