Why do insurers oppose bancassurance?

The government has given its nod to drafts of bancassurance policy and corporate agent (bancassurance) guidelines, in an effort to enable the banks to act as agents for insurance companies.

But the long-awaited initiative to smoothly sell the insurance products is facing hurdles just before the issuance of gazettes as the association of insurers – Bangladesh Insurance Association (BIA) – has expressed reservation over its implementation.

The financial institutions division of the finance ministry formally informed the Bangladesh Bank about the approval of the drafts through a letter on Tuesday. It requested the central bank governor to issue a notification to the commercial banks.

According to the letter, the central bank formulated the bancassurance policy to facilitate marketing of insurance products through banks, while the insurance development and regulatory authority (IDRA) prepared the corporate agent guidelines.

Now, the central bank can issue a notification to sell the insurance products through banks, as per the Bank Company Act.

However, the insurers opposed the initiative. BIA president Sheikh Kabir Hossain said there are some issues with the proposed bancassurance policy, but did not specify the problems.

“I had conversations with IDRA chairman Mohammad Jainul Bari and financial institutions division secretary Sheikh Mohammad Salim Ullah (over the policy). It will remain postponed for the time being,” he told Prothom Alo.

Asked the reasons behind opposing the much-sought policy, the BIA president said, “It did not take shape as per our requirements. There are some issues with it.”

Sheikh Kabir did not detail the issues, but said those will be disclosed through a press release. However, he admitted that they are dilly dallying in proceeding with the bancassurance policy.

Chief executive officers (CEO) of several private insurance companies believe that one of the reasons for the opposition is the concern over the rampant practice of commission in the non-life insurance companies.

Bancassurance is a French term. It was first introduced in France and Spain and then gained popularity in other countries. The European countries mostly sell their life insurance products through the banks.

Neighbouring India introduced the policy more than three decades ago, while it was a success case in Pakistan and Sri Lanka as well. But Bangladesh is running slow to adopt the policy despite having a significant number of banks and insurance companies.

The sale of insurance products through banks is a widely recognised practice across the world. But the issue has been in discussion here for 10 years.

In the global context, Turkey has the highest rate (79 per cent) of insurance policies sold through banks, while the rate is 20.8 per cent in India, according to a survey conducted by the Foundation for the Advancement of Life and Insurance Around the World (FALIA).

Mohammad Nurul Huda, senior vice president of Bangladesh Non-Life Insurance Incharge Association, expressed concerns that introducing bancassurance may eat up many jobs in the sector. He said, “The policy might be applicable for the life insurances, but it should not be introduced for the non-life insurances. It is our demand.”

There is no significant research work on bancassurance in Bangladesh. Mohammad Z Mamun, a teacher of Dhaka University’s Institute of Business Administration (IBA), wrote an article several years back, noting the significant potential of bancassurance in the country.

The proposed bancassurance policy entails banks acting as corporate agents or representatives of insurance companies across the country.

Amid the longstanding trust-deficit in the insurance sector, the policy may emerge as a life saver. Customers will not require approaching companies to avail insurance products. As per the policy, they can avail the facility from the branches of different banks, in addition to receiving regular banking services. The insurance products include pension, health, accident, education, Umrah, Hajj, and others.

The banks and financial institutions under the control of Bangladesh Bank are allowed to be agents of bancassurance. An agent can work with a maximum of three insurance companies, subject to approval from the IDRA and Bangladesh Bank.

Hasina Sheikh, chairman of banking and insurance department at Dhaka University, welcomed the policy, saying that it will increase the insurance sector’s contribution to the gross domestic product (GDP).

In a conversation with Prothom Alo, she described the initiative as an opportunity to promote insurance products using the banking network and the people’s trust in banks. She hoped that it would gear up business for the insurance sector as well as the banks.

Asked about the concern over losing jobs of the employees of insurance companies, she said it is meaningless. There is no alternative to the bancassurance policy to develop the insurance sector.

However, IDRA chairman Mohammad Jainul Bari said a notification will be issued from the regulator regarding the policy. They are going slow, anticipating some issues in the implementation phase.