New laws for insurance industry
Monday, 24 November 2008
A. B. M. Nurul Huq
INDIA, Pakistan and subsequently Bangladesh inherited Insurance Act, 1938. While India and Pakistan and even Srilanlka have replaced and modernised this Act long before, it has long been felt in Bangladesh that many provisions of the Insurance Act, 1938 require amendments to suit the modern development in the insurance sector worldwide. Sporadic attempts were made and voices were raised on different occasions but no tangible results were achieved until a Committee was formed in 2005 headed by the Chief Controller of Insurance. The committee consisted of experts on insurance-related fields. After several deliberations it recommended appropriate amendments to the present Insurance Act. Those recommendations can be enumerated as follows:
a) Establishment of Insurance Regulatory Authority in place of Department of Insurance;
b) Draft Insurance Act;
c) Draft Takaful Act.
After thorough scrutiny, Government has promulgated two ordinances-one relating to amendment of Insurance Act, 1938 for regulating the insurance business and other concerning the power and functions of the new Regulatory Authority replacing the erstwhile Department of Insurance. The new laws have been made effective following publication thereof in the form of a Gazette Notification, dated October 13, 2008. Government has not approved the Draft Takaful Act but incorporated a provision in the Insurance Ordinance, 2008, for regulating the Islamic insurance business in the country.
Now the salient features of the two Ordinances are discussed below:
a) Insurance Regulatory Authority (IRA) Ordinance -2008. In Bangladesh, insurance business has since long been regulated by the Department of Insurance, headed by the Chief Controller of Insurance under the Ministry of Commerce. In modern world insurance, both life and general, has attained significant development to suit the changed scenario of life style, commerce and industry. Besides establishment of a large number of private insurance companies in Bangladesh during the last two decades (from 11985 until now) has greatly widened the activities of the office of the Chief Controller of Insurance.
But the Department of Insurance in its present form is incapable of performing its assigned role due to lack of independence as well as shortage of adequate manpower needed to deal with the delicacy and technicalities of modern development in the international arena.
Therefore, the present practice worldwide is that the supervisory authority should be independent to carry out its role of regulating the activities of the insurers as well as developing a stable and efficient insurance market. Although the structural arrangements for the supervision of insurance vary from country to country, yet the need for operational independence is well recognised in developed as well as developing countries.
In view of the above, it has been strongly felt that with a view to salvaging the insurance industry from present anomalies and also to protect policyholder's and shareholder's fund from insecurity, enforce rules and regulators meticulously, ensure transparency and accountability, an independent regulatory authority should be established in Bangladesh. It is expected that with the promulgation of Insurance Regulatory Authority(IRA) Ordinance-2008, these aspirations would be fulfilled.
Salient features of the IRA Ordinance 2008: The Insurance Regulatory Authority (IRA) Ordinance provides for the composition of the Authority, terms and conditions of the appointment of the chairperson and members including their tenure and removal, appointment of employees including advisers and consultants of the Authority, duties, power and functions of the Authority including power of making regulation and delegation of powers, establishment of the Insurance Regulatory Fund, establishment of Insurance Advisory Committee, power of the Government to make rules, issue directions to the Authority and to supersede the Authority under certain circumstances and other provisions including abolition of the Department of Insurance, indemnity, conflict of interest and bar on future employment of the members of Insurance Regulatory Authority (IRA) in the insurance sector for a limited period etc.
The main features of some important provisions are summarised below: 1) Composition etc. of IRA:
a) Chairman and four other members shall constitute the Authority;
b) The Government shall appoint Chairman and members and fix up their terms and conditions, provided, however, subject to provision (7), one member should be experienced in life Insurance and another one should be experienced in non-life Insurance.
