Stakeholders in the insurance sector have proposed selling off assets of defaulting companies to settle customer claims against the backdrop of a further decline in claim settlement rates.
Life insurance companies in the country settled 72.43 per cent of all claims in 2023, down from 74.28 per cent the year before, according to the latest data of the Insurance Development and Regulatory Authority (IDRA).
Non-life insurance companies' performance was worse, with the claim settlement rate falling year-on-year by around 8 percentage points to 35.58 per cent in 2023.
The claim settlement ratio represents the percentage of claims an insurance company pays out relative to the claims it receives. It serves as a key indicator of the performance of insurance companies.
The decline in the claim settlement ratio is the major factor behind the erosion of public confidence in the financial safety tool.
Md. Jalalul Azim, managing director & CEO of Pragati Life Insurance, suggested selling assets for claim settlement in a report that he prepared and recently submitted to the regulatory authority of insurance companies.
Referring to companies that have lost their ability to make payments, he proposed that IDRA seize and liquidate their assets to compensate policyholders. In cases where firms do not have sufficient assets, he called for legal actions against the owners to ensure that policyholders receive their rightful claims.
Asked whether IDRA has the power to do so, Mr Azim told The FE that IDRA recently sold the building of an insurance company for Tk 1 billion to settle claims of its policyholders.
"I have suggested using this power to improve the claim settlement situation."
But IDRA does not have the power to confiscate assets of a company owner. So, if a company does not have enough assets to pay off its clients, IDRA can only file a lawsuit.
"I truly believe IDRA should stop the selling of policies by companies who already failed to settle claims," Mr Azim said in a telephonic interview with The FE.
In his report, he emphasized the need for streamlining the claim settlement process, making it smooth and hassle free.
He also recommended that companies struggling with liabilities should be prevented from issuing new policies or acquiring new policyholders, as that could further increase their financial burden and may heighten risk of embezzlement of public funds.
An effective monitoring system is much needed to make sure no more insurance companies fail to settle claims, reads the report.
The other factors that are also keeping the sector from growing include a lack of skilled human resources, low public awareness about insurance products, and the limited regulatory authority of IDRA, said Mr Azim.
Another research paper submitted to IDRA suggested that weak companies be merged with better performers to ease competition and improve service quality.
Brig. Gen. Md Shafique Shamim, chief executive officer and managing director of general insurer Sena Insurance, who prepared the study report, urged IDRA to make a prompt decision on mergers and identify which companies need merger for survival.
The newly-appointed chief of IDRA, M Aslam Alam at a recent public event said insurance companies could not be held accountable for financial frauds as the regulatory body had little power to enforce disciplinary actions.
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