"The low penetration of Insurance is a real challenge for a growing economy and in the case of many other economies at the same stage as Bangladesh, Bancassurance has provided the necessary coverage to increase the penetration to a sustainable level", said Sheikh Mohammed Danial, Director, Sonali Life Insurance Co. Ltd and Rupali Insurance Company Limited in an exclusive interview with daily Bangladesh Post.
Referring to one of the major issues for low Insurance penetration, is the lack of trust, Danial said the trust factor is higher on the Relationship Manager of the bank compared to the agents of the Insurance Companies. A client discusses and takes opinion from the RM regarding his/her financial needs and investment options.
Danial feels that Bancassurance will allow Bank RM to present an Insurance product as an investment and risk mitigation plan together. There are huge potentials for Bancassurance in Bangladesh.
Highlighting the high prospect of Bancassurance in Bangladesh he described the possible risks, ultimate benefit and effective ways of implementation of Bancassurance in our country while he was replying to a set of queries, made by Bangladesh Post.
The excerpts of his interview are produced for the valued readers.
Bangladesh Post: First of all could you please brief us about the emergence of the idea of Bancassurance, its background and its global application.
Sheikh Danial: Bancassurance, which originated in France, is a distribution channel through which banks act as the point of sale for insurance products. Through this alternative distribution model, the bank and the insurance company can deliver insurance solutions to clients in the most efficient and effective manner. In France, 64% of all life insurance premiums are collected through Bancassurance accounts, while Bancassurance accounts for over 75% of all life insurance premiums collected in Turkey. Insurance agents contribute less than 7% in both France and Turkey. Even India has seen a 22.6% compound Annual Growth Rate for life insurance premium through Bancassurance between FY2014 to FY2018. By 2018, Gross Life Premium collected in India through Bancassurance stood at a whopping $3.6 Billion.
Bangladesh Post: Now please tell us the prospect of Bancassurance in a country like Bangladesh and let us know about the process how it can be applied in domestic insurance industry?
Sheikh Danial : Bangladesh is an emerging economy, in almost all parameters including; sustainable development goals indicators, Bangladesh have seen a very positive growth. However, the contribution of insurance in GDP is very low compared to similar countries and the Insurance penetration in the Bangladesh economy is at extremely low 0.57% of the economy. This represents a risk for businesses, property, capital and poverty. The low penetration of Insurance is a real challenge for a growing economy and in the case of Bangladesh just like many other economies at the same stage Bancassurance provided the necessary coverage to increase the penetration to a sustainable level. One of the major issues for low insurance penetration is the trust. The trust factor is higher on the Relationship Manager of the bank than the agent of the insurance company. A client discusses and takes opinion from the RM regarding his/her financial needs and investment options. Bancassurance will allow Bank RM to present an insurance product as an investment and risk mitigation plan together. There are huge potentials in Bancassurance in Bangladesh.
Bangladesh Post: What can be the probable risk factors in this regard?
Sheikh Danial : Bancassurance is a delicate arrangement. Both the Bank and the Insurance Company should be of a credible financial condition. For Insurance providers the risk of Insurance fraud remains high. While Banks act as the distributor, if the Insurance provider is not financially healthy the delay in claim settlement can hamper a banks reputation. As a result, in most economies, when Bancassurance is launched a minimum “A” rating is required for Insurance Companies and Banks in order to arrange and offer Bancassurance. Understanding of insurance products by a bank officer/RM is the critical part of Bancassurance. Lack of understanding may lead to mis selling or misleading to potential clients. To overcome this issue, bank officers need to be trained properly before assigned to sell insurance products.
Bangladesh Post : As the commercial banks would have to take a part in this process, so please tell us how to involve them in the process, and how the banks will be benefited?
Sheikh Danial : Commercial Banks are engaged in providing capital and funding. There are risks involved for which in some cases, collaterals are usually provided by loan applicants. Majority of the times, the collateral itself is at risk; for example: A factory might take a loan for buying machinery and the collateral might be the factory and the machineries. However, in the event of a fire, the collateral loses significant value instantly. In such scenario, a Fire Insurance reduces the financial risk of the lender and the insured. Such coverage are mandatory by law anyways, however, through Bancassurance, the Bank is able to track the insurance process at its entirety which ensures smooth claim process. However, the biggest benefit for the bank is earning non-interest revenue through Bancassurance. Through Bancassurance a bank’s non-interest income can be Turbocharged and allow it the luxury to focus on safer investments with depositor’s funds.
Bangladesh Post: As we know that the insurance sector plays a crucial role in sustainable growth of an economy, how the banks' affiliation with insurance companies can further strengthen the growth process?
