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Digitalization of the Insurance industry

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16th-May-2018       
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M M Monirul Alam :
The insurance industry of Bangladesh is a very promising and a significant player of financial sector. Insurance industry can play a vital role in the economic development of a country through providing safety net to the society. To increase the capital base of a country, the contribution of life insurance is immense as life insurance collects deposits in the form of premium from the people for a longer period. As a result, the insurance company has a very important contribution in GDP and capital accumulation. A country like Bangladesh where there is lack of capital- especially longer term capital needs, it requires the support from insurance companies to build a strong capital base in the country.
But it is a matter of fact that in Bangladesh insurance companies are not contributing to the GDP up to the mark. The growth of insurance is also very slow. Besides, innovation in the sector has not been much witnessed after the Liberation War. However, for the blessings of technology, insurance industry of Bangladesh now can bolster in a way that has not been observed earlier. The digital revolution in the country will also add greatly to this wave of development.
The digitization of Bangladesh has become a priority of the country. As a result, the government is patronizing for advancing the country through digital technology. As a result, the private sector contribution for digital generation build up along with the government initiatives have become a national agenda and both the parties are handling lots of projects for material development as well as skill development. According to BTRC (2017) currently, there are more than 148.77 million mobile subscriber and 80.48 million active internet users and the number is growing at a rate of 3% per month. Most of the internet users are basically mobile phone based and a significant part is composed of smartphone users. Besides, about 57% of the population of Bangladesh are aged between 15-54 years who are highly tech savvy. The digital revolution in the country is already in force with significant momentum.
There are 78 insurance companies in Bangladesh among which there are 32 life insurance companies, of which one is government run and two multinationals and 46 non-life insurance companies of which one is government and rest 45 are private sector non-life insurance companies. Among the life insurance companies, there are 8 Islamic life insurance companies. According to the World Bank data (2016) the overall penetration rate of insurance companies is 0.9% (Premium as % of GDP) where for life insurance it is 0.7% and for non-life it is 0.2%. Insurance Development & Regulatory Authority (IDRA) is the controlling body of insurance companies. All the insurance companies are regulated by the Insurance Act 2010. The profitability status of the life insurance companies is not in a very promising state. Only a few life insurance companies are doing well. Besides, most of the companies especially newly approved companies are not performing well except one or two. The operations of most of the companies are not digitalized. Besides, the companies are following traditional distribution model and selling almost the same products. There is also not much variation in the life insurance products in the market even in case of pricing.
In this era of sustainability, all the companies need to follow the rule of sustainable development. Ignoring the criteria of sustainable development will make survival in the long run difficult for most of the companies. The insurance companies need to follow the three fundamental perspectives which are economic (Profit), social (People) and environmental (Planet). These three pillars are also known as '3P'. For ensuring the economic perspective of the life insurance companies, they have to earn adequate profit for sustainability. For the insurance industry, fundamentally, profit comes from two sides. First, collection of premium with lower cost considering the cost of risk and second, investment of the fund in the profitable venture. This economic motive of the insurance companies should not be distinct from the people or planet. The people or social contribution includes the wage and 'give back' to the society through community engagement. In this perspective, the life insurance companies have to do a lot. The competitive wage is one of the key concern in this regard. Besides, undertaking different social stake can be a good way to contribute to the society but life insurance companies are not doing this significantly. These type of activities are also significant for life insurance industry to regain the image of the industry as it is highly controversial. Moreover, Bangladesh is an environmentally risky country and the life insurance companies also can contribute in this stake. Providing life and health insurance to the marginal people will not only diversify the risk pool of the insurance companies but also will aid to the survival of people in the changing environment.
It is noteworthy to mention that if the insurance industry wants to employ this 'Triple Bottom Line' in its operation the urgency of technology cannot be ignored. To increase the profitability, the companies need to search for alternative distribution channels as the current commission based distribution system is very costly. Technology can assist significantly in this regard, through the use of technology, alternative channels can be introduced which can be highly cost effective and also allow the companies to reach the marginal customers. One of the key objection of the customers against the life insurance companies is the 'Lower surrender value'. This problem can also be solved if the distribution cost can be lowered through digitalization which will allow the customer to get more liquidity from the insurance products. For reducing operational and distribution costs, the digital technology can play a vital role. Online life insurance products selling is not available in Bangladesh. Besides, innovative products are also essential for selling through online. Products selling through Mobile apps can be another solution for the distribution problem as a huge number of people are using mobile phones and it will help eradicate the geographical barrier of the distribution channel. For reducing operational cost, digital underwriting, digital claim processing, reduced paper work through digital communication can make the industry more vibrant. On the other hand, the use of artificial intelligence can help the industry to reduce human effort and significantly increase the efficiency. Through the use of analytics, customer insights gathered can be more accurate which will lead to identify the buyer persona and will aid to develop innovative products that can boost the industry profitability.
However, in reality, only very few companies are adopting technology. But it is a matter of hope that some companies are coming forward in this regard. Some companies have started to initiate the process as a few have launched mobile application for service purpose i.e. My Guardian by Guardian Life, Projapoti by Metlife, Nibedita by Green Delta. Some companies are also working to develop online insurance products that should be available soon.
All the industry leaders need to understand the importance of the adoption of digital technology for the insurance industry for ensuring sustainability. The regulator (IDRA) also needs to formulate necessary regulation and framework for such system to check the fraudulent activities that may arise in the digital system. Besides, the customers need to be more positive about the insurance sector as it is very essential for financial security of their own lives and for the protection of their families during any distress.
 (The writer is the Managing Director & CEO of Guardian Life Insurance Limited. E-mail: md@guardianlife.com.bd)

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