Qualifications and Disqualification of Chairman and Members: a) Persons having at least 20 (twenty) years of experience in the fields of Insurance, Finance, Banking, Statistics, Accountancy, Management, Administration or law shall be eligible for appointment as chairman or members of the Authority;
b) No person shall be eligible or remain as chairman or member who
i) is not a citizen of Bangladesh; ii) is Director, officer or an employee of Insurance intermediaries or any organisation or allied organisation under the control of Authority; iii) is or at any time has been adjudicated insolvent by any court of law; iv) is or has been declared loan defaulters by any bank or financial institute; v) is or at anytime has been convicted of an offence involving moral turpitude for at least 6(six) months or more and has not crossed 5(five) year after release from that conviction; and vi) is 67 (sixty-seven) years of age.
Power and Functions of the IRA:
The powers and functions of the IRA include:
a) Regulations of professional organisations connected with the insurance and reinsurance business;
b) Promoting and encouraging sound development of the insurance industry in Bangladesh;
c) Promotion of the development of professional and educational organisations connected with insurance industry and to improve the quality of insurance and reinsurance services in Bangladesh;
d) Organising seminars, workshops, meetings etc., to create awareness amongst the public about insurance and insurance-related matters;
e) Registration of insurance, re-insurance or intermediaries etc. and renewal, modification, withdrawal and suspension or cancellation of such registration;
f) Formulation of code of conduct, training manuals and guidelines for the brokers, insurance and reinsurance intermediaries and agents;
g) Issue of licence to insurance intermediaries, surveyors and also renewal, modification, withdrawal, suspension or cancellation of such license;
h) To safeguard the interest of nominees of policyholders, insurable interest, surrender value of life insurance policyholders and insurance policy terms of policyholders and their beneficiaries and insurer and reinsurer;
i) Advising the government on all matters relating to the development of insurance industry;
j) Levying various fees and other charges and penalties for carrying out the purpose of this Ordinance;
k) To appoint Auditors including inspection, enquiry and to collect information from the insurers, reinsures, brokers, insurance intermediaries, institutions relating to insurers and re-insurers etc.
l) To prescribe the guidelines for maintaining the books of accounts and system of accounts and to prepare the formats for sending accounts statements;
m) To prescribe formats and schedule for preparing actuarial statement and summary thereof;
n) Causing compliance of the requirements of solvency margin by Insurers and reinsures;
o) Establishing and regulating the policyholder's protection fund;
p) Regulating investment of funds by insurance and reinsurance companies;
q) Adjudication of disputers between insurers and reinsurance intermediaries
r) Establishing a separate branch for implementation of insurance-related affairs, especially adjudication of the complaints,
s) Forming Central Rating Committee for control and regulations of the rates for non-life insurance and determining the powers, functions and management of the Central Rating Committee;
t) To prescribe ratio of life and non-life insurance business and also to determine the ability of the insurers in the rural and social sectors;
u) To prepare annual report on the activities of whole year and to submit the same to the Government; and
v) To do all and other related activities for carrying out the above acts.
Establishment of the Insurance Regulatory Authority Fund:
A fund called IRA Fund shall be established for carrying out the objectives of this Ordinance. The fund shall consist of the following:
a) All grants received from Government;
b) Donations and grants received from any local organisation or from any individual or institution;
c) Loans received by the Authority;
d) Money received as fees for registration and renewal thereof of the insurance companies;
e) Penalties and other charges imposed by the Authority on the insurance companies;
f) Levies imposed on the premium income of insurance companies;
g) Fees received for issuing licenses to the brokers, surveyors and agents;
h) Donations and grants from any foreign governments, organisations and international agencies with the prior approval of the government;
i) Money received from sale of Authority's properties; and
J) Money received from any other sources,
IRA fund shall be kept deposited with any commercial bank and shall be managed and operated according to the regulations made under the Authority.
The Authority shall meet any expenditure incurred by the Authority including salaries and other remuneration of full and part-time officers and employers of IRA. But government rules and regulations should be complied with spending the fund. The Authority shall deposit a prescribed percentage of the excess of annual income over expenditure to the government exchequer. The Authority shall invest the fund or part thereof in any government approved sector.
