FY26 budget skips insurance reforms

Bangladesh's financial sector, particularly the insurance industry, is reeling from a crisis, as allegations of corruption over the past 15 years and regulatory failures under the Awami League-led government have come to light, shaking investor confidence and undermining public trust.

The liquidity crisis in the sector worsened significantly in 2024, with only 57 percent of insurance claims being settled, according to the Insurance Development and Regulatory Authority (IDRA).

In monetary terms, insurers paid out Tk 9,476 crore against total claims amounting to Tk 16,484 crore.

The claim settlement rate stood at 65.19 percent in 2023, which was 61.16 percent a year earlier, IDRA data added.

Globally, the average claim settlement rate hovers around 97 to 98 percent.

In neighbouring India, it stood at around 98 percent in the fiscal year 2022–23, according to media reports.

Moreover, insurance penetration in Bangladesh remains critically low at around 0.5 percent, among the lowest in the world, compared to the emerging markets' average of 3.3 percent, India's 3.2 percent, and China's 2.4 percent, according to regulator data.

Despite these concerning figures, the interim government, formed following the political shift triggered by the July 2024 uprising, has not proposed any major reforms for the insurance sector in the national budget for fiscal year 2025–26.

Salehuddin Ahmed, finance adviser to the interim government, presented the national budget for FY26 in a televised speech on Monday.

Although the budget included a chapter on good governance and institutional reform, the adviser merely stated that the financial sector had been driven to the brink of collapse through unprecedented misgovernance over the past 15 years.

This is the first time in the country's history that an interim government has announced a national budget smaller than the previous year's.

The proposed size is Tk 7.9 lakh crore, down 0.9 percent from the outgoing budget.

Meanwhile, the sector's condition has deteriorated to such an extent that in March the regulator directed six troubled life insurance companies to submit revival plans, amid prolonged failures in claim settlements that continue to burden policyholders.

Data from the regulator paints a grimmer picture over the past 14 years, with more than 26 lakh insurance policies lapsing in Bangladesh.

In 2009, there were nearly 1.12 crore active policies, but by 2023, the figure had dropped to 85.88 lakh.

Speaking to The Daily Star today, Adeeba Rahman, first vice-president of the Bangladesh Insurance Association, a platform representing insurance companies, said a meeting was held with the National Board of Revenue during the budget formulation process to discuss industry concerns, including demands for lower corporate tax rates and cuts in VAT and other taxes.

"The revenue authority responded quite positively," she said.

"Although the insurance sector plays an important role in the country's economy, the proposed budget does not address our demands," she added.

"The financial health of several life insurance companies is extremely poor, which is damaging the reputation of the entire industry. There should have been a way out of this."

She said further discussions with the government will take place to resolve the problems.

Md Main Uddin, professor of banking and insurance at the University of Dhaka, said the government has taken visible steps toward banking sector reform, but no such initiative has been taken for the insurance sector, even 10 months after the interim government came to power.

"That's a sad part," he said.

"I had thought that after implementing visible reforms in the banking sector, they would turn their attention to insurance. But now it seems that hasn't happened."

He added that the budget also failed to address this issue.

Main Uddin further said that if the government plans to hold the national election before June 2026, it still has about a year left.

"Within this time, they should at least start the necessary reforms to ensure visible improvements," he said.

However, an IDRA spokesperson told The Daily Star in February that the interim government has taken some initiatives to address insurance sector challenges.

"A draft amendment to the Insurance Act 2010 has been prepared," the official said.

"In addition, solvency margin regulations for life and non-life insurers have been issued, and a draft amendment to the Insurance Policy 2014 has also been prepared."