Written By Nusrat Khan & Muktadir Mubassir

In the ever-changing global economy, the expansion of financial services, specifically insurance, reflects the progress of economic development characterised by increasing income levels. Advancements in the insurance industry, such as bancassurance, not only make insurance more accessible but also improve consumer knowledge and understanding. With the help of improved financial literacy, banks have emerged as influential participants in the insurance market, playing a crucial role in bridging the gap in geographical coverage, service, trust, and reliability, particularly in developing economies. Bancassurance, which defies traditional barriers, has become a worldwide phenomenon. Already well-established in Europe and having achieved historical success in Asia, where it was first introduced to India three centuries ago, bancassurance is now making significant strides in the six Southeast Asian markets of Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. According to a report by Swiss Re, one of the world’s leading providers of reinsurance and insurance, in 2023, bancassurance contributed an average of 36% to Life and Health (L&H) insurance premiums in these markets and has facilitated a penetration rate of approximately 3% of the gross domestic product (GDP).

Bancassurance, an alliance between a bank and an insurance company, makes it easier to sell insurance products to the bank’s customers. This collaborative setup proves mutually lucrative, with banks generating additional revenue through insurance product sales and insurance companies expanding their customer outreach without the need for additional sales personnel. The enhanced profitability for both entities stems from the additional commission earned by banks on insurance policy sales and the acquisition of a customer base by insurance companies, all without substantial investments in marketing. This symbiotic relationship forms a pivotal driver for the growth of the bancassurance market. Furthermore, the loyalty of customers to their banks contributes to a higher retention rate, as individuals are inclined to purchase policies based on the financial guidance provided by their trusted banking institutions. This loyalty becomes a key factor propelling the expansion of the bancassurance market.

Global Bancassurance

Market Segmentation Expanding economies drive the need for insurance, with higher incomes making it more affordable. The combination of economic growth and improved financial awareness serves as a powerful catalyst, driving the growth of the bancassurance industry. As of 2021, the global market size of bancassurance was USD 901.5 billion, with projections anticipating it to reach USD 1.8 trillion by 2031, showcasing a Compound Annual Growth Rate (CAGR) of 7.4% from 2022 to 2031, according to Allied Market Research.

The segmentation of the global bancassurance market encompasses types, distribution channels, and regions. In terms of types, the market is categorised into Life Insurance and Non- Life Insurance. The distribution channels include traditional banks, digital platforms, and InsurTech startups. Geographically, the market spans across North America, Europe, Asia Pacific, the Middle East and Africa, and Latin America.

Life insurance emerges as the predominant type within the global bancassurance market, driven by customers seeking comprehensive financial protection for themselves and their families, while non-life insurance is the fastest-growing segment, driven by cross-selling and upselling through bancassurance. Encompassing a spectrum of coverages such as property, casualty, health, and motor insurance, non-life insurance products have witnessed rapid growth.

Europe boasts the highest bancassurance penetration rate globally, with numerous regions witnessing over half of their premium income stemming from life bancassurance. As outlined in a Financial Times report, the bancassurance market size in Europe, measured by gross written premiums, is anticipated to escalate from EUR 555.43 billion in 2024 to EUR 660.05 billion by 2029, reflecting 18.84% growth. This expansion is projected to occur at a compound annual growth rate of 3.51% over the period spanning from 2024 to 2029.

Bancassurance in Bangladesh Ensuring persistent economic growth poses a significant challenge for a developing nation like Bangladesh. The measurement of economic growth hinges on the capacity of an economy to generate goods and services using resources such as capital and labor. As Bangladesh strives to graduate from the category of Least Developed Countries (LDCs) by 2026, there is a compelling need for increased investments across various sectors. Sustaining the current economic growth trajectory, averaging around 7%, is imperative for the nation’s progress, emphasising the critical role of continued investment.

An exploration of the interplay between the insurance penetration rate, investment, and its subsequent impact on economic growth in Bangladesh unfolds a fascinating narrative. Presently, the country boasts a total of 81 operational insurance companies, comprising 35 life insurance companies and 46 non-life insurance companies.

Notably, MetLife holds the majority of the market share among the life insurance companies, while state-run Sadharan Bima Corporation has the largest market share among non-life insurers.

The Bangladesh Insurance Association (BIA) has excluded three significant non-life insurance sectors, namely marine hull, marine cargo, and fire insurance, from bancassurance. These sectors collectively contribute to more than 80% of the non-life insurance premium. The BIA justified their exclusion by stating that these sectors are not yet prepared for inclusion. Despite the considerable number of insurance entities, the insurance penetration rate remains relatively low. This rate is defined as the proportion of total insurance premiums to the total GDP of a country in a given year. The insurance industry currently contributes only 0.5% of GDP, but the government intends to increase it to 4%.

Claim Settlements

The low insurance penetration in Bangladesh is partly due to a deficient claims settlement ratio. Approximately 10 lakh policyholders face uncertainty as 29 life insurance companies are unable to clear dues, amounting to BDT 3,050 crore in unsettled claims over four years until the second quarter of 2023, as per data from the Insurance Development and Regulatory Authority (IDRA).

