An unsound and illogical proposition

The move by Insurance Development and Regulatory Authority (IDRA) to increase non-life insurance premium income of Bangladesh from Taka 15 billion (1,500 crore) to Taka 45 billion (4,500 crore) by increasing premium rates of existing clients appears to be an unsound and illogical proposition. The government collects value added tax (VAT) and other forms of taxes on sale of various commodities including daily necessities. In order to boost government's revenues, should it increase the price of an essential like sugar two-fold? Bangladesh is a tariff market whereby premium rates are fixed by regulatory authority. The present tariff has been inherited from Pakistan and it has not been systematically revised to reflect the up-to-date loss experience and exposures of risks. By and large, insurance premium rates in Bangladesh are on the high side, as compared to our neighbouring countries. In the recent past, special premium rates were granted by legally constituted Central Rating Committee(s) which is a part of IRDA, based on careful consideration of each client's insurance portfolios and having due regard to various technical aspects and loss experience. Being a qualified Actuary, the Chairman of IRDA should be conversant as to what factors determine non-life insurance rates. Obviously the main factor is loss experience. Cancellation of all special rates previously granted by Central Rating Committee, without giving reason, makes one wonder whether there has, of late, been large-scale deterioration of loss experience in the Bangladesh insurance industry as a whole or on specific areas or classes. Increasing premium rates simply to boost income of insurance companies is completely irrational and unjustified. Also, charging premium at a higher rate, which is incommensurate with exposures and loss experience, is tantamount to overcharging the clients. Certainly, IDRA owes an explanation to the insuring public in this matter. Non-life insurance business in Bangladesh has been stagnating over the years with a very low penetration (premium as a percentage of country's gross domestic product or GDP) rate of only 0.2%. Most of the personal properties of the country remain uninsured as people do not appear to have confidence in insurance as an effective mechanism to protect their interests from losses due to accidents and natural calamities. Increasing premium rates of existing clients will, no doubt, increase clients' dissatisfaction and also will have detrimental effect on public confidence. In this situation, it is imperative that the insurance industry, together with the regulator, work together to restore consumer confidence, tap untapped business and achieve the much desired long-term horizontal growth rather than vertical growth, which the regulator seems to be solely aiming. If at all, IDRA should carry out a proper and scientific review of the existing premium tariff in Bangladesh, with actuarial evaluation, in the light of which necessary adjustments in premium rates should be carried out. This will help clients to have better understanding and acceptability of insurance pricing and judiciousness thereof. An insurance executive Email: akhtara@dhaka.net