The country's clothing industry that fetches four-fifths of the total export earnings is likely to get reduced the insurance premium rates up to 35 per cent on the existing tariff charts in the wake of the unending political confrontation.
The ministry of finance (MoF) on January 02 asked the insurance regulator to take immediate steps in this connection. A copy of the MoF order was made available to the FE.
But top executives at the insurance firms said reduction of the existing tariff rates would affect the country's 46 non-life companies adversely.
The government is actively considering a cut in the tariffs as demanded by the leaders of two leading clothing groups and textile makers in a meeting with the MoF in December last.
The clothing makers also demanded a wider coverage of their goods including movement to and from the Chittagong port.
They also wanted a credit facility for a period of 180 days in the case of issuance of cover notes. The insurance regulator has put on hold the facility for more than two years.
When contacted, Insurance Development and Regulatory Authority (IDRA) Chairman M Shefaque Ahmed told the FE: "We'll sit with all the parties concerned on January 20, then, we'll take a decision on the issue."
"We must analyse, whether the insurance industry will be able to withstand such a big reduction."
When contacted, Sheikh Kabir Hossain, president of Bangladesh Insurance Association (BIA), a platform of 76 privately-owned life and non-life insurance companies, told the FE: "We're also affected by the political turbulences. So, this is not the right time to go for such a big cut."
Insurance sector insiders say the annual premium earnings from the country's mainstay of exports are around Tk 15 billion.
Currently, the ready-made garment (RMG) makers are enjoying a discount of 10 per cent on the existing tariff. The facility has been granted in consideration of its contribution to the national economy in the forms of earnings in foreign currencies and employment generation.
The RMG makers now want to pay 0.02 paisa for covering risks associated with movement of goods worth Tk 1.0.
Insurance sector insiders say the 35 per cent cut will squeeze their turnover from the sector by nearly Tk 6.0 billion.
However, the BIA chief said their management cost in relation to settling claims surged significantly. "How will we be able to withstand such a big cut?"
"We need Tk 8,000 to settle a claim for Tk 5,000 as the fees for survey firms and others have increased in the recent period," Mr Hossain said.
He also said the MoF had not invited them to discuss the issue, when they had met at the Secretariat on December 19.
"We're the main stakeholders, but we're not invited to attend the meeting," Mr Hossian said.
Mr Imam Shaheen, additional managing director at Phoenix Insurance, said the insurance sector would face tremendous financial trouble, once the authority re-fixes the existing tariffs by reducing all types of insurance services.
"RMG sector is our main client. The cut in their tariffs will affect us severely," Mr. Shaheen said.
Another top executive at an insurance firm said: "How will we believe that the clothing sector is affected by restive politics at a time, when their exports have been rising since July last."
Official statistics show that the value of garment exports in five months to November last reached US$ 9.65 billion, up by 21 per cent over the corresponding period a year earlier.
Production in garment factories remained outside the purview of the political programmes, but the blockades are affecting movement of finished goods to and from Chittagong.
The cost involved in sending a covered van to the port in Chitagong has gone up to as high as Tk 90,000 per journey, whether it is from Dhaka or Chittagong, compared with the previous rate of Tk 15,000.
But, some covered van owners claim that they had entered annual contracts with many garment makers. So, they could not raise the rates because of the blockades.
"Only some covered van owners, who do not have any annual contracts with any such factories are charging the fees exorbitantly," said Abu Mojaffor, secretary general of Bangladesh Covered Van Truck Ponnyo Paribaha Malik Association, a registered association in the country.
The central bank has also came up with a stimulus package for the garment sector that has been affected by the ongoing political unrest.
Anowarul Islam Chowdhury, a former chief of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), told the FE that the clothing sector had faced the problem mainly with getting its supply of raw materials and sending finished goods to the port.
He said besides the problem with transporting the finished goods to Chittagong, the industry had been facing a serious image crisis due to deaths of more than 1,000 factory workers in collapse of the Rana Plaza in Savar leading to a drop in foreign orders.
Defending the 35 per cent reduction in tariff, Mr Chowdhury said: "The rise in exports is a result of the orders placed earlier, our new orders are falling."
He also said exports should have grown much if there had been no political crisis in the country.
Garment makers forecast that the RMG exports would grow by nearly 40 per cent in the current year, if there is no political crisis.
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