The second episode of the series sheds light on the key legal, regulatory, and institutional readiness and challenges of insurtech in Bangladesh.
InsurTech is in its primary stages in Bangladesh. To make the concept of InsurTech familiar and to unravel the scopes for instilling its foundation in Bangladesh, Green Delta Insurance Company and ICE Business Times are organizing a signature webinar series of 4 episodes titled “Instituting InsurTech in Bangladesh” in association with Shurokkha (an online insurance portal) and with support of iDEA project of ICT division and BASIS (Bangladesh Association of Software & Information Services).
The second webinar on InsurTech, jointly organized by Green Delta Insurance Company Limited and ICE Business Times sheds light on the topic: Key legal, regulatory, and institutional readiness and challenges in Bangladesh. The Keynote of the session was presented by Asim Parashar, Partner, Advisory (Financial Services), PricewaterhouseCoopers (PwC). Syed Mojibul Huq, Project Director (Additional Secretary), iDEA Project, BCC, ICT Division was the Guest of Honor of the panel.
Along with them, there were three more panelists: Khandker Shahnur Sabbir, Deputy Postmaster General Cum-Senior Postmaster, Dhaka GPO, M M Monirul Alam, MD & CEO, Guardian Life Insurance Limited, and Barrister Junayed Ahmed Chowdhury, Partner, Vertex Chambers. The webinar was organized in association with Surokkha and with support from the iDEA project of the ICT division and BASIS.
The keynote presenter, Asim Parashar, started the session by divulging the current scenario of the industry, future trends, challenges, and expectations.
An Evolving Landscape
Our world is changing at a staggering pace. We are witnessing specific micro-trends that are happening and the question being asked if the traditional ways of operations match up with the changing environment. If we evaluate the situation, there are a few things that are essential to understand.
On the social side, we have an aging population; there is a focus on wellness and the rise of chronic illness. On the economic side, the gig economy has arrived; there is a focus on startups; there is a concentration of wealth, and urbanization is moving at a rapid pace.
Similarly, the nature of growth of the small and medium enterprises has changed dramatically, and the new workforce is very different from our generation. The fourth pillar focuses on the changing climate; the frequency of catastrophic events is increasing, and the insurance companies have to innovate itself to support various stakeholders who are facing challenges due to climate change. Most importantly, the technological world is changing at a staggering pace. The changing technology and the mass adaptation and digital services have made permanent changes to consumer preferences, and businesses across the world will have to adapt to survive. These are the five pillars we are seeing that are going to reshape the industries and especially the insurance industry.
Fintech and Insurtech
Over the years, fintech has been more successful than insurtech. FinTech is part of the banking industry, which is a much simpler product. On the other hand, insurance products are complex; the actuarial model or the probability of default or loss or claim ratios are quite complicated. Therefore, insurance has always been a push product as opposed to its banking counterparts.
A survey by PwC across the globe among various industry leaders stated that nine things would change our world forever, including Big Data, Cloud, 5G, and AI. However, the key message was that fintech and insurtech are no longer a threat to their market. Because most of fintech and insurtech has been developing point solutions, but they have not been able to scale up. The scale is still available with the traditional players, whether it is life insurance or general insurance.
However, insurtech has been able to set new benchmarks for agility, customer insights, and cost and most of the CEOs are agreeing to that part of it that is the value that these insurances are bringing. So there is a shift from competition to collaboration. And that is the most significant shift we have seen in the last two years. And it is increasing, or the model that is evolving is more of a partnership to help strengthen operational efficiency and also come up with new product innovation, then different processes across the insurance value chain.
Primarily, there are three challenges that the leaders emphasized. The first one is the security and privacy of data. The question revolves around the ownership of customer data and the legal framework behind its usage. The regulations regarding it widely vary across geographies, for example, in China, Alibaba or Tencent own the data, and they provide new services, new products across the value chain. But that is not the case in most of the other countries where the customer owns the data, and you have to take consent from the users. The second challenge is reducing the complexity of the processes. The investor might ponder whether to add another complex system on top of existing technology. And, the third challenge is regulatory and its effect on the business.