(The writer is Managing Director, Global Insurance Limited)
INDIA, Pakistan and subsequently Bangladesh inherited Insurance Act, 1938. While India and Pakistan and even Srilanlka have replaced and modernised this Act long before, it has long been felt in Bangladesh that many provisions of the Insurance Act, 1938 require amendments to suit the modern development in the insurance sector worldwide. Sporadic attempts were made and voices were raised on different occasions but no tangible results were achieved until a Committee was formed in 2005 headed by the Chief Controller of Insurance. The committee consisted of experts on insurance-related fields. After several deliberations it recommended appropriate amendments to the present Insurance Act. Those recommendations can be enumerated as follows:
a) Establishment of Insurance Regulatory Authority in place of Department of Insurance;
b) Draft Insurance Act;
c) Draft Takaful Act.
After thorough scrutiny, Government has promulgated two ordinances-one relating to amendment of Insurance Act, 1938 for regulating the insurance business and other concerning the power and functions of the new Regulatory Authority replacing the erstwhile Department of Insurance. The new laws have been made effective following publication thereof in the form of a Gazette Notification, dated October 13, 2008. Government has not approved the Draft Takaful Act but incorporated a provision in the Insurance Ordinance, 2008, for regulating the Islamic insurance business in the country.
Now the salient features of the two Ordinances are discussed below:
a) Insurance Regulatory Authority (IRA) Ordinance -2008. In Bangladesh, insurance business has since long been regulated by the Department of Insurance, headed by the Chief Controller of Insurance under the Ministry of Commerce. In modern world insurance, both life and general, has attained significant development to suit the changed scenario of life style, commerce and industry. Besides establishment of a large number of private insurance companies in Bangladesh during the last two decades (from 11985 until now) has greatly widened the activities of the office of the Chief Controller of Insurance.
But the Department of Insurance in its present form is incapable of performing its assigned role due to lack of independence as well as shortage of adequate manpower needed to deal with the delicacy and technicalities of modern development in the international arena.
Therefore, the present practice worldwide is that the supervisory authority should be independent to carry out its role of regulating the activities of the insurers as well as developing a stable and efficient insurance market. Although the structural arrangements for the supervision of insurance vary from country to country, yet the need for operational independence is well recognised in developed as well as developing countries.
In view of the above, it has been strongly felt that with a view to salvaging the insurance industry from present anomalies and also to protect policyholder's and shareholder's fund from insecurity, enforce rules and regulators meticulously, ensure transparency and accountability, an independent regulatory authority should be established in Bangladesh. It is expected that with the promulgation of Insurance Regulatory Authority(IRA) Ordinance-2008, these aspirations would be fulfilled.
Salient features of the IRA Ordinance 2008: The Insurance Regulatory Authority (IRA) Ordinance provides for the composition of the Authority, terms and conditions of the appointment of the chairperson and members including their tenure and removal, appointment of employees including advisers and consultants of the Authority, duties, power and functions of the Authority including power of making regulation and delegation of powers, establishment of the Insurance Regulatory Fund, establishment of Insurance Advisory Committee, power of the Government to make rules, issue directions to the Authority and to supersede the Authority under certain circumstances and other provisions including abolition of the Department of Insurance, indemnity, conflict of interest and bar on future employment of the members of Insurance Regulatory Authority (IRA) in the insurance sector for a limited period etc.
The main features of some important provisions are summarised below: 1) Composition etc. of IRA:
a) Chairman and four other members shall constitute the Authority;
b) The Government shall appoint Chairman and members and fix up their terms and conditions, provided, however, subject to provision (7), one member should be experienced in life Insurance and another one should be experienced in non-life Insurance.
