Bangladesh’s insurance sector faces challenges as reforms move forward

Dr Biswajit Kumar Mondal: Bangladesh’s insurance sector is facing a critical transition period marked by governance challenges, weak public confidence and low market penetration. However, ongoing reform initiatives by the government and the Insurance Development and Regulatory Authority (IDRA) aim to strengthen the regulatory framework and modernise the industry, potentially opening a new phase of growth for the sector.

Despite steady economic expansion in Bangladesh, insurance penetration remains significantly low compared with regional peers. Insurance coverage currently accounts for roughly 0.30%-0.50% of the country’s GDP, down from about 0.90% in 2010. Industry observers say this reflects limited public awareness, weak trust in insurers and a narrow range of products.

Bangladesh currently has 82 insurance companies, including 36 life insurers and 46 non-life insurers. This number is relatively high compared with neighbouring countries. India has about 58 insurers, Pakistan around 40 and Sri Lanka approximately 28. However, despite the larger number of companies, Bangladesh’s insurance sector remains relatively shallow.

Regional comparisons also highlight the sector’s limited development. Insurance penetration in India is estimated at approximately 3.7%-4.2% of GDP, while Nepal’s penetration is around 3.7% and Pakistan’s about 0.6%, all significantly higher than Bangladesh.

Industry analysts identify several structural challenges. Governance and transparency issues have undermined public trust in the sector. In recent years, several insurers have faced regulatory scrutiny over financial management practices and policyholder fund management. Additionally, intense competition among a large number of insurers has created pressure in the market. Some companies have reportedly offered unusually high commissions to agents in order to attract business, which can weaken insurers’ financial sustainability.

Claim settlement has also been a persistent concern for policyholders. Delays in processing claims have been reported in both life and non-life insurance segments. In the non-life sector, the reinsurance system has also faced operational challenges. Under existing rules, insurers are required to place a significant share of their reinsurance business with the state-owned Sadharan Bima Corporation (SBC), which has sometimes led to delays in premium transfers and claim processing.

To address these issues, policymakers have begun discussing several reform measures. Proposed amendments to existing laws, including the Insurance Act 2010 and the Insurance Development and Regulatory Authority Act 2010, aim to strengthen the regulator’s authority. The reforms are expected to give IDRA greater power to restructure troubled insurers, merge weak companies and improve governance standards in the sector.

The government is also considering reforms in the reinsurance framework that could allow insurers greater access to the global reinsurance market. Industry experts say that such changes could enhance risk management, improve pricing competitiveness and strengthen insurers’ capacity to settle claims.

At the same time, the sector has significant growth potential. New products such as health, agricultural, education and travel insurance could expand coverage, particularly among underserved populations. Digital initiatives and improvements in professional capacity, including the development of qualified actuaries, are also expected to support the sector’s long-term development.

Although Bangladesh’s insurance sector still lags behind regional peers, analysts say that effective implementation of regulatory reforms and stronger governance could help rebuild public trust and position the industry for sustainable growth in the coming decade.