Inclusive Insurance in Bangladesh and experience of PKSF_Abdul Karim

Inclusive Insurance in Bangladesh
and Experience of PKSF
Presented by

Md. Abdul Karim
Managing Director
Palli Karma-Sahayak Foundation (PKSF)
Ulaanbaatar, Mongolia

1


History of Insurance in Bangladesh
• History of insurance industry of Bangladesh traces its ancestry to the
British-India and Pakistan regimes;
• Before independence 67 insurance companies were operating;
• Insurance companies were nationalized after the independence in
1971;
• The Insurance Act 1938 has been replaced by the Act of 2010;
• The office of the Controller of Insurance under the Ministry of
Commerce was abolished by the Insurance Development and
Regulatory Authority Act 2010; and
• Insurance Development and Regulatory Authority (IDRA) is
functioning under the of the Ministry of Finance (previously under
the Ministry of Commerce).

2


Insurance Penetration: Premiums as
% of GDP

World average of insurance penetration rate is 6.6%, while
continent wise rates are as follows:
Continent

Penetration Rate

Country with highest rate

North America

7.9%

United States – 8.1%

Latin America and
Caribbean
Europe

2.8%

Jamaica – 4.5%

7.1%

Netherlands – 13.2%

Asia

5.8%

Taiwan – 17.0%

Africa

3.6%

South Africa – 12.9%

Oceania

5.9%

New Zealand – 6.1%

South Asia

1.74%

Bangladesh-0.9%
(second lowest in south-asia)

Source: Swiss Re, sigma No 3/2012 page-39

3


Business Trend of Insurance in
Bangladesh
• The premium income of life insurance industry was 9.05% more
in 2011 compared to 2010. It was possible with the expansion of

microinsurance;
• The premium income of non-life insurance industry was 16.06%
more in 2011 compared to 2010;
• In 2012 life fund of Jiban Bima Corporation (JBC) a stateowned Life Insurance Company was USD 180 million approx.
and the total life fund of 17 private life insurance companies was
USD 2500 million approx.;
• Total premium income of Sadharan Bima Corporation (SBC) a
state-owned General Insurance Company and 43 non-life
insurance companies, altogether was USD 310 million.

4


Microinsurance
• Microinsurance is relatively a new concept where the premium
is set in such a fashion so that the low-income people can afford
to pay it and get the benefit of insurance services;
• Microinsurance has been receiving attention as an inclusive
financial service for the poor and low-income people;
• Many developing and under-developed countries are in the
practice of microinsurance. Some countries, such as Brazil,
Peru, India and the Philippines have enacted microinsurance
related rules and regulations.

5


An Overview of MI in Bangladesh
 Delta Life Insurance Company (a private company) first
launched Micro-insurance products in 1988 through its Grameen

Bima Project (GRB) for the poor and low income group of people
living in villages;
 Later, it started another project in 1994, namely, Gono Bima
(GNB) for the urban poor and the low income class;
 These projects are now merged under the name of GonoGrameen Bima Project (GN-GRB) ;
 Gonoshashtho Kendra is the first NGO which offered Health
Microinsurance services in Bangladesh since 1974;
 Later on large NGOs like BRAC, Grameen Kalyan , ASA ,
Proshika, Sajida Foundation and other NGO-MFIs have started
microinsurance services in different areas;
 Premium rates of NGOs were not actuarial based.
6


About PKSF
 Palli Karma-Sahayak Foundation (PKSF) was established by the
Government as an institution not for profit in 1990;
 PKSF acts as a second tier organization. It provides financial & nonfinancial services through its 203 active NGO-MFIs known as PKSF’s
Partner Organizations (POs) having a network of 6500 branches,
covering about 95% villages of Bangladesh with 10.41 million
organized members;
 PKSF’s core mandate is “sustainable poverty alleviation through
employment creation”;
 PKSF provides institutional development support to the POs for
enabling them to serve the poor continuously;
 PKSF is enjoying high growth rate, loan portfolio of PKSF and its POs
stood at USD 457m and USD 1.2b respectively as on December 2013;
 PKSF has emerged as the largest and model Domestic Apex Financial
and Capacity Building Institution in the arena of NGO-MFIs.
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About DIISP
PKSF is implementing a pilot project titled Developing Inclusive
Insurance Sector Project (DIISP) from 2010.
• Developing Inclusive Insurance Sector Project is financed by Japan
Fund for Poverty Reduction (JFPR) and administered by Asian
Development Bank (ADB);
• The project is executed by the Ministry of Finance, Govt. of
Bangladesh;
• PKSF is the implementing agency;
• Under the project PKSF has selected its 40 potential POs for pilot
testing of actuarial based microinsurance services;

Objective of the project is to reduce the vulnerability of the poor from
various shocks like death, health and asset loss through the
development
of low-cost inclusive insurance services (microinsurance).
8


Milestones of DIISP
• A market assessment survey was conducted in 2011 to understand
the insurable shocks of the poor people, willingness to join and
willingness to pay;
• Prepared draft regulatory guideline for microinsurance mainly
focusing on policyholders’ rights and protections along with the
asset-liability management of the insurer;
• An internationally renowned Actuary (Mr. Denis Garand) has
developed poor-friendly insurance services;

• The project unit prepared an implementation guideline in local
language for smooth operation at field level.

