Bangladesh’s insurance sector is facing calls for consolidation through mergers, driven by a desire to combat unhealthy competition and boost service quality. The recommendation comes from recent research papers submitted to the Insurance Development and Regulatory Authority (IDRA).
Brig. Gen. Md Shafique Shamim, CEO and Managing Director of Sena Insurance, who authored one of the reports, has urged IDRA to expedite decisions on mergers and identify companies needing consolidation to survive. The report highlights a comparison with other South Asian countries, showing the potential for restructuring.
The study points out that Bangladesh, with an economy that is a fraction of India’s, has a significantly higher number of insurance companies. India, with a GDP of $3.9 trillion and a population of 1.44 billion, has 59 insurance companies, while Bangladesh, with a GDP of only 11.66% of India’s and a population of 171 million, has 82 insurance companies. Pakistan and Sri Lanka, with smaller economies than Bangladesh, have 40 and 28 insurance companies, respectively. “Excessive competition is leading to unethical practices,” said Mr. Shamim.
Another research paper, prepared by Md. Jalalul Azim, Managing Director & CEO of Pragati Life Insurance, echoes that concern. Azim stated that the number of insurance companies is too high, especially considering the per capita income, education rate, and quality of life in Bangladesh. He also noted that many licenses were issued under the previous government due to political affiliations, which has contributed to a lack of professionalism within the industry.
The consequences are reflected in the industry’s performance. Insurance penetration, which was 1% a decade ago, has fallen to 0.45% by 2023. Insurance penetration is calculated as the total insurance premiums (both life and non-life) as a percentage of GDP, measuring how well insurance coverage is doing in an economy. Azim further explained that oversaturation in the market has led to three or four companies now serving the customer base previously served by one. This, in turn, has driven group insurance premiums to historic lows, while unethical competition has soared.
IDRA chairman Dr. M Aslam Alam has also expressed serious concerns: “A few days ago, the governor of the Bangladesh Bank told the media that the banking sector is on the brink of a disaster. However, I believe the insurance sector is facing an even deeper crisis.” He attributes the situation to “misdeeds” over the past 15 years and the previous regime’s issuance of licenses that allowed companies to exploit the public.
Azim’s report also cited several other factors contributing to the sector’s decline, including insurance companies’ inability to settle claims, a shortage of skilled human resources, low public awareness of insurance products, and the limited regulatory authority of IDRA. Alam’s analysis supports this, pointing out that IDRA has limited power to enforce disciplinary actions against financial fraud.