Evidently, the life insurance sector experienced a decrease in the overall claims settlement ratio department. According to IDRA, this ratio dropped from 88.32% in 2020 to 68.79% in 2021. In contrast, the non-life insurance sector saw a significant increase in its claims settlement ratio, even though it had a much lower ratio to begin with as the ratio rose from 31.60% in 2020 to 41.49% in 2021. Several factors contribute to these low ratios, including delays in settling claims upon policy maturity, stiff competition among companies, inadequate fund investment leading to insufficient returns, and instances of corruption and financial irregularities. Additionally, the lack of agent professionalism, incomplete information provided to policyholders, and a gap between promised benefits and reality upon policy maturity further contribute to negative perceptions.

Despite these challenges, some companies stand out with their claim settlement ratios. Below are some key insights retrieved from The Daily Star:

• A total of 17 firms accounted for more than 95% of the claim settlement ratio
• 9 out of those 17 firms reached settlements for less than BDT 100 crore
• 8 insurance companies resolved claims totaling more than BDT 100 crore and had a claim settlement percentage of more than 95%.
• Those 8 insurance firms include Popular Life Insurance, Pragati Life Insurance, Prime Islami Life Insurance, Sandhani Life Insurance, Guardian Life Insurance, Meghna Life Insurance, MetLife Bangladesh, and Rupali Life Insurance.

Bangladesh Bank’s Policies on Bancassurance Bangladesh Bank (BB) has enforced a directive on bancassurance, effective immediately on December 12, 2023. All 61 scheduled banks in the country are authorised to participate in bancassurance as corporate agents of insurance companies. Guidelines, released on December 20, 2023, outline the qualifications for insurance services, contract procedures, and eligibility criteria for banks. Banks with over 5% net nonperforming loans or below a 12.5% capital risk-weighted asset ratio are ineligible to sell insurance. They must maintain a minimum credit rating and CAMELS grade of 2, along with a positive net profit over the last three years. Banks can provide the service through branches and digitally, ensuring voluntary customer involvement. Notably, common beneficial owners of banks, insurance companies, or related parties are disqualified from bancassurance engagement.

The bancassurance business plan and review mechanism require approval from the banks’ Board of Directors, subject to a review every three years. Changes to contracts with insurance companies necessitate permission from Bangladesh Bank. To operate a separate bancassurance unit, banks need qualified personnel and must obtain prior approval from the central bank. Agent licences from the Insurance Development and Regulatory Authority are also mandatory for insurance development and regulation.

If a bank terminates an arrangement with an insurance company, it must continue offering services to customers until the agreement period expires. Upon the expiration of an insurance customer’s designated period, the banks will credit the customer with the agreed-upon amount. Client complaints will be collaboratively managed by both the bank and the insurance carrier.

After receiving approval from Bangladesh Bank, prominent banks in Bangladesh have established collaborations with renowned insurance companies. For instance, both BRAC Bank and Eastern Bank have formed partnerships with MetLife and Green Delta Insurance while City Bank has joined forces with Guardian Life Insurance.

Challenges and Solutions in Bancassurance Implementation

Bancassurance may face significant obstacles in Bangladesh, particularly due to the complex regulatory landscape that governs the insurance and banking sectors separately. The process of aligning these regulations is a challenging endeavour, highlighting the need for a cohesive framework to establish a smooth bancassurance environment. Moreover, the lack of awareness among the general public regarding insurance products offered through banks presents another barrier. Overcoming this gap necessitates insurance companies to enlighten customers about the benefits and convenience of bancassurance.

Building consumer trust is of utmost importance for the success of bancassurance. It requires addressing concerns related to transparency, conflicts of interest, and doubts about the expertise of bank staff. To achieve this, it is essential to establish a strong regulatory framework, uphold ethical standards, and conduct awareness campaigns. The effective implementation of bancassurance relies on the expertise of skilled professionals, which necessitates continuous training and skill development for bank staff. This enables them to educate customers and facilitate seamless purchases.

Despite the integral role of technology in bancassurance, Bangladesh may face hurdles in infrastructure, particularly limited internet connectivity in rural areas. Enhancing technological infrastructure and promoting digital literacy are vital for broader bancassurance accessibility. Advances in data analytics, artificial intelligence, and machine learning enhance personalisation and efficiency, making bancassurance more profitable. As technology advances, it holds the potential to significantly boost the bancassurance market.

As we navigate the intricacies of bancassurance, it becomes evident that overcoming challenges and fostering its growth demand a multifaceted approach. Addressing regulatory complexities, enhancing consumer awareness, and building trust are foundational steps. The symbiotic relationship between banks and insurance companies, fueled by economic growth and financial literacy, underscores the industry’s potential. The imperative for Bangladesh to foster its insurance sector extends far beyond the conventional notion of risk transfer. It is a strategic move to bolster the nation’s economic foundation by paving the way for sustainable growth. Insurance does, in fact, aid in capital accumulation and economic progress. As Bangladesh progresses towards inclusive growth, the synergy between banking and insurance will foster financial inclusion, allowing millions to secure their financial future and contribute to the nation’s progress. The trajectory ahead promises a transformative landscape where bancassurance becomes a catalyst for financial inclusion and resilience.

The viewpoints presented in this write-up belong solely to the authors and do not necessarily reflect the editorial stance of this publication.