Ins regulator bans business by directors in own cos

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Jasim Uddin Haroon The country's insurance regulator Sunday slapped a strict ban on businesses often carried out in their own companies by the directors, their spouses, children, parents, brothers and sisters and dependants. The Insurance Develop­ment and Regulatory Authority (IDRA) in a circular said it has taken the decision considering the overall interest of the insurance industry. It also said the prohibition would protect the interest of the policy holders and shareholders as a long-term strategy to make the industry financially sound. The new circular issued Sunday and signed by its chairman M Shefaque Ahmed (Actuary) has been faxed to all 43 general insurance companies on the day. It will be effective from September 18. Directors from different non-life insurance companies, however, expressed their mixed reactions on the new decision. Any policies or 'cover notes' issued on or before 17 September, 2011 will remain valid until their next renewal and expiry date except for the 'open covers' which will be subject to the prohibition. IDRA firmly believes that the decision taken is indispensable for increased discipline and uniformity in market practice. According to the regulator, it will create a level-playing field for all and will substantially improve the financial strength of the companies and their 'claim paying abilities'. The IDRA circular said any deviation from the circular would invite severe consequences for the defaulting companies including scrapping of their licenses. IDRA officials said the decision would ensure proper receipt of value added tax (VAT), stamp duties and income tax by the government. Industry insiders said the companies' boards cannot function independently, when the directors and sponsors involve themselves in business in their respective companies. "Insurance company boards are dominated by a vested quarter and as a result, it creates a division within the board," said a managing director of a leading general insurance company. He said these interest groups create, promote and foster this division in the institutions just to serve their own interest and achieve their 'hidden agenda.' The managing director, who wished not to be named, said directors often dictate the rates of premiums and they prefer doing their businesses on credit. "Directors often go for premiums on credit when air shipment is concerned," he added. He also said the placing of directors' business in their own insurance companies is resulting in reduction in premium earnings. He said one company, established in 1988, has only Tk 50 million's worth premium earnings. "I think it should at be least Tk 1.0 billion," he added. Another official working at another company said directors "often fabricate claims". He said any minor accident of vehicles belonging to the directors gets exorbitant claims due to their involvement in the business. Md Suja Uddin, managing director of City General Insurance Company said: "This is a praiseworthy and bold move taken by the IDRA." Mr Suja also said: 'If the decision is properly executed, the industry will be more vibrant in bringing about a corporate climate." Md Jahangir Alam, a director of Asia Insurance told the FE: "The prohibition will ensure professionalism for the industry and I welcome the move." Mr Alam, also chairman of MI Cement and GPH Ispat, said that this decision would help grow skill of the insurance personnel. On the other hand, director of Pragati insurance Alhaj Khalilur Rahman told the FE: "IDRA's decision will have negative impact on the industry." Mr Rahman, also chairman of leading local conglomerate KDS Group, said: "We now have to give our business to other companies, which will not be wise." Bangladesh Bank had also stopped businesses involving commercial banks' directors earlier. However, according to a new insurance act, an insurance company will comprise a board with twenty members at the maximum. Of them 12 must be sponsors.