Policyholder protection fund yet to be formed after a decade

The Insurance Development and Regulatory Authority (Idra) is yet to set up the Life Policyholders Protection Fund although more than a decade has passed since the government initiated the move.

The delay comes although many insurers are failing to pay back money to policyholders despite their policies reaching maturity.

According to the Insurance Act 2010, the insurance regulator was tasked with establishing the fund with a view to giving protection to policyholders if insurance firms struggle to pay back after policies mature.

The fund will be formed on the basis of the contribution from insurers and will be used for the general protection of policyholders. Any portion of the fund not immediately required for any purposes will be invested in a prudent manner that would yield maximum return and safeguard the investment.

In 2016, the Idra framed the Life Insurance Policyholder Protection Fund Regulation to make the fund into a reality.

Although several initiatives have been taken in the past, the regulator has not been able to set up the fund due to the reluctance of companies, said a senior official of the Idra.

The Bangladesh Insurance Association (BIA), a platform for insurance companies, says that any provision to protect mismanaged and weak companies by forming a fund with the money of all companies is not realistic.

The association requested Idra to take the necessary steps to amend the law.

Sheikh Kabir Hossain, president of the BIA, said the formation of the fund will increase the tendency among companies to commit irregularities and even go bankrupt willingly so that they don't have to return money to policyholders.

"So, setting up the fund will not be the right move."

Hossain said the BIA was not informed when the creation of the fund was included in the Insurance Act.

"We objected to the provision when it was made public. But the Idra didn't pay heed to our demand."

Mohammad Zainul Bari, chairman of the Idra, said efforts are underway to set up the fund.

He said the BIA wants an amendment to the section of the Insurance Act that deals with the creation of the fund. "The issue was also discussed at a meeting after I joined the Idra in 2022."

"At that time, the BIA leaders had said that they would submit an amendment proposal. They have not filed the proposal yet."

Prof Md Main Uddin, a former chairman of the Department of Banking and Insurance at the University of Dhaka, blames Idra's lack of will for the non-formation of the fund. "The regulator can't avoid its responsibility."

He questioned whether the Idra has any control over private insurance companies in the country. The law says the fund has to be formed, but even after all these years, the regulator has not been able to implement it.

At present, payments against claims of around 10 lakh policyholders are hanging in the balance as 29 life insurance companies are not clearing dues owing to a liquidity crisis, data from the Idra showed.

The unsettled claims involved Tk 3,050 crore in the four years to the second quarter of 2023. The companies settled claims worth Tk 2,070 crore during the period, which accounted for 40.42 percent of the claims made.

The situation can be overcome by taking action against the companies that have not complied with rules, said industry people.

"It is possible to solve the problem by merging financially weak companies with the stronger ones," said Kabir Hossain.

Currently, there are 35 life insurance companies in Bangladesh, covering nearly 2 crore people.