Kathmandu. In Bangladesh, the Insurance Development and Regulatory Authority (Idra) has proposed to tighten the management costs of life and non-life insurance companies. The limit is aimed at maintaining financial discipline and reducing delays in payment of insurance claims.
Insurance companies, however, have vehemently opposed the draft proposal. They argue that the current rules should be in place for a few more years to give the sector time to adjust.
According to Insurance News, in the proposed new draft, insurers in both life and non-life sectors will face drastic cuts in expense limits. These expenses include operating costs such as agent commissions, employee salaries, and administrative expenses.
Major cuts and new arrangements
Life insurance (annuity and installments): The government has proposed to reduce the management cost of the annual premium policy from 5 percent to 4 percent and increase installment premium from 10 percent to 7 percent.
Group insurance: The management cost of annual insurance will be reduced from 15 percent to 10 percent.
Short-term policy (1 to 5 years): First year expenses will be reduced from 95% to 85% and renewal cost will be reduced from 25% to 20%.
Mid-term insurance (6 to 10 years): First year expenses will be increased from 94 percent to 84 percent and renewal expenses will be increased from 22 percent to 17 percent.
Long-term insurance (10 years or more): A sliding scale will be applicable based on the total sum insured. For insurance premiums up to Rs 100 crore, the cost of the first year will be reduced from 95 per cent to 82 per cent, for Rs 100 to Rs 500 crore, from 92 per cent to 81 per cent, and above Rs 500 crore from 91 per cent to 76 per cent. The renewal cost for all tenures has been reduced from 15 per cent to 10 per cent.
Non-life insurance (fire, marine and general): Fire and non-life insurers will be able to spend only 25 percent instead of 35 percent on the insurance premium up to Rs 15 crore. In marine insurance, this limit has been reduced from 26 percent to 16 percent. The limit for fire and non-life has been reduced from 22 percent to 12 percent and from 16 percent to 6 percent for marin.
According to IDRA data, the claim amount due to be paid till the end of June this year has reached Rs 6,928 crore. In the last 14 years, more than 26 lakh insurance schemes have been lost and about 11 lakh insured are yet to get their dues.
Feedback from industrialists and businessmen
Managing Director of Pragati Life Insurance, Mohd. Jalalul Azim said that the rules introduced in 2018 for non-life insurance and 2020 for life insurance should be continued for a few years. According to him, 60 to 70 percent of the cost of the life insurance sector goes to the agent commission which is fixed by the regulator, so it is impractical to reduce the total management cost without modifying the commission structure.
Nura Alam Siddiqui, CEO of Alpha Islam Life Insurance, and Mohd. Khalid Mamun, CEO of Alpha Islam Life Insurance, said that before imposing the new limits, the regulator should insist on bringing all companies within the current limits. Syed Shehabullah Almanzoor, CEO of Pragati Insurance, commented that the proposal was unnatural at a time of rising inflation and economic slowdown.
First Vice-President of Bangladesh Insurance Association Adeeba Rahman said that although there are some good aspects in the draft, some provisions are very stringent and suggestions will be submitted to the regulator soon for a balanced solution.
Regulators and experts
Idra spokeswoman Saifunnahar Sumi said that high management costs are the main reason for the delay in claim payment. She said the move was taken to protect the interests of insurers and shareholders, promote good governance and restore public confidence in the insurance sector. She expressed concern that by the time we reach the third year, about 75 per cent of the policies have been lost.
Hasina Sheikh, a professor of banking and insurance at Dhaka University, said that while cost cutting is necessary, it alone is not enough. Insurers should think that the amount of insurance premium is a liability and not a source of uncontrolled spending, she said, pointing out the need for strict regulation and strict monitoring.