Sheikh Danial : Sustainable growth in an economy is an inclusive one. In an inclusive economy, everyone has access to funding, and the opportunity to grow, build and sustain dynamic vision. However, due to lack of collateral many such visions remain a distant dream. In other successful economies, Bancassurance have been able to cater to such demands and provide the security needed by lending organizations to provide the tools needed to convert dynamic dreams into reality. Such is the power of risk management that an economy can truly become inclusive and sustainable if insurers are allowed to manage risks in coordination with Banks.
Bangladesh Post: In the perspective of Bangladesh, we know that the common people bear negative impressions about the insurance processes in Bangladesh. So, do you think that there may have fear of frustration of bank clients in this connection?
Sheikh Danial: The frustration is aligned with claim process, and in recent times Insurance Development Regulator Authority (IDRA) have made it a priority to ensure claims are settled in due time, thus ensuring the credibility of the Insurers. Things are changing and IDRA plays a vital role for any complaint of non-settlement of claims. Settling claim on time is an opportunity for us to prove ourselves to our clients and one satisfied client can bring many more clients. I believe Bancassurance will help to fight the negative perceptions of Insurance, as more people will be able to enjoy the protections that only Insurance solutions can provide.
Bangladesh Post: As you feel that the Bancassurance can turbocharge the non-interest revenue of banks in Bangladesh, and thus, would it help banks achieve their BASEL III requirements?
Sheikh Danial : Under the third installment of the BASEL framework, banks are required to maintain their respective capital adequacy within a set parameter. As a result, the non-interest source of income and revenue concentration significantly affect bank risk in the overall analysis and assists Banks to maintain the prescribed capital adequacy. Under Basel III guidelines, interest income will be more costly for banks as they must maintain certain capital and provision against their loans. Bancassurance has been identified as the most efficient way to increase the non-interest revenue of Banks and thus if Bancassurance is implemented in Bangladesh it will assist our banks to achieve their Basel III requirements.
Bangladesh Post: We know that Bangladesh is now going through the process of graduating from LDC, do you think that this is the right time to arrange an alliance between the financiers of capital and the protectors of capital in Bangladesh.
Sheikh Danial : Bangladesh graduating from LDC is a matter of national pride. It also is a true testament of grit and determination of our government and private sector. However, this graduation to a developing economy has challenges, as we see industrialization and higher inflation the risks of accident become ever more perilous than before. While Banks and financial institutions try to find new sectors to finance the next boom of the economy, an alliance between the financiers and Insurers will enable the safety of finance in a sustainable manner. Economies such as India, Turkey, Thailand and many other countries when they were at the similar stage as is Bangladesh economy today had secured the prosperity of the economy while avoiding individual collapses through such alliance like Bancassurance. If the progress of the economy needs to be maintained in a sustainable manner, insurance needs a greater penetration, which is possible through Bancassurance.
Bangladesh Post: Question will certainly be raised over the thinking of regulators of both bank and insurance industry regarding Bancassurance, so would please share us your assessment, expectations and fear in this regard?
Sheikh Danial: The greatest challenges for both the Insurance Development and Regulatory Authority (IDRA) and Bangladesh Bank (BB) have a challenge ahead of them, to balance the Bancassurance dynamism with careful regulation to keep influence at bay. In a perfect scenario, Bancassurance can bring stability along with prosperity for the economy. Both the regulators are immensely dedication in protecting the interest of the general public, as a result I am optimistic that the framework for Bancassurance which will be drawn on in conjunction between Insurance Development and Regulatory Authority (IDRA)Bangladesh Bank (BB) and Bangladesh Insurance Association (BIA) will create Bancassurance to work for the best interest of its clients.
Bangladesh Post: Now please brief us on how Sonali Life Insurance and Rupali Insurance Company Limited are preparing for Bancassurance?
Sheikh Danial : Both Sonali Life Insurance Company Limited (SLICL) and Rupali Insurance Company Limited (RICL) have undertaken deep learning of Bancassurance with the assistance from global leaders on Bancassurance, have setup dedicated teams for Bancassurance. IT and infrastructure would be the challenging part for insurance companies for successful Bancassurance model as banks have superior technologies. Keeping that in mind, we are getting ready for the Bancassurance andmost importantly both companies have undertaken massive IT investments. We believe that IT and infrastructure will be the major differentiator to make Bancassurance successful. Sonali Life Insurance Company Limited had started its journey as an IT based Life Insurance Company, and has a dedicated team of Application Programming Interface (API) development department which has allowed the company to be the first to be connected with leading Banks and MFS through APIs. Rupali Insurance Company Limited has also undergone an IT transformation which now allows both the companies to render all its functions digitally making processes time efficient. Both companies have undergone transformation keeping Bancassurance in mind and are now ready to implement.