9


Proposed MI Services
The Actuary of DIISP designed 7 (seven) insurance products and 2
(two) health services:
MI Products of
DIISP

Life
Insurance

Endowment
Life

Term
Life

Livestock Insurance
(Beef Fattening)

Credit
Life

Health
Insurance

In-patient
Care

Hospital
Cash
Benefit

Health Insurance
& Health Service

Health
Service

Primary
Care

Paramedic
Service

Health
Loan
10


Products being Piloted under DIISP
• PKSF has started actuarial based Credit Life Insurance from
September 2013;
• Credit Life Insurance is the integral part of credit program of
POs since inception under DIISP the premium structure was
fine tuned by the actuary;

Credit life insurance
Risks Covered
Eligibility
Benefit
Term
Premium Structure

Death of the borrower or spouse/main earning member
of the household.
Only the borrowing members of MFI and their family.
Waiver of outstanding amount of the borrowed loan and
a lump sum of BDT 5,000 for funeral cost.
Until the end of loan cycle (Usually 1 year or less)
Not more than 0.7% of the loan amount + BDT 40

Premium payment Mode Paid at the start of a loan

•1.3 million received actuarial based credit insurance service up to
1 US$ = BDT 78 (Approx.)
January 2014.

11


Products being Piloted under DIISP (cont.)
• In 2013 under DIISP 14 POs started Livestock Insurance for
Beef Fattening Program targeting the Eid festival and 124,669
cattle were insured;

Livestock insurance
Risks Covered Death of the Cattle.
Eligibility

Only to borrowing members of beef fattening program.

Benefit

Waiver of the full amount of the borrowed loan.

Term

6 month – 10 month (actual loan cycle)

Premium
Structure

1. Not more than 0.7% of the loan amount + BDT 20 as part of the
Para-vet fee.
2. For covering the risk of borrower’s death, 0.3% premiums
would be added.

Premium
Paid at the start of a loan
payment Mode

1 US$ = BDT 78 (Approx.)

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Products being Piloted under DIISP (cont.)
• Under the survey of DIISP it was found that cattle mortality rate
was 5.43% in Bangladesh;
• Unique feature of the livestock insurance program is that POs are
providing the veterinary services to the poor farmers, which has
significantly reduced the morbidity and mortality rate of the cattle
by improving rearing management;
• The mortality rate of cattle was found 0.33% under DIISP
compared to 0.49% under the Beef Fattening program of PKSF;
• A total of 112,821 beneficiaries received loan in 2013 to procure
124,669 cattle for beef fattening program;
• Total premium collected in 2013 was US$233,609;
• US$98,561 was paid to settle 408 claims in 2013.
1 US$ = BDT 78 (Approx.)

13


Products being Piloted under DIISP (cont.)
• PKSF has started Paramedic Service and Health Insurance from January
2014;
• Under Paramedic Service around 200,000 household (1 million persons)
will be covered;
Paramedic Service
Paramedic Service has been introduced as a preparatory step for providing Health Insurance
Eligibility
All the microfinance borrowers and their family members;
Benefit
Paramedic provides health awareness and basic health services;

Fee

MFI can project the cost of paramedic, the supplies needed and the cost of
the facility divided by the number of policyholders that are paying the
premium.
Or,
MFI can bear the cost of Paramedic service from the service charge of
microcredit.

• In January 2014, a total of 11,873 members received treatment from the
paramedics;
• 485 patients were referred to doctor/hospital by paramedics; and
• Awareness campaign covered 25,197 target people.

14


Products being Piloted under DIISP (cont.)
• 3000 members bought health policy in January 2014 ;
Hospital Cash benefit
Risks Covered

If hospitalized for more than 24 hours, a pre-decided
benefit would be provided for each day hospitalized up to a
maximum of 30 days for a family, excluding the first day.

Term

One year from policy purchase date.

Premium/Year
(Highest 5 Members)

Premium & Benefit
Structure

Premium payment
Mode

(BDT)
500
375
300
250

Premium/Year
(Per Additional
Members)

Benefit/per day
(BDT)

(BDT)
100
75
60
50

400
300

250
200

One shot payment at the of policy purchase
1 US$ = BDT 78 (Approx.)

15


Innovative solution to Reinsurance
• Reinsurance service is absent in NGO-MFIs delivery channel of
microinsurance. To cover this drawback, the actuary and the
legal consultant under DIISP advise PKSF to create a Covariant
Risk Fund (CRF) as an alternative to ‘reinsurance’ ;
• PKSF has contributed 50 million Taka in CRF;
• A detailed guideline has been drafted for operating and
management of this fund to address the catastrophic risks;
• CRF will evolve from three sources – (i) PKSF’s contribution,
(ii) fee from the participating NGO/MFIs and (iii) Donors’
contribution;
• JFPR has already earmarked USD 400,000 as Guarantee Fund;
• According to the Actuarary, in Bangladesh USD 6,000,000
would be sufficient to cover one catastrophe and remain well
capitalized.
16


Regulation
• Microinsurance under NGO/MFIs in Bangladesh is being
offered under the Microcredit Regulatory Authority (MRA) Act

2006 and Microcredit Regulatory Authority (MRA) Rules 2010;
• Government of Bangladesh is designing a National Insurance
Policy which will incorporate microinsurance for low income
group.

17


Challenges
•
•
•
•
•
•
•
•

Awareness creation;
Poor friendly insurance services,
Adverse selection ;
Moral hazards etc.;
Skilled insurance professional;
Financial Management;
Reinsurance mechanism;
Product fine tuning.

18

Opportunities
•
•
•
•

Huge untapped market for microinsurance;
Higher insurance demand for health, agricultural, cattle risks;
MFI as delivery channel;
Microinsurance can be a viable risk management tool for the
vulnerable and low-income people.

19


Thank you

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