The Way Forward
The proliferation of technology in the insurance sector has some significant implications, and the stakeholders have to be aware of them while they move ahead with the expansion. Firstly, the companies can use insurtech to personalize products for the customers. Also, there has to be a balance between technology and human interactions with greater emphasis on cybersecurity. Concurrently, the workforce has to transform and embrace these changes and provide efficient and effective service to the customers. From the regulator perspective, they have to build an environment where they can allow the experiment to solve a customer problem, not experiment to do research and development that can be done by other specialized organizations. They have to define the policy, and they have to be handy in defining the policy and the practice aspect of it and limit the uncertainty in the regulatory environment. The regulators also need to collaborate with other regulators in the market and come up and see what the best practices that can be bought are. Most importantly, the regulators have to ensure stability in the whole environment.
Concurrently, the companies which are coming in should be able to own their IPR. Based on our survey, I would like to end the three areas where we see increased focus and again driven by the people one is on the customer experience which will help in customer acquisition and increasing the penetration. Second is on the core technological transformation which will help to innovate, bring in new products. And the third is on Intelligent Automation, which will reduce the cost of operation, increase productivity, and increase efficiency.
The panelists shared their initial thoughts on the topic: Excerpts are given below.
Syed Mojibul Huq
I want to begin by addressing the lack of interest in insurance among the general population of our country. It has continuously impeded the growth of the sector. Since independence, numerous insurance companies have been established in the country, and for the most part, they have been operated traditionally. However, the proliferation of technology has made tectonic shifts in the sector, and adapting to the change has become essential to ensure the sustainability of insurance companies. Therefore, the readiness of the companies to implement frontier technologies is going to be crucial.
Correspondingly, during my tenure at the pay commission, I wholeheartedly tried to bring all the government employees under life insurance. Currently, we have more than 2 million people employed by the government, and the pay commission ran a model for implementing insurance coverage for them. We also submitted its report to our Prime minister, and I believe it’s high time we implement the idea. Execution of a program of such massive proportions will require the utilization of the latest technologies such as AI and Big Data. Therefore, innovation is at the heart of the modern insurance industry, and its implementation will ensure the robust growth of the sector.
Khandker Shahnur Sabbir
As a representative of the Bangladesh Post Office in this session, I want to start with some information regarding its role and contribution to the sector. Postal life insurance is the oldest insurance institution in Bangladesh, and currently, we are operating through all the post offices across the country. There are nearly two thousand post offices in Bangladesh, and all of them are equipped with the insurance supporting ecosystem. More than five thousand agents are employed through twenty insurance offices across the country. Therefore, there is immense opportunity to use the strong postal network for scaling up the insurance scopes of our people.
However, there is a lot more to be done in terms of innovation and technology in the insurance sector. I believe the digitalization of the sector is still in its primary stages, but we are slowly moving forward.
Interestingly, village-level post offices across Bangladesh have been converted into digital post centers which are run by entrepreneurs. It provides an excellent opportunity to create a bridge between the private sector and postal services, and opportunity can be created for testing or piloting insurtech for the general population.
M M Monirul Alam
As a practitioner, I have been in this industry for almost thirty years. We have numerous scopes to work on product and process innovations. There are lots of indicators to be excited about the future of insurance in Bangladesh. The Central Bank has already directed to introduce eKYC which has facilitated the online sale of insurance. However, there are a few challenges that the industry needs to overcome to ensure greater penetration of insurance products. Unlike banks, insurance companies require to evaluate and document health data along with financial records of each policyholder; therefore, the process is lengthier and more convoluted.
Similarly, the delivery of insurance policy in Bangladesh requires the usage of revenue or bima stamps and a wet signature. Consequently, the benefits of digitalization cannot be fully utilized without significant regulatory changes. We need to ensure an end to end insurtech solution by discussing with all the stakeholders of the industry.
