In a financial landscape where stability and diversity are paramount, the insurance sector in Bangladesh stands out for a troubling reason: an overwhelming concentration of power among just five major companies, raising significant concerns among analysts and regulators. This dominance, spanning both life and non-life insurance markets, not only stifles competition but also poses systemic risks to the entire industry, as highlighted in a recent financial stability report from Bangladesh Bank. With a handful of firms controlling the majority of assets and premiums, the sector’s vulnerability to crises in these key players could have far-reaching consequences. This scenario sets the stage for a deeper exploration into the structure of the market, the interconnections with other financial systems, and the urgent need for regulatory intervention to ensure a more balanced and resilient industry.
Market Concentration and Its Implications
The extent of market concentration in Bangladesh’s insurance sector is staggering, with the top five companies exerting control over a significant portion of both life and non-life markets. In the life insurance segment, total assets are valued at approximately Tk 48,560 crore, and these leading firms hold 77% of that, equating to Tk 37,357 crore, alongside over 65% of the premiums. The state-owned Jiban Bima Corporation contributes notably, accounting for 6.45% of assets and 7.01% of premiums. Meanwhile, in the non-life segment, assets total Tk 20,530 crore, with the top five firms commanding 62.67%, or Tk 12,865 crore, and 56.02% of premiums. Sadharan Bima Corporation, also state-owned, dominates this space with 42.17% of assets and 27.10% of premiums. Such heavy reliance on a small group of players creates a fragile market structure where the failure of even one could trigger widespread instability, underscoring the need for a more diversified competitive landscape.
Beyond the raw numbers, this concentration limits the growth and innovation potential of smaller insurers, ultimately affecting consumers. When a few entities hold such disproportionate influence, the variety of products and services available in the market diminishes, leaving policyholders with fewer choices and potentially higher costs. Analysts have pointed out that this lack of competition hampers the sector’s ability to adapt to changing economic conditions or customer needs. Furthermore, the dominance of state-owned corporations in both segments raises questions about market fairness and the barriers to entry for private players. The systemic risks are evident: a crisis in one of these major firms could ripple through the industry, disrupting not just insurance but also related financial services. This scenario calls for a critical examination of how such imbalances can be addressed to foster a healthier, more inclusive market environment.
Interconnected Financial Risks
The insurance sector in Bangladesh does not operate in isolation; its deep ties to other financial systems amplify the risks posed by market concentration. Life insurance companies, for instance, have invested 63% of their funds in government bonds, indicating a heavy reliance on public debt instruments for stability. Meanwhile, fixed deposits in banks have seen a decline from 15.57% in the previous year to 13.25% in the most recent data, representing a mere 0.95% of total bank deposits. While this low share suggests that sudden withdrawals by insurers would have minimal impact on banks, the reverse is not true—a banking sector collapse could severely affect insurers. Additionally, 10.59% of insurance investments are linked to the capital market, where poor performance directly cuts into earnings. This interconnectedness means that external shocks in related markets could exacerbate vulnerabilities within the insurance industry, creating a domino effect across the financial ecosystem.
Another layer of concern lies in the declining influence of insurance companies within broader financial markets, which still does not shield them from risks. The market capitalization of listed insurance firms on the Dhaka Stock Exchange dropped from 3.87% to 3.53% over a recent period, reflecting limited clout but significant exposure to market downturns. This trend highlights how interconnected failures could undermine confidence in the sector, even if its direct impact on the stock market remains small. The intricate web of dependencies with banks, non-bank financial institutions, and bond markets means that any instability in one area could quickly spread to others. Regulators face the daunting task of monitoring these linkages to prevent a cascading failure, emphasizing the importance of proactive measures to mitigate risks stemming from both internal concentration and external financial ties.
Path Toward a Balanced Industry
Looking back, the challenges in Bangladesh’s insurance sector became increasingly apparent as the dominance of five major firms stifled competition and heightened systemic vulnerabilities. The heavy concentration of assets and premiums in both life and non-life markets, coupled with the sector’s deep connections to other financial systems, painted a picture of fragility that could not be ignored. The decline in certain investment metrics and the limited but risky exposure to capital markets further compounded these issues, revealing a sector in need of urgent reform.
Moving forward, the focus must shift to actionable strategies that promote diversity and resilience. Regulatory bodies should prioritize policies that encourage the entry of new players and support the growth of smaller insurers through incentives and reduced barriers. Strengthening oversight to monitor the financial health of dominant firms can help prevent crises from escalating. Additionally, fostering innovation in product offerings could enhance consumer choice and drive competition. By addressing these critical areas, the industry can evolve into a more balanced and stable pillar of the nation’s financial system, safeguarding against future shocks.
