The proposal to remove the provision that makes Sadharan Bima Corporation (SBC) a mandatory reinsurer is intended to improve the claim settlement ratio of general insurers, not to undermine SBC's significance, said the insurance sector watchdog.
The country had only a 35.54 per cent claim settlement ratio up until December 2023 in the non-life (general) insurance sector, according to the Insurance Development and Regulatory Authority (IDRA).
Following recommendations from the IDRA, the Financial Institutions Division (FID) has proposed removing a clause from the Insurance Corporation Act 2019, which requires non-life insurers to hand over half of their reinsurance business to the lone state-owned insurer and reinsurer, Sadharan Bima Corporation (SBC).
After the political changeover in August last year, the new chairman of the IDRA initiated research to find out why the settlement ratio was so low and discovered that the SBC was one of the main reasons.
The findings suggested that every non-life insurer was bound to reinsure with the SBC, but the state-owned entity was inefficient at settling claims.
"We have found that there are claims that have remained unsettled for more than a decade. While an international reinsurer demands only four types of documents to settle claims, the Sadharan Bima Corporation asks for 19 documents," said Saifunnahar Sumi, consultant (media and communication) and IDRA spokesperson, told The FE.
As a result, it has become impossible for 42 non-life general insurance companies to settle the claims of their customers.
Hence, the IDRA has recommended some changes to the Insurance Corporation Act 2019, which governs the insurance business in the country.
The suggestion has sparked fear and dissatisfaction among the employees of the sole state-owned non-life (general) insurance company. They hung a banner just outside their office, which is housed in the same building as the IDRA in the capital's Dilkusha. They claim the move is intended to destroy the organisation and that no such legal changes should be implemented before an elected government takes office.
But while talking to The FE, the IDRA said the changes, if enforced, would improve the claim settlement ratio and the flow of foreign funds into Bangladesh.
According to audited data from the IDRA, updated until December 2024, Sadharan Bima owes more than Tk 14 billion to insurers. As the SBC has yet to pay the money to the insurers, they have also been unable to clear their dues.
SBC General Manager S. M. Shah Alom said they had been working hard to settle claims but found many necessary documents missing in the claim files.
He also said the insurers owed money to the SBC too.
According to data from the IDRA, insurers owe Tk 9.28 billion to the SBC as unpaid premiums.
SBC's dominance in the reinsurance business, according to sources in the insurance sector, has also become a barrier to the inflow of foreign funds for development projects, as the company does not have an internationally recognised credit rating - a condition often required by donor agencies.
The IDRA believes the recommended change will not affect the SBC since many good companies will stay with the SBC. Besides, the new change will help strengthen private reinsurers and also bring funds from foreign reinsurers.
Reinsurance, often described as insurance for insurers, allows companies to share risks so that they can pay large claims such as factory fires or cargo losses.
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