JBC gets extravagant as business growth falters

The state-owned Jiban Bima Corporation (JBC) has spent Tk 2.31 billion beyond the permissible limits on its expenses during last six years, according to latest findings.  
Such extravagance on the part of this fiduciary organisation has deprived its insurance policyholders of their due benefits, said competent sources who gave an account of last six years.
JBC's expenses are on the rise at a time when the private ones are struggling to cut down such overhead costs to run in a sound way in one of the key financial industries.
The insurance regulator unearthed this mismatch recently and went for tightening its noose around such spendthrift hands of any management in the country's 31 life-insurance companies.
The JBC, dealing with nearly 1.0 million policyholders' money, had spent an additional amount of Tk 2.31 billion in the last six years between 2009 and 2014.
The excess management expenditure, on average, comes to nearly Tk 390 million a year during the period under review.
Of the amount, nearly Tk 2.08 billion belonged to the policyholders.
Such beyond-the-limit expenditure also deprived the government of getting higher dividends from the life insurer as non-tax revenue.
The policyholders could have received bonuses in higher amounts had the management contained its expenses within the allowable levels.
The JBC declared the highest Tk 75 per-thousand 'terminal bonus' when its management expenses were low.
On the other hand, private life insurers with low management expenses declare Tk 90 to Tk 100 per thousand as bonus on long-term plans.
Insiders at the JBC said the excess expenses had been especially on the climb since 2011.
The extra expenses by the JBC on top its allowable expenditure stood 50 per cent higher in 2011, more than 41 per cent in 2012, nearly 45 per cent in 2013 and  nearly 47 per cent in 2014.
High officials at the JBC told the FE Thursday that the premium earnings were falling in recent years for the higher spending.
Its premium earnings remained almost static in recent years-amounting to average Tk 3.43 billion a year over the past six years.
Parikshit Dutt, managing director of the JBC, in a meeting with the IDRA recently said salary, bonus and other allowances had surged in contrast with its falling earnings.
Such an imbalance resulted in widening the gap between the allowable and actual expenses.
His version was found on the minutes of the meeting with the IDRA.
Mr Dutt is no more managing director of the JBC as he has been transferred on promotion.
Contesting his arguments, IDRA chairman M Shefauqe Ahmed said the company had failed to attain confidence from the people despite the fact that it had adequate potential.
Citing LIC of India as an example, Mr Ahmed said the Indian state-owned insurance company has grabbed almost 80 per cent business shares in the neighbouring country.
The chief of the regulator, Mr Ahmed, said there is no incremental growth of the JBC year-on-year rather it is going backward in terms of business growth.
He pointed out that after implementation of the new pay scale from July next, the cost on account of salary and other fringe benefits will increase significantly.
"I think the new national pay scale will help in further widening the gap." Dr Sohrab Uddin, the immediate-past chairman of the JBC, said the business-procurement cost is different with the state-owned insurer than the private ones'.
Sources said the business-procurement cost is higher in the JBC that is run under the Insurance Corporation Act of 1973.
The former JBC chairman said there are contradictions in the content the Insurance Act 2010 and the Insurance Corporation Act 1973.
However, there is question mark on whether the insurance regulator, IDRA, could take any action of the state-owned organisation over conflicting laws.
Dr Sohrab, also an actuary and former deputy governor of the central bank of Bangladesh, told the FE that there had been a clash between the insurance act of 2010 and the Corporation act of 1973.
He however said the insurance regulator's main responsibility and function is to defend the interests of policyholders.
Keeping in mind the responsibility, the IDRA had advised the JBC to reduce its cost in the years to come to compensate for the previous higher expenditure so that the policyholders are not let down.
A section in the Corporation Act of 1973 reads: "This act and rules to override other laws--- the provisions of this Act and any rules made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force."
In the meantime, the IDRA issued another letter to the JBC asking it to sit over the issue on April 29 next.
Sources at the regulator said it wants to bring discipline in expense management with the 31 life companies.
It is planning tougher steps to rein in the higher expenses against allowable management expenses.
'Allowable management expenses' means all charges wherever incurred, whether directly or indirectly.
It includes commission payments of all kinds and any amount of expenses capitalised, among others. This includes branch- expansion expenses as well.
It is calculated as a percentage of the premium (first-year and- regular premium) and size of the business.
One official of the IDRA said: "If the limit is breached, the excess amount would come out of the shareholders' account."
JBC started its journey in 1974 by taking over all liabilities of the then-defunct life insurers.
jasimharoon@yahoo.com