Insurance is the protection of adverse risk. Risk is one of its most challenging and constant aspects of the human experience.
The insurance industry is not only central to the creation of a stable business environment for a country's economic growth but also critical for the reduction of the financial burden on the government during natural and economic crises.
In the past, we have seen a strong track record of Bangladesh’s growth and development, even in times of global uncertainty during the Covid-19 crisis.
A strong recovery from the COVID-19 pandemic continued in 2022-23, although a recent surge in commodity prices, scarcity of dollar reserves prompting a new financial market crisis have presented new challenges for the government and the economy of Bangladesh.
The insurance industry of Bangladesh also had a good start in the beginning of 2023.
However, due to the uncertainty of the financial sector, especially compared to the banking and capital market, the insurance market was in a standstill situation among the financial portfolios at the end of the year.
Lack of confidence among the people regarding the financial sector and the spillover effect was faced by the insurance industry.
Over the last few years in the insurance industry, Insurance companies are trying to make the public aware of the benefits of insurance and protection.
Most people assume insurance to work like other financial portfolios, where they get a profitable return. Hence, the industry as a whole has been working towards creating awareness on how insurance works as a protection and not just any financial securities with return.
Subsequently, a few changes have been evident across the industry. The regulatory body is also trying to promote and encourage the companies to pay off 100% of the claims and insurance settlements.
In our economy if any part of the financial ecosystem is in crisis, the insurance sector is likely to be in a crunch as well.
We often find that insurance is at the bottom of everyone’s priority. It is almost a push to sell products and most of the people of our country do not willingly buy insurance policies.
We have even witnessed financially-sound individuals and business houses prefer to save in FDR, bonds, and real estate investments or even stock markets to get a speedy return, but never insurance.
To create awareness, we could mandate insurance to some extent at least. When comparing to other countries, for instance, applying for a visa in Europe or Australia everyone requires travel insurance.
Furthermore, people can decide the premium depending on the level of protection they want.
Recently, the government has implemented a few insurance policies. For instance, Bangladeshi immigrants abroad that are earning remittance, are mandated to take insurance.
Another insurance policy has been implemented in primary schools. However, if we look at the 4.2 million RMG workers that help us to earn foreign currency through export, they still do not have any kind of insurance protection.
Similarly, we can focus on promising real estates, the agricultural sector, high value crops and valuable personal assets.
In a study report of LightCastle Analytics Wing has described that despite a booming economy and the expected middle-income country status by 2024, the insurance industry of Bangladesh can only be described as underdeveloped. A major reason for this is that most consumers in Bangladesh are unaware and uneducated about how insurance works, due to a lack of information dissemination.
Vague and complicated terms and conditions further discourage them from taking insurance. Around 7% of households in the country have to finance healthcare payments by selling their assets.
Insurance would relieve them of this burden by providing protection against the risk of unaffordable treatments. To protect consumers, regulatory bodies need to impede the sale of unfair or exploitative contracts, which is often caused by complicated policy language and unjust pricing.
Regulation to limit insolvency risks will also ensure that customers get paid when they need to collect claims, which is often considered a major peril of insurance contracts.
Moreover, the poor performance and outlook of the financial sector are not promising either. Banks are dealing with a liquidity crunch caused by the high number of defaulted loans, or non-performing loans (NPL), and multiple scandals have shaken customer confidence for buying insurance for their protection.
Regulatory reform must focus on protecting consumers from complex and potentially deceptive contracts, and the increasing availability of insurance products to members of all stakes of the economy.
The Insurance Core Principles (ICPs) developed by the International Association of Insurance Supervisors (IAIS) provide a globally accepted framework of principles that the government can adopt for Idra.
Despite the dismal image portrayed by the current situation and numbers, Bangladesh’s insurance sector has significant potential as the average income and GDP continue to rise.
Moreover, as the middle and affluent class in cities throughout the country increases in size, the desirability of insurance also increases.
Recent statistics showed that the total market value of the Bangladesh insurance industry in 2023 was over Tk17,000 crore, where the contribution of life insurance was about over Tk12,500 crore and the remaining Tk4,500 crore came from the non-life insurance sector.
In 2023, the total premium earnings was about Tk17,000 crore with about 10% growth showing a positive trend.
In 2022, we have also witnessed a new trend whereby more people are being aware about protection and insurance policies; this has also continued to 2023 and onwards.
Then the impact of the insurance industry can be easily illustrated by the impact of a 1% increase in insurance penetration with some pragmatic initiatives by the policymakers, investors, practitioners and positive acceptance by the consumers.
The author is CEO (Admin) of Chartered Life Insurance Company Ltd