Unlocking the Potential of Bancassurance in Bangladesh: A Seamless Financial Solution

Bancassurance in Bangladesh: Bridging Banking and Insuranceanking and Insurance

Bancassurance, the innovative partnership between banks and insurance companies, offers a one-stop solution for customers' banking and insurance needs. Globally, this model has proven successful, and Bangladesh is no exception to its growing relevance.

Recent Developments

On December 20, 2023, the Bangladesh Bank issued a circular titled "Bancassurance Guidelines for Banks," permitting them to act as intermediaries in the sale of insurance products on behalf of insurance companies. This marks a significant development for both the banking and insurance sectors.

What is Bancassurance?

Bancassurance is a distribution channel where insurance products are sold through bank branches. This model leverages the extensive network of banks to reach a wider customer base, providing convenience and efficiency for customers who can manage their banking and insurance needs under one roof. This mutually beneficial partnership allows banks to generate extra revenue through the sale of insurance products, while insurance companies can broaden their customer reach without the need to expand their sales force.

The Global Perspective & Bancassurance Industry Growth

In many countries, Bancassurance has become a dominant distribution channel for insurance products. Europe, for instance, has seen significant success, with Bancassurance contributing to a large portion of life insurance sales. The global bancassurance market, especially prominent in the Asia-Pacific region and primarily focused on life insurance, is experiencing significant growth. According to the research and consulting firm IMARC Group, the market's value surged to $1.268 trillion in 2021. IMARC anticipates a continued expansion with a compound annual growth rate (CAGR) of 5.9%, projecting the market to reach a value of $1.802 trillion by 2027. A key driver of this trend is the increasing demand among the aging population for health and life insurance, along with a heightened interest in retirement plans.

History of Bancassurance

The term bancassurance originated in France during the 1980s. Initially, several countries were wary, believing that allowing banks to engage in bancassurance would grant them excessive control over financial products in the market, leading to imposed restrictions. Today, many nations have embraced bancassurance, witnessing significant global growth, with Europe emerging as its most successful region.

Why Bancassurance?

In this collaborative model, banks serve as the distribution channel, while insurance companies focus on product development, leveraging the extensive network established by banks.

• For Banks:

- Additional Income: Engaging in bancassurance opens avenues for additional income by offering their platform to insurance companies.

- Enhanced Product Offerings: It provides an opportunity to expand their product offerings, leading to more comprehensive services that enhance customer loyalty.

- Manpower Utilization: Utilization of existing bank staff for bancassurance can enhance manpower efficiency through easy training.

• For Insurance Companies:

- Increased Sales: Insurance companies benefit by increasing sales through the distribution network of banks and gaining access to the customer base of their banking partners.

- Cost-Effective Penetration: This collaboration facilitates the development of tailored insurance products without the need for extensive sales forces.

For Customers:

- Convenience: Customers benefit from a one-stop service, addressing their financial needs in one go, saving time and energy.

- Trust and Simplicity: The dual access to banking and insurance services simplifies the product review and selection process, backed by the trusted relationship with their bank.

Bancassurance in Bangladesh – Overview

To start, let's gain a brief understanding of the insurance industry in Bangladesh. The Insurance Development & Regulatory Authority (IDRA) proposed guidelines for regulating the registration of insurance companies in the country. Consequently, the government of Bangladesh issued a notification affirming that "Insurance" is a permissible business activity for banks, as outlined in Section 7 (1) (la) of the Banking Company Act, 1991. However, any bank wishing to engage in this business must obtain specific approval from the Bangladesh Bank (BB). As a result, all scheduled commercial banks are authorized to conduct insurance business on behalf of insurance companies without assuming any risk participation, operating on a fee basis.

How Can a Bank Engage in Bancassurance?

Any bank intending to participate in Bancassurance must first secure approval from the Bangladesh Bank and acquire a corporate agent license from the Insurance Development and Regulatory Authority (IDRA), Bangladesh, before proceeding.

Bancassurance Qualification Requirements

In granting approval for Bancassurance, the bank shall comply with the following criteria:

- Capital to risk-weighted asset ratio (CRAR) with capital conservation buffer (CCB) shall not be less than 12.50 percent.

- Credit rating not less than Bangladesh Bank (BB) rating grade 2.

- Minimum CAMELS rating of 2.

- Net non-performing loans (NPL) shall not be more than 5 percent.

- Positive net profit for the last three consecutive years.

- Viable Bancassurance business plan approved by the Board of Directors.

- Competent manpower to operate a dedicated Bancassurance unit.

- No common beneficial owners of the bank and insurance company as defined under the Bank Companies Act, 1991.

Claim Processing

The settlement of claims shall be the responsibility of the insurer and shall be obliged under the following arrangements:

- The bank shall assist the insured person or nominee(s) as a facilitator in processing the claim.

- The insurer shall settle the claim directly with the insured person or nominee(s).

Commission

Commission shall be determined between the insurer and the bank as per their agreement conforming to regulations set by the IDRA.

Types of Bancassurance Services

- Life Insurance

- Non-Life Insurance

Advantages of Bancassurance

For Banks

- Optimal avenue for generating additional income with minimal capital investment.

- Valuable addition to the bank's product portfolio.

- Enhances manpower efficiency through easy training.

For Insurance Companies:

- Facilitates increased turnover.

- Enhances penetration in rural and urban markets using the bank's existing customer database.

- Cost-effective marketing through established bank branches.

For Customers:

- Offers a one-stop service for comprehensive financial needs.

- Establishes a high degree of trust.

- Simplifies the claims process and payment of premiums.

- Provides easy access to a diverse range of products.

Disadvantages of Bancassurance

- Risk of data security being compromised.

- Potential customer confusion due to conflicts of interest.

- Challenges in service quality expectations in some regions.

- Risk of customers not exploring other options for competitive prices.

Conclusion

Bancassurance holds significant potential for transforming the financial landscape in Bangladesh. By bridging the gap between banking and insurance, it provides a comprehensive solution for customers' financial needs. As the sector continues to evolve, strategic partnerships and regulatory support will be key to unlocking the full potential of Bancassurance in Bangladesh.

For more information, refer to the Bangladesh Bank and Insurance Development and Regulatory Authority (IDRA).