Insurance firms pay clients commissions beyond limits

FE Team | Published: July 07, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

The chief controller of insurance Mahfuzul Haque has said companies are scrambling to pay their clients higher than the permissible level of commissions in desperation to get a slice of the tiny insurance market, reports bdnews24.com.
"Absence of monitoring and enforcements due to political interventions in the previous days encouraged the companies to engage in such illegal practices.
"They have really gone mad to control stakes in a tiny market," the controller told bdnews24.com in an interview recently.
"We have taken stern actions to stop these practices. Already we have made progress in bringing discipline," he said.
Haque made the remarks after he had a look at the performances of 62 insurance companies in the last couple of months.
The Tk 30 billion insurance sector, which contributed to only 0.37 per cent of the GDP in the fiscal 2006-07, has yet to win public confidence in mobilising long-term savings and allowing people to shift the risk of losses, due mainly to poor enforcement and monitoring by the regulator.
Haque said companies, especially general ones, are allowed to offer a maximum of 20-25 per cent commission to their insurers so that their management costs do not go up.
"But in practice, they make offers beyond the permissible level. In most cases, we have found that companies offer 40-65 per cent commissions," he said.
He said his office has fined companies offering higher commissions. "We also forced them to pay a 45 per cent tax to stop the practices."
The regulator has so far earned Tk 31 lakh in fines from the companies having higher management costs. At present, the controller can fine between Tk 50,000 and Tk 0.1 million.
The controller, referring to his inspection findings, said many companies had kept insurers' claims unsettled, misappropriated funds and capitals.
Internal strife among the board of directors in some companies also affected their performances, he said.
"We have directed them to settle those unsettled claims within three months and fill up capital shortages within two months," he said.
"Already about 80 per cent of the unsettled claims have been settled. The remainder is being settled."
On the companies failing to issue initial public offerings on stock markets within 3-1/2 years as stipulated by the law, he said his office fetched Tk 2100 million in fines from non-IPO companies.
He also said the government has moved to revise the existing laws to ensure more discipline in the sector.
"Now we have moved to revisit the whole thing. We have proposed formation of a regulatory authority with more autonomy and adequate enforcement power," he said.