Insurance laws and policy coverage
Sunday, 17 June 2007
THE government and the other stakeholders in the country's insurance sector seem to be unanimous that the sector should be better regulated and brought under disciplinary measures. Such actions have become all the more necessary because of the entry of a large number of insurance companies into the market at the fag end of the nineties, resulting in an unhealthy competition among the insurance companies to grab business.
The insurance sector has grown in size over time. But nobody has ever bothered to look at its regulatory aspects. Nor anyone felt the necessity of enacting necessary laws and rules to discipline the sector and help the insurance companies to operate in a healthy environment and meet the need of the time. The immediate past political government, however, had taken initiatives in this respect and drafted three separate bills to update the age-old insurance act, establish an independent insurance regulatory authority and put in place a separate law for Islamic sharia-based insurance companies. However, the bills could not be placed before the last parliament due to the delay in getting the necessary ground work and other formalities completed. The commerce ministry, according to a report published in this paper last Saturday, will soon place before the council of advisers the three draft ordinances on insurance sector for its approval. The council is unlikely to kill time unnecessarily on the adoption of the ordinances which, reportedly, have already been approved by the finance and commerce adviser.
There is no denying that the insurance companies are in the midst of a cut-throat competition, which has given rise to unethical business practices. The commerce ministry and the association of the insurance companies made a few moves in the past to stop those but failed. The absence of an independent and effective regulator has made it more difficult for the government to monitor activities of the insurance companies efficiently. The adoption of the proposed ordinances will not, however, solve the problems facing the insurance sector. Their proper enforcement will be necessary to achieve the desired results. Some financially weak insurance companies might also be needing merger with their strong counterparts. The Bangladesh Bank has recently released a guideline for acquisition and merger of banking and other financial institutions. The commerce ministry or the proposed independent regulatory authority should also prepare a similar guideline for the insurance companies.
In addition to modern laws and better regulation, the insurance companies need to be innovative in expanding their business activities. Until now, the general insurance companies are dependent on policies that have been made mandatory by the government. Beyond that they do not have any business. The chief adviser to the caretaker government the other day, while talking to the leading insurers, urged the insurance companies to innovate attractive insurance products for the people at the grassroots who are vulnerable to natural calamities. Insurance is a word that is almost unknown to the rural population. Even the affluent people in rural areas are not familiar with life insurance policies. However, some sharia-based life insurers are now trying to make inroads in rural areas. But what the rural people need most is the risk coverage for their crop and homes against natural calamity. In the past there was an unsuccessful attempt to introduce crop insurance by the state-owned Sadharan Bima Corporation (SBC). Now, this can be better served by the private sector insurers. But will they venture in such an uncharted and unattractive area where bulk of the population live?
The insurance sector has grown in size over time. But nobody has ever bothered to look at its regulatory aspects. Nor anyone felt the necessity of enacting necessary laws and rules to discipline the sector and help the insurance companies to operate in a healthy environment and meet the need of the time. The immediate past political government, however, had taken initiatives in this respect and drafted three separate bills to update the age-old insurance act, establish an independent insurance regulatory authority and put in place a separate law for Islamic sharia-based insurance companies. However, the bills could not be placed before the last parliament due to the delay in getting the necessary ground work and other formalities completed. The commerce ministry, according to a report published in this paper last Saturday, will soon place before the council of advisers the three draft ordinances on insurance sector for its approval. The council is unlikely to kill time unnecessarily on the adoption of the ordinances which, reportedly, have already been approved by the finance and commerce adviser.
There is no denying that the insurance companies are in the midst of a cut-throat competition, which has given rise to unethical business practices. The commerce ministry and the association of the insurance companies made a few moves in the past to stop those but failed. The absence of an independent and effective regulator has made it more difficult for the government to monitor activities of the insurance companies efficiently. The adoption of the proposed ordinances will not, however, solve the problems facing the insurance sector. Their proper enforcement will be necessary to achieve the desired results. Some financially weak insurance companies might also be needing merger with their strong counterparts. The Bangladesh Bank has recently released a guideline for acquisition and merger of banking and other financial institutions. The commerce ministry or the proposed independent regulatory authority should also prepare a similar guideline for the insurance companies.
In addition to modern laws and better regulation, the insurance companies need to be innovative in expanding their business activities. Until now, the general insurance companies are dependent on policies that have been made mandatory by the government. Beyond that they do not have any business. The chief adviser to the caretaker government the other day, while talking to the leading insurers, urged the insurance companies to innovate attractive insurance products for the people at the grassroots who are vulnerable to natural calamities. Insurance is a word that is almost unknown to the rural population. Even the affluent people in rural areas are not familiar with life insurance policies. However, some sharia-based life insurers are now trying to make inroads in rural areas. But what the rural people need most is the risk coverage for their crop and homes against natural calamity. In the past there was an unsuccessful attempt to introduce crop insurance by the state-owned Sadharan Bima Corporation (SBC). Now, this can be better served by the private sector insurers. But will they venture in such an uncharted and unattractive area where bulk of the population live?