Kazi Muhaiminul Islam Munaj l Session: 2020-2021 l Department of Banking and Insurance
What if you could visit your bank to make a deposit and, on the same outing, secure your financial future with an insurance policy?
Imagine a business owner, Rahim. He visits his bank once a month to deposit profits and pay off his loan. One day, a bank officer approaches him with a life insurance policy for small business owners. With an easy process and trust in his bank, Rahim enrolls, ensuring his economic security during times of bad luck.
This is bancassurance's magic, a seamless combination of banking and insurance products that may make financial protection affordable. So, what’s Bancassurance? Is it worthy for us?
Bancassurance is the partnership between banks and insurance companies where banks provide insurance products to their customers. Under this, banks play role as intermediaries in selling insurance policies from partnered insurance companies. The primary objective of bancassurance is to leverage the bank’s customers to enhance insurance penetration while providing an additional revenue stream for banks.
Bancassurance gained much popularity in many countries due to its potential to improve financial inclusion and increase insurance penetration while providing a seamless financial experience for the customers. In neighboring country India, bancassurance It started in the year 1999, the bancassurance market size was reported as US$ 92.6 billion in 2022 (India Bancassurance Market Report by IMRC). The bancassurance market sources in the ASEAN region , predicted that the distribution of s might cover 50% of bancassurance. The concept of shares bancassurance among people is relatively new in Bangladesh. Swiss Re Institute reported in 2022, the insurance penetration in Bangladesh was only 0.40 percent. This figure is notably lower compared to neighboring India, where insurance penetration is 4.00 percent. The Bangladesh Bank issued a bancassurance guideline for banks on December 20, 2023, which permits banks to act as intermediaries in the sale of insurance products on behalf of insurance companies. Despite the presence of numerous insurance companies in Bangladesh and a trusted place for the general public and financial stakeholders, around 40% of Bangladesh’s population remains out of reach of the financial system (according to Asif Shams, Director of Bancassurance at MetLife Bangladesh) and the banks have been trying to expand banking reachability through innovative banking channels. Bancassurance operates under three models.
1. Referral Model: Banks refer customers to insurance companies with which they have partnered. Here, the bank acts as a lead generator and does not directly sell insurance policies.
2. Corporate Agency Model: Banks sell insurance policies directly where they have staff and a separate department to provide insurance services.
3. Full-Integration Model: Banks act as full-fledged insurance service providers, managing sales, claims and customer services. This model requires significant investments in infrastructure and different regulatory compliances.
Despite of bancassurance potentiality in lower-middle income countries, bancassurance has not gained widespread popularity in Bangladesh who are aspiring for an upper-middle and eventually a high-income status by 2031 and 2041 respectively due to factors:
1. Low Insurance Awareness: People in Bangladesh are unfamiliar with insurance and its benefits, while they are more familiar with the banking system and its benefits. A lack of financial literacy prevents people from properly valuing insurance.
2. Lack of product range: Banks in Bangladesh currently offering limited insurance policies like life insurance and health insurance in common. In many developed countries bancassurance includes a wide range of policies, such as travel insurance, property insurance, and investment-linked policies.
3.Trust Issues and Mis-selling Concerns: Different types of mis-selling incidents have damaged trust in bancassurance, with customers being pressured into buying policies without fully understanding the terms.
4.Complex Claim Settlement Process: Currently Banks have bancassurance acts as intermediaries
5.Competition from Direct Insurance Sales and Digital Platforms: Many customers prefer to buy insurance directly from insurance companies or online platforms, which offer more flexibility and transparency. The rise of digital insurance platforms in Bangladesh is providing alternatives that is challenging for the bancassurance model which is comparatively new in Bangladesh.
Several commercial banks in Bangladesh have already partnered with insurance companies to offer bancassurance services. BRAC Bank partnered with Guardian Life Insurance to provide life insurance coverage to small business unsecured loan customers. MetLife Bangladesh recently signed an agreement with City Bank PLC, one of the country's leading private commercial banks. Through this partnership, MetLife policyholders can now conveniently pay their premiums at City Bank’s 495 nationwide agent banking points, significantly increasing customer access and convenience. Dutch- Bangla Bank provides Life Insurance, Pension Scheme, Child Education Insurance, Health Insurance while partnering with two of the most reputed Insurance Companies in the Country: Guardian Life Insurance and Pragati Life insurance. UCB Bank also provides various insurance products while partnering with Pragati Life insurance.
What do Customers Expect from Better Bancassurance Services?
• Transparent Information & Customer Education: Customers expect clear communication about policy terms, benefits and claims to avoid misunderstanding.
