Liquidation and mergers loom over frail ins firms

Liquidation and merger loom over some troubled insurance companies, which lost financial abilities allegedly due to flagrant irregularities and embezzlement, as the regulator has recommended such remedy, sources said.
These insurance companies even did not make further effort for improving their financial health, the Insurance Development and Regulatory Authority (IDRA) has said in prescribing such desperate remedies for serious ailment.
Sources at the IDRA have said that, in a recent report, sent to the Financial Institutions Division, the insurance sector regulator has suggested merger of some life-insurance companies as a bail-in to spare them from liquidation as their financial health also kept failing.
To underpin its view, the IDRA report points out that the failure in payment of insurance claims by some companies has caused "a lack of confidence among people in insurance sector".
Six life-insurance companies alone are reported to have Tk 26.81 billion worth of unsettled claims lying with them.
The IDRA named Fareast Islami Life Insurance Company Limited, Padma Islami Life Insurance, Prime Islami Life Insurance Limited, Golden Life Insurance Limited, Homeland Life Insurance Co Limited, and Progressive Life Insurance Company Limited in this case.
"These companies lost capability of paying insurance claims due to mismanagement, bad investment, financial irregularities and fund misappropriation," the report, signed by IDRA director SM Masudul Haque, reads.
The report mentions that the rate of policy lapses in case of life insurance is much higher owing to misplaced policy selling by insurance agents, high rate of agent commission, and lack of awareness on part of the policyholders.
In three quarters of 2023 alone, some 1.107 million life-insurance policies lapsed, compared to 1.771 million policy lapses in the previous year, and 1.551 million in 2021.
Due to high rate of policy lapses and low premium income the life funds in 2022 saw negative growth by 1.6 per cent while in 2021 the growth was only 0.98 per cent, and 2.0 per cent in 2020.
The size of life funds stood at Tk 350.76 billion at the end of the third quarter of last year, according to the report.
Contacted Monday, Sheikh Kabir Hossain, president of Bangladesh Insurance Association, told the FE the main problem in insurance sector lay with life insurance, not with general insurance.
He feels that liquidation of an insurance company is a "very tough task".
Rather Mr Hossain suggests taking measures to help the weak companies make recovery through injecting funds and appointing administrators like the one done in case of banks.
"Insurance companies should be aided like the banks because they are also financial institutions," says the association chief in defence of his way of healing the ills.
Mr Hossain takes with a grain of salt the success of the move for merger of weak insurers.
Regarding liquidation of companies, he asks who will take the responsibility of making payment to the insured.
"The government can sell the property of the insurance companies to pay customers," he said, adding that if the government can recover the money misappropriated by the directors, then the companies can be refloated.
Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, lends his support to the IDRA move regarding remedy. "What IDRA has suggested-liquidation and merger-is necessary."
In the insurance sector, most of the companies are "not well-managed" institutions. "They need strict regulation," he told the FE writer.
At the same time, the IDRA itself "needs reform" as well, the former World Bank economist quipped.

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