The insurance regulator of Bangladesh has directed all life insurers to set up an actuarial department and appoint actuaries with a view to assessing and managing the risks of financial investments and insurance policies. 

This is because no life insurer can carry out business in a transparent and orderly manner and protect the interests of customers without proper application of the techniques of practical actuarial science, said the Insurance Development and Regulatory Authority (IDRA) in a circular on November 13.

An actuary uses math and statistics to estimate the financial impact of uncertainty and help clients minimise risk. He or she can assess and manage the risks of financial investments, insurance policies, and other potentially risky ventures.

Currently, there are 35 life insurance companies in Bangladesh, but only one firm has a permanent actuary, said an official of the IDRA.

"The rest of the companies take the service for valuation and product designs through outsourcing."

The official, however, said some life insurance companies have actuarial departments.

Since they have not hired actuaries, risk analysis is not done properly. As a result, customers face trouble many times, he said.

The actuary concept has not taken shape in Bangladesh for various reasons.

The IDRA official said 15-20 Bangladeshi actuaries work in various companies outside the country. But they don't want to come to Bangladesh because the insurance market is not growing in a proper manner.

The actuarial department must consist of at least two regular officers. The actuarial department of a life insurer having a life fund of more than Tk 500 crore must have at least three officers, said the IDRA notice.

Ala Ahmad, chief executive officer of MetLife Bangladesh, the only foreign insurance company in the country, says actuaries help in assessing financial risks, providing solutions to mitigate them and creating value from the opportunities.

They design insurance products and help insurers maintain financial stability against uncertainties. "Because of these vital skills and contributions, the actuarial profession enjoys respect and has demand globally," Ahmad said.

According to him, there is a lack of awareness about the role and potential of the actuarial profession.

To address the gap, MetLife Bangladesh is continuing a scholarship programme where interested students are supported with education expenses and guidance from the company's in-house actuaries.

In the absence of an actuarial department, the assessment of life insurers is not up to the mark, industry insiders say.

As a result, the claim settlement ratio and the penetration of the insurance sector have been low in Bangladesh.

In 2021, the claim settlement fell to 68 per cent from 88 per cent the previous year, according to the Financial Stability Report of the Bangladesh Bank for 2021.

Last year, 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.

Actuarial society's fellowship or associateship examinations should be encouraged to provide incentives to students, said the IDRA.

A report citing the number of employees/students working in the actuarial department, subjects passed and salary allowances and examination fee assistance provided by the company should be submitted in June and December, it added.

Nasir Uddin Ahmed, the first vice-president of the Bangladesh Insurance Association, welcomed the decision.

"Insurance is a long-term business so determining assets and liabilities correctly is an important task. This reduces a company's risks and proper valuation brings sustainability to the business," he said.