Bancassurance system is going to be introduced in the country. In this system, the commercial banks will sell the products and services (insurance policy) of the insurance company. The Insurance Development and Regulatory Authority (IDRA) has prepared a draft policy for conducting these activities. Many banks are showing interest in this. Meanwhile, nine private and foreign sector banks have also applied to Bangladesh Bank for no-objection to conduct insurance marketing activities. However, Bangladesh Bank is reviewing the legal aspects and risk issues of whether the banks can provide such services. It has been decided to take the opinion of two lawyers for this. It is also learned that a seminar will be organized soon with interested banks to review the legal aspects, economy and its impact and risk in the banking sector.
Bancassurance is a French word, which means selling insurance products through banks. The first bancassurance concept was introduced in France and Spain in the 1960’s. Over the past decades, banks and insurance companies around the world have been quite successful in selling their products through bancassurance. The business has expanded to many countries in Asia, sub-Saharan Africa and Latin America, such as Malaysia, Korea, Singapore, Indonesia and the Philippines. At present, bancassurance is also popular in Asian countries. It has become the top medium especially in selling life insurance policies.
Banks act as an effective alternative channel to the bancassurance system, say people in the banking and insurance sectors. This reduces the cost of collecting premiums for insurance companies. On the other hand, the bank can offer various insurance benefits to its customers at no extra cost. Apart from that, as the customers have more confidence in the bank, the customers are also more attracted towards buying insurance policies.
It is learned that after receiving views from IDRA and the Ministry of Finance at a meeting of bankers held with the chief executives of commercial banks on December 19, 2016 under the chairmanship of the governor, it was decided to take further steps to approve the sale of insurance products in the bank’s proposed bancassurance system. IDRA has already formulated a draft policy in this regard. The policy emphasizes on the expansion of the business of the insurance company and the control system of the IDRA in conducting this business. Meanwhile, about nine banks have applied to Bangladesh Bank for no-objection to conduct marketing of insurance products of IDRA-approved insurance companies. These are private sector Citibank, Eastern Bank, BRAC Bank, United Commercial Bank, Bank Asia, Mutual Trust Bank, Bangladesh Commerce Bank and ICB Islamic Bank and Standard Chartered Bank in the foreign sector.
In a letter to the central bank, the banks said they would sell insurance products to their customers on behalf of the insurance company under a partnership agreement executed between the bank and the insurance company in the bancassurance system. This will increase the commission income of the bank and will benefit both the companies by expanding the business of the insurance company. In addition, banks will be able to provide one-stop financial services to their customers if they have the opportunity to conduct insurance marketing activities, and financial inclusion activities will accelerate as well as increase the contribution of the banking and insurance sector to the country’s GDP. It is learned that in the first phase, Guardian Life Insurance has been approved by IDRA to market their products through the bank. Interested banks have signed an agreement with the company and expressed interest in conducting business.
Section 7 (1) (Da) of the Banking Companies Act states that a bank may act as an agency or representative of someone if necessary. In this case, there is no specific mention in the law about the direct or indirect involvement of the bank in the insurance business. However, as directed in Section 7 (3) of the amended Banking Companies Act, no banking company may be directly involved in such business as a stock-broker, stock-dealer, merchant banker, portfolio manager or requiring registration from the Securities and Exchange Commission.
Therefore, Bangladesh Bank is reviewing whether there are legal impediments in conducting bancassurance business and to what extent it would be appropriate to involve banks in non-banking activities such as sale of insurance products. Apart from this, the extent to which the risks of the insurance sector will affect the banking sector if the banks act as agents of the insurance companies is also being examined.
