Does insurance sector need more players?

The government, according to a report published in this daily last Saturday, is likely to allow the floatation of, at least, five new life insurance companies in the private sector. And it has decided against giving permission to any new general insurance company. It would be, obviously, a difficult task on the part of the ministry of finance, which is mandated to look after the insurance sector, to choose the sponsors for the new insurance companies. It is, literally, flooded with applications for setting up both general and life insurance companies. As many as 350 applications, submitted mainly by people having powerful political connections, are reportedly awaiting their disposal by the ministry which did not solicit the same. But one may find ample reasons to raise questions about the demonstration of so much of interest in setting up of new insurance companies, both general and life. The sector is already considered by those involved in it as being overcrowded. One of the reasons for the interest of would-be sponsors of new insurance companies could be the high price of stocks of insurance companies listed on the bourses. But under the prevailing stock market scenario, there should be reasons for such sponsors to give a second thought to their plan to float new insurance companies. And the government on its part, should ask the newly established insurance regulatory authority to seek information about the details of exposure on the part of each individual insurance company in the stock market. The collection of such information might lead to some stunning insights. The then government in 2000, granted permission to float a good number of new private banks and insurance companies, though the market then was not big and mature enough to accommodate them for their operational viability. However, necessary amendments to relevant laws and reforms in the following years have helped the new banks to survive a fierce competition and consolidate their position. But that did not happen in the case of the country's insurance sector, particularly the general insurance business. In the backdrop of the indifference and negligence by the concerned authorities towards ensuring discipline, unhealthy competition among the insurers to grab business has allegedly engulfed the entire sector. According to an estimate, overall solvency status of the 40 per cent of the general insurance companies is either poor or marginal. In life insurance business, high management expenses and policy lapses remain, however, problems yet. The government some months back enacted two separate laws-the Insurance Act of 2010 and the Insurance Development and Regulatory Authority Act --- to deal with operational and regulatory aspects of the insurance companies. Under the new insurance act, the paid-up capital of both life and general insurers has been increased. The general insurers have been trying to fulfill the new paid-up capital requirement by issuing rights and stock dividends. But the situation here is somewhat difficult for the life insurers. The extent of insurance coverage, particularly with regard to life insurance policies, is also still very low in Bangladesh, when considered in a comparative regional perspective in only South Asia. The products of life insurance companies here are not also yet diversified enough to cater to the needs of their potential clients. However, there is still some scope, albeit a limited one, to allow the floation of some new life insurance companies, provided they go for businesses in new areas with new products. But the government has to be extremely careful about giving permission to any new general insurance companies. It should first of all critically review the existing situation in this particular sector and has to be fully satisfied about the enforcement of standard regulatory norms and rules by all existing operational general insurance companies. Furthermore, it should try, through the insurance regulatory authority, to restore discipline and ensure healthy competition among the existing market players.