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Banks will sell insurance products shortly as the much-hyped ‘bancassurance’ is set to get government nod this month, for giving the industry a shot in the arm in a secure way.
A refurbished model of the bank-channeled insurance is believed to enable sales of insurance products through the banking channel, with focus on life-insurance policies.
Earlier in July last, the Financial Institutions Division (FID) of the Ministry of Finance gave the nod but it was later postponed as insurance association objected to some clauses of the guidelines.
The insurance regulator – Insurance Development and Regulatory Authority -and Bangladesh Bank prepared two separate guidelines. The FID gave its seal of approval to both. If there had been no objection, the partnership business should have been implemented few months back.
As defined, bancassurance is a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank’s customers. In this partnership, bank staff and tellers become the point of sale and point of contact for the customer.
Both the original guidelines had focused on all life-and non-life products.
But this time around, non-life products, namely motor, travel, health, and agricultural and crop insurance, are allowed, according to meeting minutes, setting aside main non-life products: fire and marine.
The meeting, held in September last, also said all life products will be allowed to do business under the model.
However, corporate agents–here banks–will get 15-percent commission on group- insurance business.
A senior official at the FID told the FE that they had addressed the issues objected by the Bangladesh Insurance Association. "The FID will notify regarding amended guidelines this month."
This is an alternative selling strategy for insurance products through banking institutions with sights set on revenue boost for both.
Insurance companies are expected to get more clients for their products with wider penetration, leading to a rise in their revenues, and banks’ too.
This type of alternative selling of insurance products is popularly called ‘bancassurance’, originating in France in the 1970s.
This is simply a relationship between bankers and insurers that is aimed at offering insurance products to the bank clients.
This will require no equity investment for banks, according to a presentation by the Bangladesh Bank.
Such system, available in almost all South Asian economies, will reduce the risk-based capital requirement for the same level of revenue.
This will secure an additional and more stable stream of income through diversification into insurance and reduce the reliance on interest spreads as the major source of income.
"With bancassurance, the insurance and banking industries can make significant progress in implementing the SDGs for the insurance sector," says a presentation prepared by the central bank earlier.
Also, the increased insurance coverage will add to the fiscal prudence of the population and provide financial support in the event of a calamity.
The IDRA thinks bancassurance would help raise insurance-penetration rate in the country, which is now less than 1.0 per cent of the gross domestic product (GDP).
