Will insurance sector be revamped?

Whether the regulator concerned will be able to revamp the errant insurance companies is an important question for the sector now. Over the last decade, a good many insurance companies slid into all sorts of financial problems, primarily due to gross violation of rules of business. According to a report published in this newspaper, there were also six large companies among the defaulters. These companies could not settle insurance claims to the tune of Tk26.81 billion! This situation has been allowed to fester for far too long for reasons best known to the authorities.
There exist differences of opinion between the association of insurance companies (BIA) and economists. The former would like the State to inject funds into sick insurance companies and appoint administrators to oversee their return to profitability. Whereas one noted economist has echoed the thoughts of the regulator and stated that mergers are in order or there would be outright liquidation. Where the rot has run so deep, revitalising these companies is merely a waste of public money.
What the government will do is anyone's guess. While it made sense to save sick banks from collapse, the same does not hold true for the insurance sector. Like banks, there are too many insurance companies in existence. There is no reason for so many companies to be in operation because the business isn't there. As pointed out earlier, there is overlapping of operations in a highly congested market and it is quite natural for many companies to be 'sick'.
Insurance Development and Regulatory Authority (IRDA) has stated that some of these companies are now in serious financial difficulties due to embezzlement of funds and other irregularities. What IRDA contends is that company funds have been stolen and laundered. Injecting money and appointing administrators are not really going to help. The damage has been done. One cannot but agree with IRDA recommendations made to the Finance Division that mergers of several insurance companies take place so that the situation may be contained. It makes much more sense to appoint administrators to merged companies. While BIA may make a hue and cry over any government intervention, obviously misappropriation cannot be allowed to go on as business as usual. This general tendency to embezzle money has engulfed the entire economy and corrective measures need to be initiated by the government because in the final analysis of things, it is the government's credibility that is at stake. Indeed, the IRDA reports "a lack of confidence among people in insurance sector." That is a bit of an understatement. Insurers are now looked down upon with distrust by the general populace. With the exception of a handful of companies (both national and multinational) very few insurance companies actually settle claims while others do settle but partially.
Yet, the law stipulates that insurance is mandatory in many areas of commerce and hence floating insurance companies has become very lucrative. People with no background (or understanding) in finance have ended up floating companies and reaping the windfall profits. This malpractice has been going on for decades. The six companies that have drawn the ire of IRDA are 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. Reportedly, "these companies lost capability of paying insurance claims due to mismanagement, bad investment, financial irregularities and fund misappropriation," and basically, the IRDA report points out that the incidence or rate of policy lapses in these companies "is much higher owing to misplaced policy selling by insurance agents, high rate of agent commission, and (a) lack of awareness on (the) part of the policyholders."

[email protected]