Interviewed By Syed Md. Rakeen, Team MBR

Md. Ashanur Rahman recently played a pivotal role in finalising a groundbreaking deal with Guardian Life Insurance, marking the introduction of bancassurance in Bangladesh. Commencing his banking journey as a Management Trainee at Mercantile Bank in 2004, Rahman showcased his prowess across various divisions such as retail, credit, research, and planning. In 2008, he transitioned to The City Bank, where his expertise extended to encompassing multiple facets of risk management, including credit, market, and operational risks. The year 2013 saw him contributing his skills to the Royal Bank of Canada, serving in the capacity of a retail banker. Returning to The City Bank in 2019, Rahman assumed the role of Chief Economist and Country Business Manager. In a recent conversation with Team MBR, Mr. Md. Ashanur Rahman shared his valuable insights on the potential of bancassurance in Bangladesh. His wealth of experience and expertise shed light on the promising collaborative journey between banks and insurance companies, providing a glimpse into the future prospects of this innovative venture

Syed Md. Rakeen: The alliance of banks and insurance companies brings fresh hope to the insurance industry by enabling the accessibility of its products through the wide distribution network of banks. Would you kindly share in detail how the strategic collaboration between banks and insurance companies will work in promoting bancassurance in Bangladesh?

Md. Ashanur Rahman: I am of the opinion that the partnership between banks and insurance companies holds the potential for creating a synergistic relationship. Synergy, in this context, goes beyond the simple arithmetic sum of 2+2 equating to 4. Instead, it implies a combined effect that could be 5 or even greater. Within the banking sector, we universally define a bank as the embodiment of an individual’s trust, standing out as one of the most highly leveraged industries globally.

Using City Bank as an example, our liabilities total around BDT 39,255 crore, and our assets come to around BDT 39,608 crore, giving us a balance sheet size of around BDT 78,863 crore. Notably, the paid up capital stands at a mere BDT 1,224 crore. This stark contrast reveals that the organization has amassed significant deposits in comparison to its shareholder equity, resulting in individuals may harbor doubts about entrusting their funds to such an institution.

Despite the aforementioned circumstances, people continue to place their trust in banking institutions. It is crucial to acknowledge that banks, like any other industry, grapple with issues related to transparency, separating the well-performing banks from their less successful counterparts. The most successful banks actively seek collaborations with premier insurance companies, and vice versa. Banks are inclined towards fostering transparency, recognising that deceiving clients in insurance sales could lead to client loss.

In light of these considerations, the concept of bancassurance emerges. The initial hurdle involves educating the masses about the significance of insurance. However, I firmly believe that bancassurance represents the future and is a promising avenue for banks to generate non-interest income, thereby securing substantial fee-based revenue.

According to a PwC report, a 1% increase in insurance penetration correlates with a 2% boost in GDP. This implies that if Bangladesh’s insurance penetration rises from 0.57% to 1.57%, the projected GDP of 6.2% could potentially escalate to 8.2% or even 8.5%. With this optimistic outlook, we are hopeful that strategic collaboration between banks and insurance companies will prove to be successful.

Syed Md. Rakeen: As per the Swiss Re Institute report, one of the world’s leading providers of reinsurance and insurance, the insurance penetration in Bangladesh was only a mere 0.4% in 2022, while neighbouring countries such as India maintained a rate of 4%. From your perspective, which factors have prevented the growth of the insurance industry in Bangladesh so far?

Md. Ashanur Rahman: To begin with, insurance penetration in Bangladesh lags behind that of South Asia and East Asia, let alone the more developed markets like the USA or Europe. Currently, the insurance penetration rate in Bangladesh stands at a mere 0.57%, underscoring a notable lack of trust in insurance. Religious convictions have an impact on this skepticism because many people believe that they will not suffer harm or experience sudden death because of Almighty Allah’s blessing.

Moreover, I am of the opinion that insurance sales pitches often focus excessively on potential accidents or deaths, dissuading people from considering insurance. The predominant approach seems to revolve around selling risk and promoting products that are inherently Death Protection Schemes in nature. Unfortunately, sellers tend to highlight the benefits without adequately explaining the associated risks, hindering the growth of insurance companies significantly.

Compounding these challenges, the regulatory structure for the insurance sector in Bangladesh has faced issues. Initially under the Ministry of Commerce, it later fell under the jurisdiction of the Ministry of Finance, unlike in many other countries where the central bank regulates the insurance industry. Coordination among governing bodies has been lacking, leading to a dearth of governance, transparency, and accountability. This has resulted in delayed and inadequate claim settlements, leaving policyholders in distress.

Comparatively, India initiated bancassurance in 2000, leveraging its 250-year-old insurance industry, while Bangladesh has been a late entrant to this sector. To pave the way for the future, regulatory bodies overseeing insurance companies need to be strengthened and shielded from political influence. Unifying insurance companies and bank regulators under a single umbrella can minimise discrepancies and enhance overall governance.

