Insurance can drive economic growth

Bangladesh’s economic transformation over the past two decades has been remarkable. Yet beneath this success lies an often-overlooked weakness: one of the lowest insurance penetration rates in Asia. Insurance is often misunderstood as merely another financial product. In reality, it is a pillar of economic resilience. It protects households against financial shocks, helps businesses recover losses and encourages investment by reducing uncertainty.

When the Insurance Development and Regulatory Authority (IDRA) was established under the Insurance Act, 2010, insurance penetration stood at about 0.94 percent of GDP. Today, it has fallen to around 0.30-0.50 percent, despite significant economic growth. Low insurance penetration means millions of families remain vulnerable to illness, accidents, natural disasters and property losses. Small and medium-sized enterprises often operate without adequate risk protection, leaving them exposed to business interruption and financial distress. The broader economy also becomes less resilient to climate-related and economic shocks.

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First, Bangladesh has yet to build a strong insurance culture. Many people continue to view insurance as an optional expense rather than an essential financial safeguard. Expanding financial literacy and public awareness should therefore become a national priority. Second, market development has not kept pace with regulatory development. While effective supervision remains indispensable, development must receive equal attention. Around the world, insurance growth is driven by product innovation, customer education, professional distribution networks and digital accessibility. These areas need continuous encouragement if coverage is to expand.

Third, the distribution ecosystem needs revitalisation. Insurance agents remain important in successful markets. They educate consumers, explain risks, build relationships and extend services to rural communities and small businesses. Strengthening agency networks through training, certification and performance-based incentives could improve market outreach. Fourth, pricing flexibility deserves renewed attention. Modern insurance markets rely on actuarially determined, risk-based pricing rather than administratively fixed tariff structures. Allowing insurers gradually to adopt actuarial pricing would encourage product innovation, improve underwriting discipline and enhance competitiveness while preserving consumer protection through effective supervision.

Digital transformation also presents a major opportunity. Mobile technology, artificial intelligence, data analytics and digital claims management can reduce costs and extend insurance services to underserved populations. Bangladesh’s growing digital economy provides a platform for expanding insurance inclusion. The implementation of Risk-Based Supervision (RBS), IFRS 17, IFRS 9, digital insurance platforms and internationally aligned governance standards would strengthen regulation and investor confidence, while positioning Bangladesh as a more competitive destination for investment. Effective claims settlement and public trust will also be critical.

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M Sharifur Rahman Bhuiyan

Insurance should no longer be viewed as a peripheral financial service. It is a national economic infrastructure. A resilient insurance industry protects entrepreneurs, strengthens financial markets, supports industrial growth and enhances the country’s capacity to withstand economic and climate-related risks. As Bangladesh enters the post-LDC era, increasing insurance penetration should become a strategic national objective. By placing development alongside regulation, embracing global standards and encouraging innovation, Bangladesh can transform insurance from one of its least developed financial sectors into a powerful engine of sustainable economic growth.

The true measure of success will not simply be higher premium income. It will be a more resilient economy, greater financial inclusion, stronger investor confidence and millions of Bangladeshis enjoying the security that a modern insurance system is designed to provide.

[This is the second part of a three-part series. The next and final instalment will be published on August 19]

The writers represent MA Samad Policy Study & Research Center