The Rationality of Distrust: Institutional Credibility and the Property Insurance Gap in Bangladesh

A systemic failure in the market of developing countries is the global protection gap, including the difference between the losses caused by massive economic damages and the amount of insurance. Although monsoons, cyclones and structural problems pose serious threats to Bangladesh, the insurance penetration of residential property remains at a very low 0.33% of nominal GDP. This study, grounded in a novel primary survey of 101 homeowners and provides a fresh look at the protection gap. The paper proposes that the most important thing that prevents one from taking part in the market is institutional distrust. Adoption is influenced by psychological and experiential considerations, not by age, gender or ownership. To sum up, we suggest a three-point policy strategy: adopting a compulsory claim-transparency regulation, designing digital-first claim settings, and standardising Takaful regulations. These actions are to ensure that the protection gap is constitutionally sealed at the structural level and to restore market activity in the developing countries. The findings put a new perspective on how low-penetration markets ought to be addressed by policymakers, regulators, and insurers: premium subsidies and educational efforts are not enough when institutional mistrust is the root underlying the issue.