A technical committee that Bangladesh Bank formed, of which I was a member, started the official discussion on bancassurance in Bangladesh in December 2019. Despite progress, the finalisation of bancassurance details took place in 2023, highlighting a four-year journey since the discussion’s initiation. Harmonising the pace of various governing bodies is crucial to accelerating insurance penetration. Autonomy and the independent functioning of regulatory bodies are imperative, mirroring the successful approach adopted by India over the past 22 years.

Syed Md. Rakeen: The erosion of trust in the insurance industry has hindered the sector’s growth to a large extent. As people generally associate trust and reliance with well-functioning banks, how can these banks act as an area of assurance for policyholders in Bangladesh?

Md. Ashanur Rahman: Firstly, it is crucial to clarify that the underwriting body or the insurance companies are assuming the associated risks in the case of bancassurance. Banks, in the context of bancassurance, do not undertake the risks. Rather, banks serve as facilitators, providing a channel for the insurance business. Our role is centred around pitching insurance products to our clients.

For individuals to sell insurance under bancassurance, possessing a licence from the Insurance Development Regulatory Authority (IDRA) is imperative. The licencing process should be rigorous, ensuring that selling agents thoroughly understand the products, rules, and regulations to prevent unethical practices. Sellers must grasp why clients may seek insurance and ensure they recommend the appropriate products. Additionally, they should elucidate the underlying conditions that determine the grounds for an insured person to claim insurance.

Considering the client’s perspective, many individuals, in an attempt to minimise premiums, may falsify declarations regarding qualifications such as medical conditions and other qualitative factors. While insurance policies outline specific conditions that must be met, sellers often neglect to communicate these criteria for claim settlements. For instance, a client may indicate ‘no’ for any medical conditions to keep the premium low. However, if an insurance company later discovers undisclosed medical conditions, it may reject any claims.

This highlights a pervasive issue which is the clients need to be educated on the importance of accurate information disclosure. Simultaneously, insurance companies must simplify and make policy conditions more reader-friendly to encourage clients to thoroughly review them. This collaborative effort, involving both sellers and clients, is crucial. Over time, with joint efforts and increased awareness, it is hopeful that these issues will gradually diminish.

Syed Md. Rakeen: The Bangladesh Insurance Association (BIA) decided to exclude three major non-life insurance businesses, namely marine hull, marine cargo, and fire insurance, from bancassurance. In your opinion, why were the aforementioned insurance products, which comprise over 80% of the non-life insurance premium, left out of bancassurance?

Md. Ashanur Rahman: In my view, there are both positive and negative aspects to such a decision for bancassurance. Strengthening the Insurance Development Regulatory Authority as a regulatory body holds the potential to regulate various activities, including claim settlements, and enforce penalties, thereby enhancing transparency in the insurance industry. Many companies currently operate with deficiencies in areas such as reserves, reinsurance treaties, and board and management quality. A robust regulatory body can address these issues and ensure a more accountable and reliable insurance sector.

On the flip side, non-life insurance products are inherently more complex than life insurance products. Given that bancassurance is a relatively new concept, the focus has initially been on life insurance products. Some challenges persist in these areas, such as the absence of mandatory third-party insurance for cars. While non-life insurance products have been initially excluded due to these challenges, the intention is to gradually introduce them into bancassurance as the industry evolves.

Starting with life insurance allows for a smoother entry into bancassurance, providing an opportunity to address challenges and gain insights into customer behaviour and market dynamics. This learning process will contribute to informed decision-making and pave the way for the eventual inclusion of non-life insurance products in bancassurance. It is crucial to navigate these challenges to ensure the successful adoption and long-term sustainability of bancassurance. Continuous learning and adaptation along the journey will be essential for maximising insurance penetration in the market.

Syed Md. Rakeen: Growing income inequality has prevented a large population of lower- income individuals from availing of insurance products owing to a lack of awareness and insufficient funds to buy policies. Since that massive demographic is also unbanked in Bangladesh, how can banks devise strategies to ensure that the unbanked population is brought under both banking and insurance channels?

Md. Ashanur Rahman: I concur that a number of factors affect the dynamics of insurance premiums in Bangladesh, and addressing these elements is essential for bancassurance to succeed. One significant aspect contributing to higher premiums is the relatively low number of insured individuals. This limitation in the pool of insured people can lead to difficulties in settling claims, especially if the reserves from premiums are not substantial. Economies of scale can play a pivotal role in gradually reducing premiums as more people avail of insurance products over time.

There is also the challenge of certain insurance products not being widely adopted in Bangladesh. Term insurance, for instance, is not extensively sold, possibly due to misconceptions about its benefits and low premiums. Educating the public about the importance of diverse insurance products, including their benefits and affordability, is essential. People need to understand that insurance is not just a financial burden but a safeguard against unforeseen risks.