Qualifications and Disqualification of Chairman and Members: a) Persons having at least 20 (twenty) years of experience in the fields of Insurance, Finance, Banking, Statistics, Accountancy, Management, Administration or law shall be eligible for appointment as chairman or members of the Authority;
b) No person shall be eligible or remain as chairman or member who
i) is not a citizen of Bangladesh; ii) is Director, officer or an employee of Insurance intermediaries or any organisation or allied organisation under the control of Authority; iii) is or at any time has been adjudicated insolvent by any court of law; iv) is or has been declared loan defaulters by any bank or financial institute; v) is or at anytime has been convicted of an offence involving moral turpitude for at least 6(six) months or more and has not crossed 5(five) year after release from that conviction; and vi) is 67 (sixty-seven) years of age.
Power and Functions of the IRA:
The powers and functions of the IRA include:
a) Regulations of professional organisations connected with the insurance and reinsurance business;
b) Promoting and encouraging sound development of the insurance industry in Bangladesh;
c) Promotion of the development of professional and educational organisations connected with insurance industry and to improve the quality of insurance and reinsurance services in Bangladesh;
d) Organising seminars, workshops, meetings etc., to create awareness amongst the public about insurance and insurance-related matters;
e) Registration of insurance, re-insurance or intermediaries etc. and renewal, modification, withdrawal and suspension or cancellation of such registration;
f) Formulation of code of conduct, training manuals and guidelines for the brokers, insurance and reinsurance intermediaries and agents;
g) Issue of licence to insurance intermediaries, surveyors and also renewal, modification, withdrawal, suspension or cancellation of such license;
h) To safeguard the interest of nominees of policyholders, insurable interest, surrender value of life insurance policyholders and insurance policy terms of policyholders and their beneficiaries and insurer and reinsurer;
i) Advising the government on all matters relating to the development of insurance industry;
j) Levying various fees and other charges and penalties for carrying out the purpose of this Ordinance;
k) To appoint Auditors including inspection, enquiry and to collect information from the insurers, reinsures, brokers, insurance intermediaries, institutions relating to insurers and re-insurers etc.
l) To prescribe the guidelines for maintaining the books of accounts and system of accounts and to prepare the formats for sending accounts statements;
m) To prescribe formats and schedule for preparing actuarial statement and summary thereof;
n) Causing compliance of the requirements of solvency margin by Insurers and reinsures;
o) Establishing and regulating the policyholder's protection fund;
p) Regulating investment of funds by insurance and reinsurance companies;
q) Adjudication of disputers between insurers and reinsurance intermediaries
r) Establishing a separate branch for implementation of insurance-related affairs, especially adjudication of the complaints,
s) Forming Central Rating Committee for control and regulations of the rates for non-life insurance and determining the powers, functions and management of the Central Rating Committee;
t) To prescribe ratio of life and non-life insurance business and also to determine the ability of the insurers in the rural and social sectors;
u) To prepare annual report on the activities of whole year and to submit the same to the Government; and
v) To do all and other related activities for carrying out the above acts.
Establishment of the Insurance Regulatory Authority Fund:
A fund called IRA Fund shall be established for carrying out the objectives of this Ordinance. The fund shall consist of the following:
a) All grants received from Government;
b) Donations and grants received from any local organisation or from any individual or institution;
c) Loans received by the Authority;
d) Money received as fees for registration and renewal thereof of the insurance companies;
e) Penalties and other charges imposed by the Authority on the insurance companies;
f) Levies imposed on the premium income of insurance companies;
g) Fees received for issuing licenses to the brokers, surveyors and agents;
h) Donations and grants from any foreign governments, organisations and international agencies with the prior approval of the government;
i) Money received from sale of Authority's properties; and
J) Money received from any other sources,
IRA fund shall be kept deposited with any commercial bank and shall be managed and operated according to the regulations made under the Authority.
The Authority shall meet any expenditure incurred by the Authority including salaries and other remuneration of full and part-time officers and employers of IRA. But government rules and regulations should be complied with spending the fund. The Authority shall deposit a prescribed percentage of the excess of annual income over expenditure to the government exchequer. The Authority shall invest the fund or part thereof in any government approved sector.
(The writer is Managing Director, Global Insurance Limited)