Now that the country’s insurance regulator is set to bring dynamism and vigour into the industry, it is high time for it to encourage the life insurance companies in particular to go for more innovative policies to extend coverage and provide facilities for coverage against various kinds of risks that their potential clients look for. Mitigation of risks that endanger life, income and safety of most people in a country like Bangladesh merits more than a business-as-usual consideration. Life insurance policies that are so designed and developed to meet the needs of such people can serve the useful purpose of providing social safety net. Appropriate insurance policies for such target groups, considering their affordability and specific requirements, can partly relieve the government of its annual budgetary spending in areas of social safety net. The clientage coverage can then favourably expand. This is a priority need in Bangladesh for expansion of life insurance business, in view of its existing low level of insurance coverage among the countries in South Asia.

Insurance Development and Regulatory Authority (IDRA), the watchdog, established in 2010, is certainly well aware of the imperatives. It has already done some good works to ensure legal and structural reforms through formulation of rules and regulations with a view to establishing discipline in the sector. Effective enforcement of such measures will be one of its major challenges to protect the interest of the insurance policy-holders and bring dynamism in the sector. For the latter purpose in particular, developing a wide range of product-mix, in terms of a variety of policies that are relevant to the country’s specific needs, assumes a critical importance. Indeed, the life insurance companies can play an important role in mitigating various kinds of risks that their clients, existing and potential ones, are exposed to. Innovative low-cost life assurance to mitigate risks can be developed and expanded by such companies. Lower premiums and higher payouts should be the guiding principles here so that risks of the poor and low-income groups who are systematically more vulnerable than others to different kinds of shocks, can effectively and adequately be mitigated.

This brings the issue of new microinsurance products to the fore. The more such products are designed in a realistic way, the more can be their coverage. The poor live on the edge. Any sudden, unexpected event – the death of a breadwinner or illness – can precipitate deeper poverty for them. Microinsurance is already a very useful proposition for life insurance companies in many parts of the developing world. According to one estimate, about 500 million people in the developing countries have some form of microinsurance policies. The spurt in selling low-cost insurance in the developing world is rooted in the global microfinance explosion. This has demonstrated the commercial potential of profit-oriented financial services for the poor.

For getting the microinsurance models right which is, however, not an easy task, the policies have to be simple so that the poorly-educated customers can clearly understand them and appreciate their usefulness and also have the affordability to become policy-holders. Furthermore, innovative channels will have to be identified for the purpose so that large numbers of people in the target market can be reached in more cost-effective ways by the insurance companies. The potential market in Bangladesh for microinsurance policies to protect the poor against such risks as deaths, accidents, illness, etc., is large. Proper motivation works, affordability and easy access can help tap this potential. The regulatory body in the insurance sector needs, therefore, to put its weight behind microinsurance.

SOURCE: Financial Express