Bangladesh has been able to reach impressive heights on the economic growth scale over the past few decades. As per a World Bank report, our Gross National Income (GNI) shot up from $100 to $1,220 between 1972 to 2015.
Notwithstanding this fact, Bangladesh is still under-performing relative to its goal of becoming a middle-income country by 2021 -- an aspiration that demands an approximate annual growth of 8% per year.
A lot of our successes are being eaten up by natural calamities, vulnerabilities, and episodic pressure or onslaught on the economy. This is where the insurance sector comes in.
The presence of a well-rounded and diligently crafted national insurance framework reflects sound risk management; which helps in mitigating uncertainty and reducing costs of financing, thus boosting both household and organisational confidence. This eases the process of investing on higher risk-return activities and ultimately powers long-run economic growth.
The sad statistics
In comparison to the escalating trend of per capita income ($1602 as of 2017), the insurance penetration rate in Bangladesh is alarmingly low -- a shocking 0.7% in global comparison during 2016, out of which only 0.2% consists of life insurance.
To put it in further perspective, the highest insurance penetration in the world is at 18%, belonging to Taiwan.
According to the World Bank, only 4 out of 1,000 people in Bangladesh have life insurance, coupled with prevailing property risks arising from frail general insurance penetration.
The institutional infrastructure of Bangladesh’s insurance sector, namely the Insurance Development and Regulatory Authority (IDRA), is struggling, especially in terms of an impoverished regulatory capacity, as well as the lack of qualified personnel -- which itself might be critically stemming from the weak operational capacity of the Bangladesh Insurance Academy (BIA).
All in all, the 0.7% is without a doubt, an awfully dire piece of data for a country of 163 million.
The geographical position of Bangladesh exposes the nation to a wide range of natural disasters, like floods, earthquakes, and cyclones. Such forms of force majeure risks could pose hefty monetary tolls on an economy, with recovery and reconstruction costs reaching billions of dollars.
Only 4 out of 1,000 people in Bangladesh have life insurance, coupled with prevailing property risks arising from frail general insurance penetration
Cyclone Sidr of 2007 for instance, cost an estimated $1.67 billion. In cases like this, a sturdy insurance market can dramatically cushion the adverse impacts on government spending.
Due to the compressed radar of insurance services in Bangladesh, majority of the population, especially the ones living in rural regions, suffer the most during ta catastrophe.
By bolstering our insurance regulation, and modernising our systems to facilitate deep and organised network penetration of micro-insurance throughout Bangladesh, a strong level of economic resiliency could be gained at the face of unanticipated forces, especially in rural Bangladesh.
In recent times, we have seen how the Thail government avoided large erosion in their national balance-sheet and budgetary priorities during the recent floods and asset losses, with most of its assets being insured and appropriately re-insured.
Boosting our economy
The insurance regulatory reform is not just an aid for a catastrophic aftermath; it can also be a driver of exponential economic growth. By streamlining the regulatory infrastructure in terms of data warehousing, governance, systems, resources, and processes in adjustment with international insurance standards such as the International Association of Insurance Supervisors (IAIS); Bangladesh can exhibit a reliable and well-balanced insurance platform.
This, in turn, can boost investor confidence, leading to an increase in both local capital investments as well as FDIs.
Furthermore, high influx of capital commonly translates to a rise in infrastructure development projects.
These types of projects typically seek long-term borrowings, while the insurance market pursues long-term investments.
Matching these two vital requirements translates to massive economic synergies, thus bolstering the insurance market much further. From an alternate perspective, amplification and enhancement of the insurance industry can also help generate more jobs in the economy, and thus, support our employment scenario.
In short, rehabilitation of insurance regulations could result in multifold positive impacts on the economy of Bangladesh.
Bring about a reform
Firstly, there must be clarity and integrity in the policies and sales practices. Insurances happen to be fairly more complex in nature than most other products and services, which provides a platform for information asymmetry.
This means that unfair policies and malpractices could be undertaken by piggybacking on the customers’ comparatively minor level of technical knowledge, hence generating inefficiency in the insurance market.
Stringent monitoring and evaluation of the regulatory framework is thus required as a result to create failsafe standards that can help curb corruption and negligence from the insurers’ side.
Secondly, the system needs to become more customer-oriented. We must start by re-examining the traditional framework and learn to reconstruct an insolvency regulation which is in alignment with evolving and varying customer needs.
Further research and development will thus be required in the technical and financial paradigms to bring about more innovative features to providing insurance solutions; an increase in insurance awareness initiatives, and much importantly, a robust program for extracting and refining a pool of innovative and sincere professionals.
Bangladesh seems to be an untapped gold mine for the insurance industry. A global report by Lloyd’s projected that a meagre 1% rise in penetration in Bangladesh could contribute to as much as $4.4bn in savings.
Nevertheless, a bumper harvest such as this could only be reaped by taking a sincere and gigantic step to modernise our insurance framework, starting with facing and examining its deep-seated weaknesses and loopholes. Embracing technology as a solution-builder would also make our engagements more rewarding here.
Mamun Rashid is an economic analyst and partner at PwC.