Priorities for insurance sector
Friday, 13 July 2007
THE insurance sector of a country can be a strong source of resource mobilisation and investment although its main task is hedging its clients from various risk situations. The premiums whether in the life insurance business or from general insurance covering trade and manufacturing, can add up to a large sum of money for investment by the insurance companies in the economy. But the contribution of the existing 60 insurance companies to investment requirements in Bangladesh is anything matching their number. There is no denying that some constraints, as noted by experts at a recent workshop organised by the Bangladesh Insurance Association (BIA), are hampering the growth of the sector. Such constraints will have to be removed if the insurance companies are to contribute to making investments to any substantial extent.
On their part, the existing companies need to operate efficiently and ethically to create confidence about further expansion of the insurance business. Ethical operation of the overall insurance companies can lead to all-round gains for all stakeholders. Indeed, the expert views are that the potential of the insurance sector in the country remains yet to be properly tapped. There is a large scope for the sector to grow but for this to happen, all its players should acquire a clean bill of health for themselves by following transparent means, going for proper disclosures and opting for clear policies to duly invest their gains or profits. The problems here are being created by some companies not going by the rules of the game, making things tougher for the others which comply with all prudential requirements.
In this backdrop, the regulatory authority has a great deal to do to enforce the norms and standards. This body has to be manned properly. It is noteworthy in this connection that the government, as disclosed by the Finance Adviser in the afore-mentioned workshop, is considering steps to revamp the related regulatory body and to bring it under the domain of the ministry of finance. Actions should come sooner than later to bring about such changes. Meanwhile, the present rate of corporate tax on insurance companies, as the players in the sector have noted, is much higher compared to that of even the neighbouring countries and that the same should be scaled down. The government should consider this matter in earnest to enable the insurance companies to play an efficient role in financial intermediation while covering risks of diverse sorts. At the same time, the operators in the sector do also need to appreciate the need for improving their operational efficiency by making all-out efforts to expand their coverage.
Thus, the insurance companies should themselves embrace a process of reforms in order to further streamline their operations with stress on transparency and investing their resources properly. On its part, the government should facilitate this process by removing the constraints to running the insurance companies as efficiently as possible. In this connection, the finance adviser has suggested to the insurance companies to consider merger and acquisition (M&A) policies. M&A policies have proved to be very useful in the financial sectors of many countries. From merging with stronger companies or being bought up by them, the weaker companies could overcome their financial burdens while avoiding the perils of worsening conditions or the prospects of closure. Thus, the same policies, if properly guided, do stand a good chance of delivering positive results in the context of the insurance sector in Bangladesh for the operationally sound and viable companies to consolidate the gains that they have already achieved.
On their part, the existing companies need to operate efficiently and ethically to create confidence about further expansion of the insurance business. Ethical operation of the overall insurance companies can lead to all-round gains for all stakeholders. Indeed, the expert views are that the potential of the insurance sector in the country remains yet to be properly tapped. There is a large scope for the sector to grow but for this to happen, all its players should acquire a clean bill of health for themselves by following transparent means, going for proper disclosures and opting for clear policies to duly invest their gains or profits. The problems here are being created by some companies not going by the rules of the game, making things tougher for the others which comply with all prudential requirements.
In this backdrop, the regulatory authority has a great deal to do to enforce the norms and standards. This body has to be manned properly. It is noteworthy in this connection that the government, as disclosed by the Finance Adviser in the afore-mentioned workshop, is considering steps to revamp the related regulatory body and to bring it under the domain of the ministry of finance. Actions should come sooner than later to bring about such changes. Meanwhile, the present rate of corporate tax on insurance companies, as the players in the sector have noted, is much higher compared to that of even the neighbouring countries and that the same should be scaled down. The government should consider this matter in earnest to enable the insurance companies to play an efficient role in financial intermediation while covering risks of diverse sorts. At the same time, the operators in the sector do also need to appreciate the need for improving their operational efficiency by making all-out efforts to expand their coverage.
Thus, the insurance companies should themselves embrace a process of reforms in order to further streamline their operations with stress on transparency and investing their resources properly. On its part, the government should facilitate this process by removing the constraints to running the insurance companies as efficiently as possible. In this connection, the finance adviser has suggested to the insurance companies to consider merger and acquisition (M&A) policies. M&A policies have proved to be very useful in the financial sectors of many countries. From merging with stronger companies or being bought up by them, the weaker companies could overcome their financial burdens while avoiding the perils of worsening conditions or the prospects of closure. Thus, the same policies, if properly guided, do stand a good chance of delivering positive results in the context of the insurance sector in Bangladesh for the operationally sound and viable companies to consolidate the gains that they have already achieved.