The government is set to take up a BDT6.32 billion (US$76 million) project to upgrade insurance regulation with the view to developing Bangladesh's insurance sector. Of the total project cost, the World Bank will provide BDT5.13 billion or around 80%.
The development objective of the Insurance Sector Development Project for Bangladesh is to strengthen the institutional capacity of the regulator and state owned insurance corporations and increase the coverage of insurance in Bangladesh.
Of the project cost, BDT910 million would go towards building the IT infrastructure, BDT790 million for automation, and about BDT90 million for setting up a distance learning centre and implementation of the interactive portal of the Insurance Development and Regulatory Authority (IDRA), reports Daily Star. About BDT510 million is to be allocated for the training of about 45,000 people.
The second component of the project is modernisation of the state-owned insurers, Sadharan Bima and Jiban Bima Corporation.
At present, there are 78 insurance companies in the country and the project is adopted to better monitor the companies to ensure better service for customers.
In a paper on the project published in February last year, the World Bank said: “Most insurance products that are available in Bangladesh suffer a lack of quality with regard to price and coverage due primarily to a combination of shortage of professional skills as well as lack of insurance-enabling regulations. There is also a lack of market data including updated mortality and morbidity tables.”
The report added that for some product segments (for example, crop insurance and property insurance), insurance companies cannot meet the high demand due to lack of technical skills. The life insurance sector is also growing, though with a big lapse ratio. Based on figures reported in January 2015 by the life insurance companies, between 60% and 70% of policies lapse by the end of their first year in force. This is due, in large part to inadequate supervision, and lack of public awareness as policies are being sold to people with limited incomes who then realise that they cannot afford the payments.
The World Bank report said that another key factor inhibiting the development of the insurance sector in Bangladesh is the capacity of the regulator. Inadequate regulatory/supervisory capacity has made it difficult for IDRA, which became operational in January 2011, to properly discharge its duties which has adversely affected the development of the insurance sector in Bangladesh. Inadequate and low entry barriers (including low capital requirements) have led to market fragmentation and have allowed many companies with weak quality and capacity to get licensed.
IDRA suffers from a lack of capacity and shortage of qualified staff to fully perform its legally mandated tasks. The lack of qualified and adequately trained staff and lack of enforcement of regulations have led to improper market practices that have further contributed to an erosion of public trust in the insurance sector.