When extravagance is a serious offence

Extravagance is an offence, if it is done at the cost of others. Insurers, both life and non-life, accused of committing the offence, are now having a tough time with the relevant regulator and the Anti-corruption Commission (ACC) grilling their top officials frequently.
The regulator, the Insurance Development and Regulatory Authority (IDRA), has accused 45 non-life and 17 life insurance companies of making lavish management spending for a period of seven years, ending in 2015.
The non-life insurers had spent Tk.14.51 billion in excess management cost and the life firms nearly Tk.20 billion between 2009 and 2015. The insurance companies also include two state-owned ones--- the Sadharan Bima Corporation and the Jiban Bima Corporation.
The regulator has asked the insurers to reimburse the over-spent sum within next five years under an action plan to be prepared by them.
The amount of excess money spent in the name of management expenditure would be far bigger, if the years before 2009 are included.
Prior to the formation of IDRA in 2011, it was a free-for-all situation in the country's insurance sector. The erstwhile Controller of Insurance used to be run by a high government official on a part-time basis. The regulatory job was never taken seriously. The insurance firms had full freedom to do whatever they liked.
The constitution of IDRA has brought about a noticeable change in the situation with the regulator asserting its authority and putting a rein on extravagant insurers.
Naturally, the insurers are at odds with the IDRA over the issue of excess management cost. The government passed a new insurance act in 2011 replacing an old and outdated law. But it is yet to formulate befitting rules and guidelines on management costs of insurance companies. Only recently the authorities have adopted rules regulating the management cost of non-life insurance companies. The rules have put a limit on both approved and unapproved management expenditure, including business procurement costs.
However, similar rules are yet to be formed for the life insurers and they are still guided by rules framed in 1958.
The excess management costs have a bearing on the policyholders, shareholders and tax payments by the insurers to the government.
As far as non-life insurers are concerned, extravagance erodes their capacity to settle claims of policyholders and dividend payments to the shareholders. In the case of life firms, the policyholders' interests are seriously hurt because of undue expenditures incurred by the insurers concerned.
Moreover, higher management costs mean lower amount of operating profit earning by the insurers. The amount of tax, thus, they will be paying to the government would also be less than the actual one. In fact, the higher management expenditure is, allegedly, shown to deprive the life policyholders of their due financial benefit and the government of the actual amount of tax.
However, business procurement costs on the part of general insurance companies have gone up in a very competitive market. This is very much an obvious development for the number of general insurance companies is more than what the market can accommodate. All the unhealthy developments now being witnessed are largely due to the entry of too many companies in a small market.
However, the life insurance market does still have space for some more companies. Seeing such potentials, a couple of foreign companies have been trying to make an entry. Unfortunately, the local life insurance companies are not operating in a disciplined manner. Most of them are yet to earn confidence of potential clients. This is very much reflected in their recent business expansion records compared to that of the lone foreign life insurer that has been doing brisk business in Bangladesh.
In the meanwhile, the IDRA and the ACC, reportedly, are at odds over latter's probe into allegation of excess management expenditure by the life insurers. The IDRA feels that as a regulator it is enough to deal with the issue. The Bangladesh Insurance Association (BIA) is also opposed to the ACC intervention. The Association argues that management costs were only 'additional', not illegal.
The issue may not be as simple as the BIA tries to present. Interests of policyholders and the government have been undermined by some extravagant insurers. True, a part of the excess expenditure has gone for the purpose of business procurement. But it is not unlikely that a part of the same has gone to the pockets of some people having strong control over these insurance companies. So, a fair probe is necessary. It does not matter who does it. It could be IDRA or the ACC.
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