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A tangled web of bottlenecks
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stance that it should regulate both insurance and microinsurance services and that only insurance companies should provide insurance. Insurance companies, albeit do not oppose microinsurance, resist the sales of insurance/microinsurance by MFIs.
Microinsurance experts, however, think that MFIs have an unparalleled position to expand and significantly grow the microinsurance market. But due to the regulatory bottleneck, MFIs are providing insurance services under the alias of risk mitigation services or client welfare services.
These services are essentially mandatory credit shield services where risk coverage is provided to the credit amount in addition to some extension services. The scope of these services is very limited as they are not able to operate under the domain of formal insurance per se.
The microinsurance sector also has further political complexities. Microinsurance is deeply connected to agriculture (particularly crop and livestock) insurance as the majority of the microcredit schemes provided by MFIs are crop loans and around 40 per cent of MFI clients invest their microcredit in livestock rearing.
Despite the inter-connectedness of the agricultural sector, the agriculture ministry has vehemently opposed crop insurance and is firmly against any form of subsidies for microinsurance, particularly the premium, fearing that they will discourage farmers to increase productivity. This fear primarily stems from a few high-level officials in the ministry. Consequently, this limited inter-ministry collaboration or the use of political power to enhance the microinsurance market.
Over the last decade, development partners have invested approximately $250 million in microinsurance projects. Most of these have not been successful in reaching either scale, sustainability, or profitability.
In many of these projects, in addition to project costs, the premiums have also been subsidised. This has caused new potential projects to consider subsidies that may not even be necessary as preceding projects have been heavily subsidised. Moreover, development projects have primarily catered to the crop and agriculture sector and have left out other potential sectors.
Apart from these, there is a multitude of complex issues that scar the insurance and microinsurance sector. Of them, a major issue is the lack of product development.
In order to develop insurance products, the specialised skill of actuarial science is necessary. Despite the IDRA mandating insurance companies to invest and develop actuaries, there are only six actuaries in Bangladesh. Most companies use international actuary consultants for product development which again limits the scope as a product may need further optimisation as it is launched into the market.
Furthermore, because actuarial science is nascent in Bangladesh, the IDRA developed a tariff system in the non-life sector where insurance products and their prices are set by the IDRA and the Central Rating Committee. This removes the need for innovation in product development since insurance companies do not require actuaries further or feel the need to develop skills in the field of product development.
In addition to this, most microinsurance services are predominantly in the domain of MFIs where the risk premium is fixed. Therefore, there is no need for actuaries to price premiums. This has caused a gap in the product-market-fit for insurance and microinsurance products.
All in all, the current demand for insurance and microinsurance is very low. This could be largely contributed to a lack of awareness of the benefits of microinsurance, a lack of trust in the concept of insurance and insurance companies, and existing products that do not meet the risk needs of beneficiaries.
The only positive aspect of very low penetration of insurance is that it has a strong scope of going up.
In the market system analysis study conducted by Innovision Consulting Pvt Ltd, we found that if 5 per cent of the total cropped land (3.97 crore acres) were brought under microinsurance, the crop microinsurance market size alone will stand at $547 million.
In spite of the current low demand, impressive growth can come from more than 3 crore smallholder farm enterprises and 78 lakh micro, small and medium enterprises in Bangladesh that are frequently exposed to economic or climatic shocks that result in massive income losses.
This huge market potential will not be realised unless the entire sector is brought under a vision with meticulous long-term plans. Perhaps, with the combined efforts of the private, public, and development sectors, the resilience of the climate-vulnerable people can be raised so that one flash flood cannot wipe a person’s life, hopes and dreams.
The author is a research associate at Innovision Consulting Private Ltd, an international research consultancy firm. Views are personal.

UK inflation
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bolstered bets that the BoE will opt for a 50-bps rate hike next month, which would be the biggest since 1995. The European Central Bank is considering such a move this week, sources told Reuters on Tuesday.
BoE Governor Andrew Bailey on Tuesday said that scale of borrowing costs increase was on the table but not “locked in”.
The BoE has raised rates five times since December as it tries to stop the surge in inflation from becoming embedded in Britain’s economy, and it is expected to increase them again on August 4.
“Soaring inflation means that momentum for a half-point interest rate rise in August is growing,” Suren Thiru, economics director of accountancy trade body ICAEW, said.