Bancassurance in Bangladesh https://businesspostbd.com/post/20662

16 Jul 2021 00:00:00 | Update: 16 Jul 2021 01:35:53

The business of bank is changing around the world – the integration of the global

financial market, new technology, demand variation, diversification of non-

banking activities and so on are the underlying reasons. The banks in Bangladesh

is mostly rely on interest on loan and need diversified products. In Bangladesh, 62

banks and 76 insurance companies (Life and Non-Life) are rendering financial

services. The grassroots people have a negative at-titude towards insurances – but

they have immense trust in the banking sec-tor. Banking operations in Bangladesh

is still branch-oriented and country-wide the total number of branches are more

than 8,000 countrywide. Only one percent of the total population enjoys the

insurance service. Almost all the life and non-life insurance companies are doing

their business mostly in the urban areas – city dwellers being their target

customers. Bancassurance has been introduced in 1980 in Europe and this is a

popular Bank-insurance joint product through-out the world. The banking

regulator, Bangladesh Bank and the insurance regulator, Insurance Development

and Regulatory Authority (IDRA), have joined their hands to devise means to

launch bancassurance in the country. Although late, Bangladesh author-ity has

decided to introduce bancassurance and necessary rule has been issued.

Bancassurance is a term coined by combining the two words bank and insurance

(in French) - connotes distribution of insurance products through banking channels.

This is a variety of insurance service offering to customers of the banks and fulfi l

the banking and insurance needs of the customers at the same time. Bank and

insurance company enter into cooperation agreement to market Bancassurance

through Distribution Agreement, Joint Venture and Full Integration for marketing

of Bancassurance. The cooperation generally of four main types of life insurance

products packed with bank credit: Savings products: This may be non-linked and

linked, promise to provide life cover and returns or a combination of both. Linked

Insurance Plans are of-ten referred to as an insurance-cum-in-vestment product.

These plans are linked to the stock market. Non-Linked Insurance Plans are

traditional plans that are not linked to the stock mar-ket. It provides low-risk

returns and a well-defined maturity amount and bonuses. A Term Insurance or an

endowment policy can be classified as non-linked insurance policies. Credit

protection products: Insurance products bundled with bank loans or credit cards

that are specifically de-signed to secure with insurance policy. Non-retail products:

These products target the needs of a bank’s MSME cli-ents with a life insurance

coverage of key person. It is insurance and also use as mortgage for the loan to the

micro, small and medium enterprises. Standalone protection products: These

products provide protection to beneficiaries in the event of a policy-holder’s illness

or death, and are frequently presented to customers as part of a comprehensive

needs-based financial plan. Examples include term life, whole life and living

benefits (long-term care, critical illness) insurance. Among the products protection

is still seeking a foothold in bancassurance. This product is the central theme of the

program. The majority of pro-grams currently focus on distributing a blend of

savings and credit insurance products. This strategy aims at blending of insurance

products as a ‘value addition’ while promoting its own products. Bancassurance is

very much needed for Bangladesh as it would help raise insurance penetration rate

in the coun-try, which is now less than 1.0 per cent of the gross domestic product

(GDP). The Insurance Policy, adopted in 2014, had a target of reaching 4.0 per

cent insurance penetration in the country by 2021.The insurance agency system is

somewhat expensive, and its effectiveness is on the wane now and Bank are not

feasible to rely only on interest on loan and need diversified products.

Bancassurance can reduce the strong dependency of insurers on agency

distribution channel and by using bank-ing distribution channel insurers can

increase their volume of business and gain better. This diversification will certainly

reduce risks as well as agency distribution cost. The insurance com-panies can get

access to ATM’s and other technology being used by the banks. The consumers

can get insurance products more cheaply while the product features will be same as

product distribution channel cost will be lower than the traditional distribution

channel like agency. Bancassurance is a win-win strategy for the banks, insurance

companies, and also the customers. Banks can meet their deposit demand through

it. Experts predict that soon 90 percent or above share of premiums will be

collected from the Bancassurance business channel. This product will minimise

credit risk of the banks through diversification of mortgage risk, personal loan risk

and SME loan risk. It also assures a long term relationship with the custom-ers as

insurances are issued on a long term basis. The customers’ gain would be the one-

stop service they will receive through this system. They will get comprehensive

financial services under one roof. Bank can off er a wide range of insurance

services and huge competition among banks – it will significantly in-crease the

banks’ profit along with a reputation for rendering more services. Banks will

generate more income from the commission earned by selling insurance products

and secured their loan with insurance coverage.

The writer is a legal economist.