• Simplified Claim Process: Faster settlements and better co-ordination between banks and insurers.
• More diversified offerings: Customers expect more expansion beyond life, health, travel and business insurance so that they can get everything from one bank: Banking and Bancassurance service.
• Digitalized and improved customer service: More mobile banking and online options for purchasing and managing policies and well-trained bank employees to assist in insurance-related queries.
Recent Developments in Bancassurance:
1. Regulatory Improvements: “Insurance Development and Regulatory Authority of Bangladesh (IDRA)” and “Bangladesh Bank” issued “Bancassurance Guidelines for Banks" in 2023, where banks in Bangladesh are allowed to act as intermediaries for insurance sales.
2. Security measures: “Insurance Development and Regulatory Authority of Bangladesh (IDRA)” mandated risk assessment protocols, cybersecurity guidelines, and enhanced data protection measures to prevent fraud and unauthorized access to customer data.
3. Customer Protection Policies: “Bangladesh Bank” gave emphasis on consumer protection measures to prevent mis-selling and ensure transparency in bancassurance transactions.
4. Increased Digital Integration: Some banks and insurers in Bangladesh are incorporating digital platforms to streamline insurance sales and claims processing to improve accessibility and service efficiency.
5. Introduction of Degrees in Banking and Insurance: Banking and Insurance degrees and courses in universities are transforming bancassurance by equipping banks with professional staff who have knowledge of the two sectors. Equipped with a sound academic record in risk management, insurance policies, financial regulation, and customer outreach, graduates are able to bridge the gap between bank and insurance products.
How can Bancassurance significantly improve insurance penetration in Bangladesh?
1. Increased Accessibility Through Banks: Bangladesh has 130 million bank customers, while only 10 million have insurance. By offering insurance directly through banks, more people can be reached. Banks in Bangladesh have a strong physical presence even in rural areas, which can make insurance policies more accessible.
2. Enhancing Trust and Credibility: Many people in Bangladesh trust banks more than insurance companies. If banks promote insurance, customers of banks are more likely to consider it credible and reliable.
3. Simplifying the Insurance Buying Process: Bancassurance integrates insurance into everyday banking, making it easy for customers to purchase policies while opening accounts or taking loans. Digital banking platforms can allow one-click insurance purchases, reducing paperwork and bureaucracy.
4. Offering Microinsurance for Low-Income Groups: People in Bangladesh cannot afford insurance with a high premium. Bancassurance can introduce microinsurance policies tailored for low-income individuals, covering health, life, and small business risks. Example: Grameen Bank’s microinsurance model has successfully insured rural people with minimal premiums.
5. Digital and Mobile Banking Integration: Bangladesh has over 200 million mobile financial services (MFS) accounts, making mobile-based bancassurance a game-changer. Insurance policies can be integrated into bKash, Nagad, Rocket, and Upay, allowing customers to buy and claim insurance via mobile apps.
6. Faster Claim Processing and Customer Support: Banks can act as intermediaries, reducing delays in insurance claim settlements. With trained bank staff, customers can receive proper guidance on claims and policy benefits. Many universities in Bangladesh offer B.B.A. and M.B.A. degrees in Banking and Insurance, which enables banks to recruit staff who have knowledge of both banking and insurance, where they are very suitable for giving proper guidance about both banking and insurance.
7. Regulatory Push and Incentives: Bangladesh Bank and IDRA introduced supportive regulations and banks are willing to promote insurance to diversify their services. Offering tax benefits or commission incentives to banks for selling insurance can boost bancassurance adoption.
Bancassurance in Bangladesh stands a good chance of success in achieving financial inclusion and insurance deepening penetration. Although the model is extremely successful in increasing insurance penetration in almost all countries, its application in Bangladesh is at its stage of just coming into existence and beginning to display signs of future potential. Inadequate awareness, lack of product differentiation, lack of trust and competition from the web based insurance players have checked its growth. But, with additional regulatory support, improved digital connection and increasingly tough customer requirements for easy finance products, bancassurance can flourish. Is bancassurance therefore worth it in Bangladesh? As the country is underpenetrated in the case of insurance and banks are highly trusted by individuals. If managed well, bancassurance can be revolutionary. It can bring convenience, greater accessibility and the possibility of the entry of microinsurance even in economically weaker sections of society. Also, like other countries, Bangladesh government can make insurance mandatory for the citizen of Bangladesh . There are issues and it is quite common for a country like Bangladesh. but the benefits render bancassurance a mission with gigantic pay-off for Bangladesh's financial advancement.