Most importantly, the regulators have to identify the insurtech providers to facilitate more effective collaboration between them and the insurance companies. Otherwise, the current legal framework restricts payments to any entities for procuring business other than agents.
Barrister Junayed Ahmed Chowdhury
Three things are relevant here, starting from the institutional landscape. Second is the regulatory environment, and third was the market reaction to how this insurtech will operate in our country. There is an interrelation between the type of product that one needs to ensure and the reaction of the market to that particular product. I think the market maturity depends mostly mainly on the policy level willingness to open up the market. Over the last ten years, we have seen some development in the insurance sector, especially since the Insurance Act came into the picture in 2010. Concurrently, another critical aspect is the technological advancement Bangladesh has made as far as the legal regime is concerned.
So let me give an example as quite rightly pointed out in our part of the world in Bangladesh people are still comfortable with when signatures, and in transactions, people are still going through that manual physical activity of achieving a physical execution of a contract. Now, the insurance law also does not quite clearly talk about the digital manifestation of contract execution. But the information communication technology act brings an inroad into that contract execution process and says that whatever is written in a particular statutory regime preserves the execution of an instrument.
The digital process of that execution shall be an addition to that process. And it could be achieved through that digital execution process as if the physical execution part has been completed. So this is a fresh take on the avenue that the legislature has created to achieve. Digital execution of contracts, at least in the Bangladesh regime post-2006 through the Information, Communication, and Technologies Act. This is one of the positive changes that the country has seen. It has not been a common feature in contracts yet, but the possibilities are there. So this is a good thing that has happened in Bangladesh.
The other improvement that we’ve seen is the hotline creation. I’m sure you all know that from 14th August 2019, there is a hotline that has been created. And the insurers are supposed to inform the respective authority about the setting up of the call center. There is a grievance point whereby the complaint could be made, and the matters could be taken forward.
So from 2019, we have seen, sort of a trend in the regulator’s point of view that it became a sort of forward-looking customer policy. The other exciting element about that particular circular which was given by IDRA was they acknowledged that there is a lack of knowledge regarding insurance among the general people and the service less not as favorable as banking in Bangladesh.
Insurance is not as preferred as banking, in Bangladesh because banking is a necessity and insurance is an option for the majority of our people. So, by creating specific awareness, I think, is a trend that needs to be improved too, to give people more access to the services which will again. It might also force the players in the market to come up with better solutions.
I want to add two more things, and the one is the issue of our use of artificial intelligence, and blockchain technology. The Bangladesh government has published the national blockchain strategy. And in that strategy, it stated that the agricultural insurance industry and the insurance sector could make use of this blockchain technology. I think this is something that will be a game-changer at least for the Bangladesh market. This opportunity should be taken with open arms by the insurance sectors and how to use this blockchain technology for the betterment of the insurance market.
One thing I would caution about blockchain is the use of smart contracts, we all should be wary of that because smart contracts that are used in blockchain technology are very rule-based contracts with minimal room for change. I don’t think the insurance sector is as rigid insurance is a contingency based transaction. When making a claim, there will be a lot of ifs and buts and permutations and combinations. I think that’s why we use actuarial science, and actuaries to analyze probabilities in insurance which is not the case for banking or FinTech. Smart contracts should be revisited, Organisation for Economic Co-operation and Development (OECD) has also said, smart contracts do not allow amendments to transactions. As a result, I think perhaps the insurance sector should be careful of that. In the case of those probabilities, whether a sports contract is an excellent alternative to regular contracts in the insurance sector.
The other thing is the”JATIO BIMA NITI -2014″ which the Bangladesh government has indicated electronic data transfer and computerized risk-based regulatory system. So, data protection in Bangladesh does not have a self-standing regulatory regime. Just like the UK Data Protection Act, data protection is still in a relationship based law in Bangladesh depending on the terms within which or a regulator or a sector within which that particular data is stored. So it is not a sort of one size fits all statutory regime, which is available in Bangladesh so as a result. IDRA has taken a bold step in BIMA NITI about coming up with electronic data transfer, and how to do that data transfer I think that should be given a priority.
