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Present scenario of non-life insurance and recommendation for improvement

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31st-Oct-2018       
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Introduction:
Presently the non-life Insurance sector of Bangladesh is consisted of 47 private sector companies and public sector Corporation.
Related law:
Repealing the age old Insurance Act, 1938 two acts were promulgated in 2010 namely the Insurance Development and regulatory Authority Act, 2010 and the Insurance Act, 2010. Other related Acts are Bangladesh Insurance (Nationizational) Order, 1972, Insurance Corporation Act, 1973.
Authority:
Previously the Insurance Industry of Bangladesh was controlled by the Office of the Chief Controller of Insurance (CCI), Department of Insurance under the Ministry of Commerce till 2010. Since 2011 it has been controlled by the Insurance Development and Regulatory Authority (IDRA) a five member Board headed by the Chairman. At present the Authority is chaired by Md. Shafiqur Rahman Patwari.
Tariff:
The non-life insurance market of Bangladesh is tariff based. The Central Rating Committee (CRC)-a Committee works with the insurance experts of Bangladesh under the leadership of the Chairman, IDRA. This Committee determines and also approves the tariff applicable for insurance business of Bangladesh.   
Classes of non-life business:
The existing laws of Bangladesh allow an insurance company to do business either in non-life sector or in life sector only. No insurance company is allowed to do business in both the sectors. In non-life sector major classes of businesses are Fire, Marine Cargo, Marine Hull, Motor and Miscellaneous.
Present Scenario of Non-life Insurance:
The non-life insurance market of Bangladesh is a very small market as regard to its premium size. A large number of companies are operating in the sector sharing the premium among themselves for which they cannot come up with considerable as well as sustainable profit margin.
(i) Agent Commission mismatch: The non-life insurance sector though as per the legal territory is agent based but in practice the employees of the companies procure insurance business from various parties-individual persons and corporate/private business centers. Thus the agents are only shadow persons within the legal boundary who cannot contribute to the business of the non-life insurance sector and also they do not get a single taka as commission in practice even the regulatory approved commission is passed to their valid accounts after deduction of tax @5% on commission amount as per Income Tax Ordinance, 1984. This amount of commission together with higher sky-high additional amount goes back to the insured themselves as rebate against their premium. The insurance companies in non-life sector are bound to perform inappropriate/unethical practices to record the expenses relating to agents. As a result, the expenses of management of non-life insurance companies go far beyond the allowable limit and therefore, the desired net profit cannot be retained in the insurance companies which ultimately made companies' financial health poor. Further, the companies lose the claim paying capacity in case of exigencies. Which ultimately causes bad impression to the industry for non-settlement of due claims although it has paid claims before happening of any claim rebating against premium.
(ii) Credit Business: Some of the insurance companies, with a view to procuring insurance business, have to allow credit business to the insured. This makes the insurance market imbalanced where the insured takes the opportunity of making a delay payment of their premium money neglecting the insurance law where the insurers have to bear tough consequences from the IDRA or the insurers have to manage it otherwise with unethical practices.
(iii) Undercutting of tariff rate: Some of the insurance companies, in view of curtailing premium amount, provide the insured premium rate beyond the tariff and without intimation to Central Rating Committee (CRC) in case of non-tariff rate. Because of this the actual insurance premium of the country remains under stated and the real growth of non-life insurance sector remains improper.
(iv) Intention to reduce insurance cost: The owners of the insurance companies want to reduce insurance cost of their business organizations need insurance services and there arises automatic pressure to the CEOs to allow them higher commission unethically. The owners get back their return from the company in the form of rebating of premium. Thus, the minority or public subscribers lose their right to get adequate return from the company.
(v) Survival of job as CEO: Some of the CEOs are handicapped to save their job as CEO to the owners of the non-life insurance sector. They keep them busy to provide higher amount of rebate to the owners to make them happy and they are very much reluctant to develop the overall market from the adulteration of illegal commission.
(vi) IDRA with inadequate staff: The Insurance Development and Regulatory Authority (IDRA) has been working for the development and controlling of the insurance industry with utmost sincerity. For frequent movement and inspection and to establish proper discipline and farm control in the industry it doesn't have adequate staff with proper knowledge in insurance.
(vii)  Uncovered areas of insurance: Bangladesh is a country of earthquake zone. The buildings in the cities are congested and adequate open space are not available for use to run rescue operation if any earthquake happens and caused large number of destruction of the buildings.   
