Govt to amend insurance law, limiting family ownership

The government has taken the initiative to amend the insurance law, aiming to give the regulator greater authority to dissolve and restructure the boards of insurers, limit family ownership concentration, and impose hefty fines for breaking the rules.

The Insurance Development and Regulatory Authority (Idra) has taken the initiative, as the current 15-year-old law does not adequately empower the regulator to act against delinquent insurers.

"Comprehensive amendments are being undertaken to strengthen its enforcement powers," said Tanjina Ismail, Idra member for law.

Another senior Idra official said that revising the law is essential to ensure tougher penalties, particularly given the widespread allegations of non-compliance, including the failure of many insurers to settle large numbers of claims.

The draft of the revised Insurance Act will soon be published on the Idra website to invite public comments and feedback from stakeholders.

According to Idra, only 57 percent of insurance claims were settled in 2024. Insurers paid out Tk 9,476 crore against total claims of Tk 16,484 crore.

The situation has become so serious that in March this year, the regulator ordered six struggling life insurers to submit action plans after years of failing to settle claims, leaving policyholders in the lurch.

The country has 82 insurance companies — 36 life insurers and 46 non-life insurers. Idra data show that more than 26 lakh policies have lapsed over the past 14 years.

Officials say the draft law contains sweeping changes to the sector.

A new section allows the regulator to restructure the board of an insurer or its subsidiary if its activities harm the interests of the company or its policyholders.

Besides, the regulator may also dissolve such boards, though any dissolution cannot exceed two years.

Ownership will face tighter limits too.

No individual, institution, company, or family members will be allowed to hold more than 10 percent of an insurer's shares, whether directly, indirectly, or jointly.

Commissions for life insurance agents are also set to change. The draft proposes lowering the commission on first-year premiums from 35 percent to 25 percent.

In contrast, renewal commissions would rise — from 10 percent to 15 percent in the second year — while remaining at 5 percent for subsequent years.

As per the new law, regulatory officials could enter and search insurers' offices if they suspect the presence of key documents.

They would be permitted to break locks if necessary and seize documents, with police assistance if required. The regulator could even sell a company's assets to settle policyholders' claims.

If a company fails to address capital shortfalls within a set deadline, the regulator could ban it from selling new policies or collecting premiums. Fines between Tk 10 lakh and Tk 1 crore could follow, alongside daily penalties of up to Tk 50,000 until the shortfall is met.

Other proposed safeguards in the draft include barring insurers from pledging assets to secure loans for directors, shareholders, or their families.

Besides, no one will be eligible to serve as a director or chairman without at least 10 years' managerial, business, or professional experience. Directors would be limited to a six-year consecutive term.

The draft law proposes hefty penalties. Whereas current fines start at Tk 5 lakh, the amendments introduce the possibility of up to two years in prison, or both fines and jail.

The Daily Star on Thursday approached Idra Chairman M Aslam Alam for comments about the draft, but to no avail.

Saifunnahar Sumi, Idra's media and communication consultant, said, "Unlike the central bank's authority over the banking sector, our oversight powers are significantly limited."

Meaningful change would not be possible without strengthening the regulator's hand, she added.

Adeeba Rahman, first vice-president of the Bangladesh Insurance Association, said, "The law has not been amended since it was enacted in 2010. Given the current situation of the sector, certain areas should obviously be revised."

While amending the law, the government must ensure that it is drafted in a way that prevents any potential misuse of power, she added.

Barrister Khan Mohammad Shameem Aziz, an advocate of the Supreme Court, described the proposals as a step towards restoring discipline and accountability.

He said the Bangladesh Bank enjoys similar powers under the Bank Companies Act 1991.

"This is a positive development. If the law is amended and these provisions are properly incorporated and implemented, it will help restore discipline in the sector," Aziz said.

Md Main Uddin, professor at the Department of Banking and Insurance at the University of Dhaka, pointed out that the real test would lie in how effectively the law is enforced.