The rise in the number of innovative insurance schemes has helped strengthen the microinsurance sector of Bangladesh over the past decade. As narrated in the first article in this series, the industry has made significant development with the help of NGO-MFIs and private insurers and their partnership with foreign donor organizations. However, despite essential innovations addressing the needs of specific sectors, the prevalence of overlapping schemes and micro-scale outreach has made it difficult to achieve the ultimate objective of offering unique microinsurance programs throughout the country.
Even after implementing several targeted microinsurance schemes, the penetration power of insurance companies in rural areas is significantly low. The sector is yet to bring the population segment that would benefit the most, under microinsurance coverage.
The lack of awareness or poor understanding of insurance schemes among farmers and the overall rural population is one of the critical issues the microinsurance providers face in Bangladesh. According to the Labour Force Survey 2016-17, a staggering 85.1 percent of the total employed labor worked in the informal sector, a target demographic unfamiliar with the banking system . It was the introduction of MFS that led rural people who are involved in the agricultural sector, to connect with financial services. However, there is no microinsurance provider specific to the agricultural sector available on MFS yet. An introduction of it might curb the unmet demand prevailing among farmers .
Due to the lack of accurate historical data about the crop, livestock, and fisheries assessment, microinsurance providers are unable to design proper insurance products. Subsequently, insurance providers fail to protect the beneficiaries from catastrophic risks like drought or flood. At the same time, even though experienced microinsurance providers have made products that meet the demand of the rural demographic, local small-scale insurance providers lack the technical knowledge to design one. As small-scale insurers are one of the most accessible insurance providers to the rural communities, their lackluster designed products often become expensive for the buyers. Eventually, the product fails in the market.  Conversely, some larger insurance companies contend that they are not given due voice in the design of insurance products; instead the products are designed solely by the NGO/donors and the insurance companies are brought in as vendors – this reduced ownership of the product by insurance companies and is a key reason why microinsurance products do not sustain beyond a project’s lifetime.
The target beneficiaries of microinsurance products are living scattered across different locations. Hence, micro-insurance schemes incur higher distribution costs than regular insurance plans as the insurance providers do not have a proper channel to deliver the product. Moreover, the cost of assessing the individual risk affiliated with agriculture-based products is relatively high when compared to the limited premium received from small-scale farmers. Therefore, it gets challenging to manage such high overhead costs, leading to ineffective models that commercial insurers fear to provide . This is a challenge not specific to microinsurance but applies to other financial products such as SME banking but banks have taken innovative steps to address this issue, which are explored in later sections of this article.
The prevalence of asymmetric information in rural areas is a major challenge to be tackled by microinsurance providers. It has been seen that whenever an individual buys an insurance product, they tend to participate in risky activities that they would not have done if they were not insured. This gives rise to moral hazard as the individual knows that he is secured against the risks he will take. Consequently, the inaccuracy of information of the buyers may lead to difficulties in designing an appropriate insurance scheme. Intense monitoring and effective risk-pooling might reduce the risks of asymmetric information; however, the problems persist to this day as no impactful measurement has been taken. 
The sector’s development is indispensable for the base of the pyramid population to experience a secured source of income, health security, food security, and secure living conditions. The advancement of the microinsurance industry can be safeguarded by developing well-designed insurance schemes, increasing awareness among the target demographic segment, subsidizing insurance packages, and policy reform.
To create a sustainable insurance scheme, insurance companies or the government can partner with NGOs or other frontrunners in the development sector to hold educational campaigns on how insurance functions. Primarily, microinsurance schemes should be promoted to address the protection of the low-income population from risks that are specific to the sector the target demographic is involved in.
Secondly, the prevailing belief and constant fear of losing money in insurance schemes should be mitigated among the working-class demographic by making them aware of the security of their deposits, such a step will in return boost their confidence. This trust can also be achieved if people can claim money more rapidly from insurance companies for any insured product they have availed. 
With nearly 50 percent of the population involved in the agriculture sector that accounts for over 17 percent of the GDP, insurance companies must produce schemes that protect industries like livestock, fisheries, and crops . In the fiscal year 2019-20, a supply gap of 4.6 million metric ton persisted in the production of milk; with the need for milk growing at 5% per annum, it will be difficult to plug the gap in the market . As 8.7 million small-scale farmers dominate the market with mostly low-yield cows , a properly designed insurance scheme provided by microfinance institutions and commercial insurers will allow them to finance their business into purchasing higher-yield cows and added protection from any natural calamities. However, analyzing the risk affiliated in the livestock sector might be expensive, which in return will increase the premium. Therefore, if insurance providers partner with top dairy collectors, it will give rise to a more cost-effective model to ensure farmers receive a more appropriately priced package. 