Literacy and transparency in the insurance sector are highly needed. People often underestimate the value of insurance, believing that nothing adverse will happen to them. Efforts to increase awareness about the significance of being insured, coupled with transparent communication from policy sellers, can contribute to changing this perception.

In addition to that, understanding life expectancy is crucial. The actuarial calculations used by insurance companies should be updated to reflect the current life expectancy in Bangladesh. Incorporating more recent data into these calculations would not only enhance accuracy but also potentially lead to a reduction in premium sizes. This reevaluation of outdated metrics is indeed a timely and necessary step for the insurance industry to adapt to evolving demographics.

In conclusion, bancassurance can play a pivotal role in addressing these challenges by fostering collaboration between banks and insurance companies, promoting education, and enhancing transparency to make insurance more accessible and beneficial for the people of Bangladesh.

Syed Md. Rakeen: The Insurance Development and Regulatory Authority (IDRA) issued the Insurance Development and Regulatory Sandbox Guidelines in 2023 to allow innovation in insurance product offerings and policies, with around 10 tech firms already working with insurance companies. Given the huge pool of technical resources of banks, how can banks leverage InsurTech to increase the accessibility of insurance products and strengthen the prospects of insurance in Bangladesh? Md.

Ashanur Rahman: It is evident that the integration of technology is a crucial aspect for the future of bancassurance, and the adoption of digital channels is gaining momentum among forward-looking banks. Leveraging existing client KYC forms and incorporating digital platforms, such as Citytouch integrating insurance offerings, streamlines the insurance process. Digitalization offers convenience, efficiency, and accessibility, particularly for tech-savvy clients.

However, acknowledging the diversity in preferences and access, there is a recognition that some individuals in remote areas may still prefer physical interactions over digital channels. For the unbanked or less tech-savvy population, creating physical channels remains essential. Striking a balance between offline and online channels is crucial to ensure inclusivity and to reach a broader audience, particularly those without smartphones or reliable internet access.

Syed Md. Rakeen: There is a huge dearth of insurance literacy in Bangladesh, and banks are expected to play a vital role in reducing the literacy gap among consumers while protecting their interests and prohibiting malpractices. From your perspective, how can banks ensure the proper integration of insurance products into their services?

Md. Ashanur Rahman: In response to the issue of insurance literacy, there is a commitment to addressing malpractices and ensuring proper integration of insurance products into banking services. The emphasis is on stopping tied selling and establishing internal guidelines to prevent coercion into buying insurance. Certification for insurance sellers explicitly prohibits involvement in malpractices, with a system of warnings and escalating punishments for fraudulent practices. Conducting customer need analysis ensures that customers are offered products tailored to their requirements.

The proposal for a dispute settlement committee between banks and insurance companies, held regularly, can be a proactive step toward addressing concerns about claim settlements. By fostering collaboration, coordination, and awareness, it is anticipated that initial challenges will gradually diminish over time. The commitment to capital punishment for persistent malpractices demonstrates a strong stance against illegal activities, reinforcing the dedication to creating a transparent and ethical bancassurance environment.

Syed Md. Rakeen: As per the data from the Daily Star and the IDRA, the market size of the insurance industry is BDT 5,000 crore with 530,360 insurance agents and nearly 90 lakh policy numbers in 2022. From your perspective, how do you envision the future of the insurance industry now that bancassurance will be adopted across various banking channels?

Md. Ashanur Rahman: The initial two to three years from the implementation of bancassurance are anticipated to be a learning phase for all involved parties. Some banks may intensify their efforts in selling insurance by forming strong collaborations with insurance companies, introducing new insurance products, and enhancing market penetration. Notably, the government’s substantial subsidy of BDT 12,000 crore in vulnerable sectors could witness a reduction if the insurance industry flourishes. This potential savings could then be redirected towards other national priorities, contributing positively to the country’s economy.

The impact on the economy is particularly significant when considering the vulnerable sectors in Bangladesh. Currently, around 8% of the population sells their lands to cover substantial medical expenses. Bringing these individuals under the insurance umbrella could alleviate the need for such drastic measures, fostering financial stability for the population.

The potential for economic growth through increased insurance penetration is evident in the statistic that a 1% increase in insurance penetration correlates with a 2.25% to 2.5% increase in GDP. This growth is crucial for banks with revenue targets, primarily driven by interest income. Bancassurance provides an opportunity for banks to diversify their income through feebased earnings or commissions, without taking on additional financial risk. As fee-based income grows, it can mitigate the need for aggressive lending, promoting a healthier financial position for banks.

Furthermore, the collaborative efforts of banks and insurance companies in bancassurance have the potential to foster transparency in the insurance industry. This handshake is envisioned as a means to strengthen the country’s overall economic position and earn the trust of the public in the realm of insurance. Ultimately, the synergy between banks and insurance companies is seen as a positive step towards achieving financial stability, economic growth, and public confidence in insurance services.