The insurance regulator is making one of its biggest changes in the existing selling system of insurance products aiming to deepen penetration of the same.
The system called bancassurance is a partnership arrangement between commercial banks and life insurers. This partnership arrangement can benefit both the banks and insurers.
Banks can earn additional revenue by selling insurance products while insurance companies can expand their customer base without increasing their sales force and only by paying commissions.
"Yes, we have been working hard to reform the selling system of insurance products that will boost the insurance penetration in the country," Gokul Chand Das, a member of Insurance Development and Regulatory Authority (IDRA), told the FE.
Mr Das, also spokesperson for the IDRA, said Bangladesh Bank can play an important role in executing it as it regulates the banking sector. "We will settle the commissions and banks will accrue to facilitate insurance sales."
The IDRA, the regulator of 79 life and non-insurance companies, has already drafted a regulation pertaining to the matter. A copy of the draft has been obtained by the FE.
The insurance regulator also sat with all stakeholders including the central bank last week.
Central bankers who were present at the meeting said they will examine the issue later.
"It should have been scrutinised extensively as many people lack trust in the insurance sector," a Bangladesh Bank representative was quoted as saying.
On the other hand, some insurance executives argued that the system is followed in all south Asian countries, let alone the advanced economies and it will boost revenues for both banks and insurers.
In developed nations, they said, such type of marketing contributes as high as 70 per cent of total insurance product sales. In developing nations including India, it contributed around 20 per cent of total revenues.
Arup Das Gupta, managing director of LIC Bangladesh, the first multinational company registered in the country, said Bangladesh can easily introduce such system.
"I don't find anything wrong. They just need some fine-tuning of the draft they have prepared for," Mr Gupta added.
He said the model the IDRA prepared is that banks will handle the marketing side and this is one of the best practice models in the world.
Ahmed Istiaque Mahmud, executive vice president and head of bancassurance at Guardian Life Insurance Company, a local privately-owned insurer, told the FE that both banks and insurance firms have showed interest in the matter.
"Many banks we talked with showed interest in the matter."
On quick settlement of claims, the chief of bancassurance said the insurers who will have ties with banks will never delay in settling claims.
"It is my strong belief that insurers will settle claims quickly and comply with other pertaining matters under the bancassurance, otherwise they will lose huge business opportunities in future," Mr Mahmud, who was present at the meeting, told the FE.
He also said there will have demonstration effect on the insurance sector. "We will learn from the banking system on how to best serve the clients."
Jamal Naser, CEO and managing director of National Life Insurance, told the FE that he favours a piloting of three to four years.
"Piloting is important as it will help minimise errors through practices."
Bankers, however, said if the system is introduced, deposit growth will increase. Syed Mahbubur Rahman, managing director and CEO of Dhaka Bank, said this will create new deposit in the banking channel.
"This will emerge as diversified source of revenue for us," Mr Rahman added.
Mr Rahman, also chairman of the Association of Bankers, Bangladesh (ABB), said such new system has some challenges, adding: "We must embrace those challenges to derive benefits."
According to a proposed regulatory framework for bancassurance business direct sales model means a particular bancassurance distribution model whereas the bank uses its own sales force to market and distribute insurance products through its network.
Both the banks and insurers will have to apply to IDRA to get bancassurance licences.
The banks will have to appoint chief bancassurance agent executive in line with a new memorandum of understanding. The main objective of the MoU is to do business through bancassurance.