Therefore, I think there are opportunities, and there is a platform that is being created by the government, from which we can take off and build into a better environment for the consumers. And finally at the end of the day, to achieve the ultimate objective of the government to make insurance, as accessible, and as popular as possible to the consumers.
The panelists also answered key questions asked by the viewers on the topic:
As a repository of revenue samps, does the Bangladesh Post Office have any plans to introduce an e-stamping project?
Khandker Shahnur Sabbir
Bangladesh Post office is the authorized seller of revenue stamps on behalf of the government. It guarantees the authenticity of the stamp, which remains under the custody of the district treasury before being disbursed through different cash management channels of the post office. Therefore, the authority to make any decisions regarding it only rests on the internal resource division of the Bangladesh government. I believe the post office is well equipped to execute the transformation with ease as it has experienced steady progress over the years. Also, the methodology of the digitization process has already been formulated by the ICT division. However, we must be aware so that the cost of the digital stamp must not exceed its face value. It can be ensured by incorporating the cost (of stamp) within the financial transaction. Currently, the post office is not even in the thought process of implementing e-stamping as it is not within our prerogative to be able to do so. Although, if the government decides on its implementation, the post office has the strength to execute the sales.
Guardian Life Insurance Limited has introduced an app called “Easy Life”. How has that experience been so far in terms of customer acceptance and compliance regulations? What are the challenges that you have faced?
M M Monirul Alam
We have been working with the app for more than two years, and the biggest challenge in terms of accessibility has been the lack of financial knowledge from the customer end. The lack of knowledge about insurance is prevalent even among the most educated segment of our society. People are not aware that instead of keeping a large amount in the bank for health emergencies, they can pay much smaller yearly premiums to provide their healthcare costs.
Additionally, the insurance sector is yet to achieve customer trust and reliability in Bangladesh. The stakeholders of the industry, including the companies and regulators, have been working closely towards ensuring confidence in the insurance infrastructure of the country. The pandemic has highlighted the necessity of reliable health insurance in our country. Still, the lack of reliability has been a barrier in utilizing the spike in demand for health insurance.
The “Easy Life” app has been launched to ensure more transparency about our products and processes. Correspondingly, the implementation of big data and AI will surely increase the reliability of the sector, and with the mass adaptation of digital services in the post-pandemic world, the future is bright for the insurance industry.
Will insurance products ever be expanded in Bangladesh to include home insurance, luxury items such as jewelry and watches?
M M Monirul Alam
We already have theft insurance, and there are two types of home insurance available for the public. One is focused on protecting the building, and the other one is credit risk insurance which enables loan repayment in case of the sudden death of the policyholder. Therefore, such policies are already in the market, but the lack of knowledge has kept potential customers in the dark. We are on the verge of implementing bancassurance which will facilitate insurance through banks. The cooperation between banks and insurance companies will ensure more penetration of insurance in Bangladesh.
What do you think is the legal ecosystem for startups to form a legal entity and at the same time could you please shed light on the patent rights for the startups?
Barrister Junayed Ahmed Chowdhury
The startup scene in Bangladesh is relatively matured at the moment. We have some of the most promising startups in the region, taking Bangladesh to the global stage. We have seen Pathao operating business in Nepal, ShopUp securing massive international funding, and Amartaka executing contracts with The Standard Chartered Bank. The startup environment is relatively matured in Bangladesh with the presence of formal legal infrastructure. However, one of the biggest challenges of operating a business in Bangladesh is still the tax-revenue aspect of the business. I think clarity should be brought to the revenue collection system of the government. The law has to be more simplified and modernized for the startups as well as the existing business. Because at the end of the day, if a successful business faces challenges in revenue collection, a lot of time will be lost managing that risk. In any business, if the risk is uncertain, the revenue gets lower with the increasing cost of business, and it is not going to be helpful for anybody. If this issue can be addressed, the startup scene in the country will also improve.
