The government on Tuesday approved the introduction of bancassurance, a system enabling sale of insurance products through the banking channel in the country.
The Financial Institutions Division (FID) of the Ministry of Finance issued an order in this regard on the day asking the insurance regulator (Idra) and Bangladesh Bank -- to launch such a partnership business to boost insurance business.
The banks will act as corporate agents of the insurance firms.
The FID has also sent the letter to both the regulators on the day.
The Insurance Development and Regulatory Authority of Bangladesh (Idra) had earlier prepared two separate guidelines to this end.
This is an alternative selling strategy for insurance products through banking institutions with sights set on revenue boost for both.
Insurance companies are expected to get more clients for their products with wider penetration, leading to a rise in their revenues, and banks', too.
This type of alternative selling of insurance products is popularly called bancassurance, originating in France in the 1970s.
This is simply a relationship between bankers and insurers that is aimed at offering insurance products to the bank clients.
This will require no equity investment for banks, according to a presentation of the Bangladesh Bank.
Such a system, available in almost all south Asian economies, will reduce the risk-based capital requirement for the same level of revenue.
This will secure an additional and more stable stream of income through diversification into insurance and reduce the reliance on interest spreads as the major source of income.
Also, the increased insurance coverage will add to the fiscal prudence of the population and provide financial support in the event of a calamity.
Earlier, Idra, the regulator of 81 insurance companies in Bangladesh, sent its opinions to the FID in June, 2021.
Idra thinks bancassurance would help raise insurance-penetration rate in the country, which is now less than 1% of the gross domestic product (GDP).
