Most life insurers extravagant at the cost of policyholders

Jasim Uddin Haroon | Published: August 27, 2014 00:00:00 | Updated: November 30, 2026 06:01:00

The majority of the country's life insurance companies have exceeded their yearly allowable management expenses, leading to shrinkage in financial benefits payable to policyholders, according to an analysis done by the insurance sector regulator.
Management expenses of many companies, which mainly involve business procurement cost, were found to be 77 per cent more than the allowable limit.
The Insurance Development and Regulatory Authority (IDRA), the insurance regulator, conducted a survey on 13 life insurers for a period of five years ending in 2013.
The 13 companies spent Tk 2.62 billion more than the allowable limit in the year 2013 alone, the analysis showed.
M Shefaque Ahmed, the IDRA chairman, told the FE: "This (additional management expenses) is very alarming for the life insurance industry."
Mr. Ahmed said this type of extravagance on the part of companies is bound to affect the growth of insurance industry.
He said most of the money spent beyond the allowable limit actually belongs to the policyholders.
"It cannot be justified by any means," he said.
Such expenditure helps decrease financial benefits due to the policyholders. "If it does not happen, the amount of bonus for the policy holders could be raised."
Sources at the IDRA said the companies were warned of the issue in 2012 but most of them failed to keep their promises.
"They promised us to bring down the extra management cost to zero level," he said.
"Believe it or not, many insurers exceeded the limit even after warning in 2012," said an official at the IDRA.
However, the insurance regulator organised a hearing on the issue and most of the hearings on companies were completed excepting Popular, Fareast and Homeland.
The IDRA is now in favour of appointing an auditor to check the additional management expenses.
It will also impose penalties as per the rules.
A managing director of a Shariah-based life company told the FE that the management expenses have been rising in recent years due to poor business growth.
He said despite a negative growth in the life insurance business over the last three years the expenditures had been on the rise.
"Our earnings are now lower than previous years but our cost of operations has gone up," he said preferring anonymity.
It is believed that life insurance companies are required to spend extra money while procuring their business. This has led to the rise in the management expenses, he said.
However, the insurance regulator will also conduct another survey on the remaining four life insurance companies.
There are 17 life insurance companies excluding the state-owned Jiban Bima Corporation.
In 2013, the government issued 17 more licenses for life insurance business in the country but they are yet to be considered for approval of actuarial basis.
The issue came to the notice of the insurance regulator while life companies wanted approval of actuarial basis on which allowable expenses for a year depend.