8 insurers asked to raise policy renewal rate

The Insurance Development and Regulatory Authority (IDRA) has directed eight life insurers to increase their policy renewal rate after the second year of subscription to 70 per cent from 50 per cent at present.

The move comes in a bid to develop the insurance industry, which is not in good shape due to excessive commission payments, administrative expenses and other irregularities, according to the Financial Institutions Division (FID).

The directive was issued in line with an instruction from the FID to investigate the overall activities of 13 life insurance companies that were approved in 2013 and 2014. In July last year, the FID said the companies have already spent much of the premium taken from customers on various expenses, such as purchasing land and stocks.

As a result, it will be difficult for many of them to pay claims on time, it added.

The IDRA conducted a probe into the 13 life insurance companies and started hearings with the firms at the beginning of May.

Currently, there are 35 life insurance companies active in the country.

The directive also states that insurance companies should reduce costs related to vehicles purchases.

In addition, the management expenses of these firms, excluding commission, should be reduced by 30 per cent while increasing the size of their life funds.

As per the IDRA's instructions, insurers should increase their gross premium income ‍and at the same time, the rate of insurance claim settlement should be increased as well.

In addition, the rate of investment return should be made consistent with the market interest rate.

The companies are: Protective Islami Life Insurance Limited, Jamuna Life Insurance Company Limited, Zenith Islami Life Insurance limited and Alpha Islami Life Insurance Limited.

The list also includes Diamond Life Insurance Company Limited, Chartered Life Insurance Company Limited, Mercantile Islami Life Insurance Limited and Jamuna Life Insurance Company Limited.

Jahangir Alam, a spokesperson of the IDRA, said the investigations have been completed and hearings are underway.

Nasir Uddin Ahmed, first vice-president of the Bangladesh Insurance Association, a platform for insurance companies, said the management of these companies should be governed by the guidelines given by IDRA.

The instructions given by IDRA to these eight companies are not only for them, but all life insurance companies, he added.

Mohammad Jainul Bari, chairman of IDRA, said quarterly reports are taken from the companies to check whether they have done business in compliance with industry regulations.

"Our main objective is to increase the life fund of companies by ensuring their compliance so that they do not face any hurdle in paying claims," he added.

Bangladesh's life insurance penetration is well behind the emerging market average of 3.3 per cent. In 2020, India's life insurance penetration was 3.2 per cent while it was 2.4 per cent in China.

In 2021, life insurance penetration, measured as the ratio of gross written premium to gross domestic product, was 0.5 per cent, way lower than 0.94 per cent in 2010, according to IDRA data.

This means that most Bangladeshis are uninsured and the insurance premium is not rising in keeping with the economy, which has clocked more than 6 per cent growth in the last decade on average.

The insurance industry contributes only 0.4 per cent to Bangladesh's growing gross domestic product.