Inclusive Insurance in Bangladesh and Experience of PKSF

Presented by

Md. Abdul KarimManaging 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• The Insurance Act 1938 has been replaced by the Act of 2010;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.6

About PKSF Palli Karma-Sahayak Foundation (PKSF) was established by the Palli Karma-Sahayak Foundation (PKSF) was established by the

Government as an institution not for profit in 1990;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. 7

About DIISPPKSF 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 ServicesThe 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.

BenefitWaiver 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.)

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• In 2013 under DIISP 14 POs started Livestock Insurance for Beef Fattening Program targeting the Eid festival and 124,669 cattle were insured;

Livestock insuranceRisks 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.)

1 US$ = BDT 78 (Approx.)12

• 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.

Products being Piloted under DIISP (cont.)

1 US$ = BDT 78 (Approx.)13

• PKSF has started Paramedic Service and Health Insurance from January 2014;

• Under Paramedic Service around 200,000 household (1 million persons) will be covered;

Products being Piloted under DIISP (cont.)

Paramedic ServiceParamedic 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

Products being Piloted under DIISP (cont.)

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

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.

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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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