In our fintech sector, insurtech is almost an unexplored area, as you are leading the iDEA Project, is there a chance that insurtech will be undertaken by iDEA as a priority project?
Syed Mojibul Huq
Several initiatives from ICT Division and iDEA Project have already been taken towards the digitalization of the insurance sector. There have been several meetings between the ICT Division and NBR regarding the implementation of e-stamping, which will be very beneficial for the insurance sector. Moreover, we (iDEA Project) an initiative on fintech called Interoperable Digital Transaction Platform (IDTP) which will ensure interoperability, transaction validation, seamless fund routing, and security. The piloting of the project has already been completed, and we are working towards including all the banks and insurance companies across the country. It will facilitate a more convenient transfer of money between the digital financial platforms which will, in turn, benefit the insurance industry by ensuring a more convenient installment payment for the insurees.
Concurrently, AI is essential for the development of the modern insurance industry. If any startup comes ahead with product development by implementing the use of AI, we will wholeheartedly provide all the assistance for its execution. We will also fund viable fintech ideas for the insurance sector, which will ensure the robust growth of the industry.
What is your opinion about the scalability of insurtech in Bangladesh?
M M Monirul Alam
I believe we have immense opportunities for expanding the industry through insurtech. The implementation of technology will ensure the capability to provide end to end solutions. If we can continue innovation and implement them in the market, there is immense potential for insurtech in Bangladesh.
How long would the legal transition take to make our insurance regulations ready to accommodate insurtech?
Barrister Junayed Ahmed Chowdhury
The current legal and regulatory framework is modern enough to accommodate the insurtech business in Bangladesh. I do not think legal innovation is necessary for making this accommodation. Therefore insurtech can thrive within the current legal framework which is robust enough to accommodate any new insurtech business.
Any last thought on the entire presentation and discussion on the session?
Khandker Shahnur Sabbir
When the proliferation of insurance, a new process will be required to ensure the government money is processed accordingly. In the future, we can expect to see this process become automatic. Correspondingly, there are a lot of constraints in facilitating payment of government services from banks. As a result, a lot of digitalized services receive cash payments, and it is a challenge to process that money to the government treasury quickly. The post office is the process to transfer that money in bulk as long as an alternative process is not implemented. Also, we have successfully automated parts of postal life insurance with the help of A2i and very soon postal life insurance will take the form of insurtech.
What will be the challenges of section 58 of the Insurance Act 2010 to pay any remuneration or commission to the insurtech for procurement of business?
Barrister Junayed Ahmed Chowdhury
Insurance is a contingent contract; the fundamental pillar of insurance is trust. When a particular individual trusts a company, a certain sum paid by an individual is accumulated, which will be given to the beneficiary in the event of a fatal incident. To that individual, there is a massive element of trust involved in that transaction. In section 58, a particular embargo has been set, which has legislative wisdom. The embargo will ensure that there is no abuse of the trust that the insuree has put in the contract. We can only question the legislation in that particular embargo, and it is up to the representative of the people to decide whether the embargo should be lifted, relaxed, or otherwise varied. I do not think there is any problem with the embargo because I believe in building a business with trust and then look towards the mechanics which regulate the activity, not to tweak with the mechanics before we built that trust.
The insurance industry has been suffering from a lack of trust, which has impeded its growth. Do you have any insights to share regarding its issue?
For the countries where penetration is low, the stakeholders and coming together and innovating on the product and making a lot of progress. Regarding section 58, numerous certifications are prescribed by the IRDA; however, at the end of the day, the trust is between the insurance company and the customer. The agent is only facilitating its execution, and when an insurance company is using an agent, it is putting its trust and reputation in the agent. So we are seeing that once the market has been opened to different types of agents, after certification, the penetration has slowly started increasing significantly on the general side. Life insurance is still primarily by two segments in India, agents, and bancassurance. I have heard that bancassurance is imminent in Bangladesh, it will ensure the robust growth of the sector in the long run.