Claim settlement by non-life insurers dipped in 2022

The claim settlement ratio of non-life insurance companies in Bangladesh slipped in 2022 due a liquidity crisis, reduced investment and lower returns on investment, according to industry people.

As per the latest Bangladesh Bank Financial Stability Report, the claim settlement ratio of non-life insurers stood at 33.44 percent last year, down 5.87 percent from 2021.

Industry people say the lack of obligatory vehicle insurance and inability of many insurers to pay their customers' claims are behind the decreased claim settlement ratio.

Similarly, claim settlement in the life insurance sector stood at 67 percent in 2022, as per data of the Insurance Development and Regulatory Authority (IDRA).

SM Azizul Hossain, chief executive officer of Peoples Insurance Company Ltd, said claims were lower in 2022 than in 2021, which is why the claim settlement ratio is low.

"Mainly claims are car-centric but at present, the car business in the country is not very good," he said, citing how 80 per cent of their total claims are for vehicle insurance while claims against import and fire insurance are low.

The vehicle insurance business is passing through hard times as people are not interested in insuring automobiles in absence of legal obligation as well as a lack of trust in insurers and promotional activities.

In the past, insurance was mandatory for all types of vehicles, such as motorcycles, cars, buses and trucks. The government abolished the system in 2018, taking a toll on the insurance business.

Tariqur Rahman, a consultant of Green Delta Insurance, said the number of car accidents in the country has decreased, due to which claim settlement in the sector has also decreased.

Another reason for the reduced claim settlement ratio is that the premium income of many companies may have decreased in 2022 compared to 2021, said Rezaul Karim, adviser of Pragati Insurance Limited.

Sheikh Kabir Hossain, president of the Bangladesh Insurance Association (BIA), said several companies are currently unable to settle claims due to bad investments and non-compliance.

"Some companies have gone sick. They are unable to settle claims timely," he added.

Hossain, also chairman of Sonar Bangla Insurance, informed that the IDRA and BIA are working on how to increase the claim settlement ratio.

As per the Bangladesh Bank report, return on investments in the non-life insurance sector decreased to 5.65 percent in 2022 compared to the previous year's 7.66 percent, resulting in an overall decrease in profitability.

Likewise, the investment to total assets ratio decreased slightly to 47.40 percent from 48.74 percent in 2021.

It also said the risk retention rate of the non-life insurance sector increased to 55.10 percent in 2022 from 49.77 percent the preceding year, indicating lower risk sharing among insurance companies.

However, the management expense ratio of non-life insurance companies decreased to 42.24 percent in the review year from 46.45 percent in 2021, the central bank added in its report.

Professor Md Main Uddin, a former chairman of the Department of Banking and Insurance at the University of Dhaka, said the liquidity crisis and lower returns on investment were to blame for the reduced claim settlement ratio.

"After analysing the data of the financial stability report, it seems many companies did not have willingness to settle claims despite having the ability. This is dishonesty," he said.

"This is because the reduction in management costs means that the company's revenue has increased. So, here's where the IDRA fails," he added.