inclusive insurance in bangladesh and experience of pksf · pksf is implementing a pilot project...

Inclusive Insurance in Bangladesh

and Experience of PKSF

Presented by

Md. Abdul Karim Managing Director

Palli Karma-Sahayak Foundation (PKSF)

Ulaanbaatar, Mongolia

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• 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• The Insurance Act 1938 has been replaced by the Act of 2010;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).

History of Insurance in Bangladesh

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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

2.8% Jamaica – 4.5%

Europe 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 state-owned

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.

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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.

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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 Gono-Grameen

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.

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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 & non-

financial 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).

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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.

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Proposed MI Services The Actuary of DIISP designed 7 (seven) insurance products and 2

(two) health services:

MI Products of DIISP

Life Insurance

Livestock Insurance (Beef Fattening)

Health Insurance & Health Service

Endowment Life

Term Life

Credit Life

Health Insurance

Health Service

In-patient Care

Hospital Cash

Benefit

Primary Care

Paramedic Service

Health Loan

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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 Death of the borrower or spouse/main earning member of

the household.

Eligibility Only the borrowing members of MFI and their family.

Benefit Waiver of outstanding amount of the borrowed loan and

a lump sum of BDT 5,000 for funeral cost.

Term Until the end of loan cycle (Usually 1 year or less)

Premium Structure 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

January 2014.

1 US$ = BDT 78 (Approx.) 11

• 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

payment Mode Paid at the start of a loan

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.



• 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

• 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 & Benefit

Structure

Premium payment

Mode One shot payment at the of policy purchase


Premium/Year

(Highest 5 Members)

(BDT)

Premium/Year

(Per Additional

Members)

(BDT)

Benefit/per day

(BDT)

500 100 400

375 75 300

300 60 250

250 50 200


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.

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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.

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Challenges

• Awareness creation;

• Poor friendly insurance services,

• Adverse selection ;

• Moral hazards etc.;

• Skilled insurance professional;

• Financial Management;

• Reinsurance mechanism;

• Product fine tuning.

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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.

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Thank you

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