(viii) Inconsistent rules regarding vehicle movement: The traffic polices don't use the automatic signal for traffic movement. They control the traffic on the road whimsically as a result huge traffic jam is seen every now and then. Because of bribing by the traffic polices the drivers do not follow the traffic rules that causes accident with large number of casualties. Recently the school boys and girls had taken the responsibility of traffic control. The boys and girls found a large number of cars and vehicles were running without proper insurance coverage for the vehicles as well as for the third parties. This fails to give protection to the passengers and passersby who suffered losses due to accident.
(ix) Ship builders' liability insurance: Bangladesh is a promising country for ship building and ship breaking industry. A good number of ships were made in Bangladesh but adequate insurance coverage for the properties and workers were not taken for the time period till the ships are floated on water.
(x)   Inadequate remuneration for quality executives:    Insurance companies cannot provide higher remuneration to the quality professional staff. As a result, qualified professional people are less in the insurance sector.
(xi) Inadequate reinsurer in the country: In Bangladesh for non-life insurance companies there is only reinsurer named Sadharan Bima which has to shift its risk outside the country remitting foreign currencies as premium.
(xii)       Regulations to support the Insurance Act: For the smooth running of insurance industry Insurance Act 2010 was promulgated but a very few regulations were published through gazette notification.
 Recommendations for the development:
Bangladesh is on the road of becoming a developing country. The contribution to GDP from insurance sector is around 1% only. As per the Jatiyo Bima Niti 2014 the Bangladesh Government has set a target of 4% to GDP from insurance industry by 2021. Before that the Government should take necessary steps to make the insurance disciplined and controlled. With that intend the followings may be considered by the Government:
· Agent commission and rebating should be stopped forever.
· The CRC may declare Revised Tariff giving benefit directly to the insured which would reduce their insurance cost and help stop the inappropriate/illegal practice of giving additional amount as rebate to the insured. This will increase the gross premium base of the non-life sector tremendously and it would help the insurance companies to build their asset based and healthy fund flow with higher profitability and it will attract quality professional persons with adequate remuneration and honour.
· Undercutting of insurance premium must be stopped by any means.
· The building properties in the private sector may be brought under compulsory insurance. At the same time, adequate heavy machineries need to be brought to face any earthquake disaster.
· To ensure proper reflection of premium an integrated and common software is very much required in the non-life insurance sector without any delay.
· Uncovered areas to be found out and making those mandatory for non-life insured such as comprehensive insurance for vehicles etc. with strong traffic control system. Owners of bus, truck may be penalized for huge amount for noncompliance of traffic rules. Traffic police should serve their duties with honesty and integrity.
· The professionals like Doctors, Lawyers, Directors, CEOs, CFOs serving in various organizations have risk of being jobless this risk may be covered through professional indemnity insurance.
· With a view to contributing higher in GDP the poor workers' health should be secured for which the Government may introduce health insurance to them with subsidy to ensure social obligations.
·    The future assets of the country such as students in the schools, colleges and universities should be provided with health insurance taking a small amount of premium at the time of admission or the Government may give that premium through subsidy.
·    The ship building industry should be brought under compulsory insurance with wider coverage as well Personal Accident Policy (PAP) for the workers working for ship building and ship breaking also.
· Bangladesh Bank should take necessary steps to introduce Banker's Blanket Bond (BBB) with wider coverage under an umbrella in the commercial banks which will reduce overall 30% insurance cost of the banks properties if the risks are insured individually. With an additional premium cybercrime can also be protected with this insurance.
· The Government should take necessary steps to create awareness program in mass media giving attractive advertisement in the newspapers, BTV and all other available cable TV networks and arranging talk shows on insurance and its importance in daily life and impact on national economy.
· To open the avenues of government business, development projects of the Government or also the projects under public private participation for the private insurance companies vis-à-vis Sadharan Bima Corporation (SBC). It would create a healthy competition in the non-life insurance sector.
· The CEOs and the directors of the company should maintain the ethical business practices within the purview of insurance laws. The Chairmen and their Board should play vital role to restore ethical business in their insurance companies as well as their own business organizations.
· With a view to retaining re-insurance premium within the country a strong reinsurance company may be formed in the private sector as a competitor of Shadharan Bima. Both the reinsurers placing reinsurance business with each other would be able to retain large amount of foreign currency within the country.
· Adequate and necessary regulations should be formulated and published through official gazette soon to support the Insurance Act.

(Ms. Mohammodi Khanam , Chief Executive Officer, Prime Insurance Company Ltd)

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