Asif Shams
Director, Bancassurance, MetLife Bangladesh

COVID-19 has prompted many of us to think about our health and finances and how to protect those dearest to us. While this heightened awareness of life and health protection needs is fueling the country’s fast-growing insurance industry, life insurance penetration in Bangladesh is only 0.5% - well behind the emerging market average of 3.3%[1].

So why are so many Bangladeshis living without adequate protection? For the most part, it comes down to awareness/education and access. One of the few positives to come out of the pandemic is that, like many other industries, insurance has made rapid advances in digitization, so it is now much easier for consumers to access products and services online now. That said, life and health insurance is a considered purchase and most people prefer to discuss their needs in order to make the right coverage decisions.

The good news is the Government of Bangladesh recognizes this and is taking active role in facilitating new channels to help people access the services and advice they need to make the right protection decisions and access the full benefit insurance can offer.

Bancassurance capitalizes on the strengths of both the insurer and bank partners
One new channel the Insurance Development and Regulatory Authority (IDRA) is exploring to complement the existing agency based distribution model is Bancassurance – the sale of insurance products and services through banks. Bancassurance has the potential to reach a wider consumer base faster and help them to address their financial protection needs. The other benefit it offers is that it allows consumers to look holistically at their financial position – in line with their existing borrowings and savings.

In a typical bancassurance arrangement, a bank and insurance company form a partnership through which the bank, utilizing its available distribution networks (branches, call centers, direct sales force), sells the partner insurance company's products to its clients. Banks sell insurance either as “stand-alone” insurance products, or as “add-ons” to typical banking products/services e.g. deposit pension scheme, different saving certificates. Though it is common to confuse bancassurance as a form of insurance, it is actually a distribution channel, and both the bank and insurer need to keep this in mind while planning their partnership.

Bangladesh’s banking sector has been a crucial player in the country’s economic development and a purveyor of technological advancement in financial sector. While an estimated 40%[2] of Bangladesh’s population remains out of reach of financial system, banks have been rigorously trying to expand banking reachability through innovative banking channels like digital banking, integration with mobile financial service (MFS) providers and agent banking model. Data from Central Bank indicated that the number of deposit accounts in the banking sector stood at 13.24 crore as of 2020, a 33.60% increase from 2019[3]. Looking into insurance sector in 2019, the number of active life insurance policies stood at around 90 lakh[4] and the number of people under the coverage of insurance was 2 crore[5].
While the growth of banking sector and insurance sector has been non-linear, both sectors can drive greater financial inclusion for the country by capitalizing and integrating their unique strengths and diverse customer bases.

Bancassurance brings a win-win opportunity for the financial sector
The Global Pandemic has created an urgent need and certainly highlighted the importance of having a digitally enabled distribution model for insurers. As of today, most of the transactional elements of insurance like submitting an application, paying premiums and making claims can already be done online or there is ongoing drive to digitalize the processes.. There are definitely opportunities for insurers to become more integrated with bank partners to holistically service customers through innovative and digital touchpoints.

With Bancassurance, insurers can take advantage of banks’ established distribution channel and large number of customers, and at the same time banks can also find new sources of revenue and create enhanced product diversification as competition intensifies. The recent introduction of instant account opening in banks offers more incentives for insurers to partner with a bank in bringing more people under the protection of insurance.

Bancassurance is a proven channel for integrated sales
Emerging Asian markets have long been utilizing the benefits of Bancassurance. Bancassurance is a rapidly growing distribution channel in Asia and it will remain one of the most popular ways to sell insurance in Asia going forward. In middle income countries in Asia, such as Malaysia and Thailand, bancassurance represents approximately 50% of insurance industry sales and has enabled penetration to reach an average of 3% of GDP. Data from the Insurance Association of Vietnam shows Bancassurance premiums represent around 30 percent of total life insurance premiums – that up from around 10 percent in 2016. Furthermore, a McKinsey report estimates the Bancassurance sector to growth at around a 40% compound annual growth rate (CAGR) between 2017 to 2020.

One question remains though – with all the convenience of Bancassurance channel, will this eliminate the need for traditional insurance sales channel? Life Insurance is a highly considered purchase and customers still tend to prefer working with advisors/agents to discuss their individual protection needs to find the right solution. So, the role of financial associates or agents will remain as it is today. Bancassurance will usher a parallel distribution channel making insurance products more accessible to customers.

Bancassurance will enhance overall customer experience
Customer experience is everything in having a successful Banca partnership. Bancassurance customer journey can sometime be complex, because organizations are trying to harmonize multiple internal processes and IT systems. However, prioritizing a seamless customer experience is critical to making this a more attractive proposition to customers. for example, banks offering a one-stop shop for multiple financial solutions and having an insurance partner that intuitively knows the bank’s customers and anticipates their needs on a continuous basis.

Successful partnerships will require a much closer co-ordination in developing customer centric products and solutions, seamless technology platforms and a rewarding experience for the customer. There is also significant opportunity to more effectively leverage data sharing agreements between the bank and insurance company to more holistically understand and address the customer needs.

Bancassurance will help drive insurance penetration in Bangladesh
Bancassurance has tremendous potential to address one of the most pressing concerns of insurance industry in Bangladesh – how to increase the country’s life insurance penetration for greater economic growth. By implementing effective guidelines, both regulators in Banking (Bangladesh Bank) and Insurance sector (IDRA) can help expand insurance penetration, deepen financial inclusion, grow the insurance sector, and advance Bangladesh’s efforts to become a middle-income country. This is particularly important now as people seek additional financial protection against unforeseen health and wellness incidents in the wake of COVID-19.

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