Similarly, in the aquaculture sector, even though insurance schemes for shrimp producers are being developed to improve the recently down ridden export market, there are over 4 million small-scaled finfish producers in the country currently suffering delays in production due to lack of getting a fair price in the market . Around 99% of the hatchlings produced in Bangladesh were done in private hatcheries; therefore, fish producers predominantly source their hatchlings of subpar quality from private hatcheries. Additionally, shifts in climate change are leading to calamitous events like cyclones and floods that are increasing the survival risks of fishes in production centers, amplifying the need for insurance products. Fish producers can invest in equipment that reduces the mortality rate of hatchlings by taking credit on better terms once they are insured. This will also ensure them a proper cash flow and streamline their harvesting period .
Crop insurance has made critical progress in the last decade by introducing index-based insurance by SBC and Green Delta that mitigates the cost incurred to evaluate separate damages on individual sites. This move drastically reduced the premium of crop-based insurance and made it affordable for small to medium-scale farmers, who account for 57% of the total farmers . However, it is crucial to optimize the actuarial model by integrating forecasts from multiple global weather agencies and investing in new automated weather stations throughout the crop-producing regions of the country. In this way, the real time updates and validation from multiple sources will optimize the tool and will allow insurance providers to charge less and make the scheme more penetrable in the market. 
As farmers thrive on tackling challenging climate changes, they often cannot afford insurance for themselves. Since the Government of Bangladesh is focusing on providing relief to people affected by disasters in low-lying lands and chars, they can give subsidized insurance products to them. This will help the government in landscaping the target market for future schemes. At the same time, the cost benefit of subsidizing insurance products can also be compared to the existing grant relief model the government has. In this way, they can assess the two models and move forward with the most effective one.  A similar scheme should be pursued for workers in the blue collar sector of Bangladesh, particularly the RMG sector where almost the entire population is uninsured and there are ongoing talks for tri-party insurance contributions by the government, RMG factory owners and workers themselves.
For any country, it is obligatory to have a robust regulatory system for the microinsurance program to sustain. The regulatory body should have the capacity and flexibility to manage different products. Bangladesh currently has two bodies that regulate microinsurance: Microcredit Regulatory Authority (MRA) and Insurance Development and Regulatory Authority (IDRA). The two bodies must coordinate closely so that microinsurance providers do not face difficulties coping with a system that is difficult to comply with. Since it has been suggested earlier to form products that address all the sectors in need, a regulatory body should clearly be able to distinguish the products according to its beneficiaries and make separate policies to address all the individual product schemes. In this way, microcredit issuers who want to invest in the insurance sector will gain proper guidance in making sector-specific insurance products. 
Since the rural population of Bangladesh accommodates 63 percent of the total population , the insurance companies need to penetrate the market and gauge its opportunities. The best possible way to do so is by integrating agent banking into the process. Agent banking has led the way in showing how banking services can still be profitable despite the higher client acquisition costs as a proportion of money transacted in rural areas, and it can do the same for insurance services. According to a study conducted in India, it was seen that bank agents required a range of products to sell instead of just providing banking services to have a sustainable income. It was also seen in an African bank that the revenue of agents increased by 37 percent upon the introduction of insurance products as more people started purchasing insurance schemes that boosted the agents’ commission earnings. Therefore, if insurance providers in Bangladesh can partner with existing bank agents in rural areas, they will be able to reach the desired market with ease and the target demographic will be able to effortlessly get insurance. 
To conclude, throughout the years, Bangladesh has been one of the fastest developing nations globally, and this would not have been possible without the likes of NGOs and Institutions that continuously supported rural people in the best possible ways. However, the growth can be accelerated if mainstream insurance providers can delve into opportunities and provide insurance schemes with the support from the regulatory body that customers want with easy access.
This article was authored by Fahmid Kaisar, Business Analyst at LightCastle Partners, and Dipa Sultana, Business Consultant at LightCastle Partners. Advisory and editorial support was provided by Saif Nazrul, Project Manager and Senior Business Consultant at LightCastle Partners. For further clarifications, contact here: [email protected]
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