A large volume of reinsurance claims pending with the state-run Sadharan Bima Corporation (SBC) is a major reason behind the low claim settlement ratios in the insurance sector, according to industry insiders.
Sadharan Bima Corporation owes insurers more than Tk 14 billion in reinsurance claims as of December 2024, according to the Insurance Development and Regulatory Authority (IDRA). As the SBC has yet to clear these claims, insurers, in turn, have failed to pay dues to their clients.
Non-life insurers have so far paid Tk 12.37 billion to policyholders against total claims of Tk 38.72 billion as of December last year. This means their claim settlement ratio stood at only 32 per cent, according to IDRA data.
"Claim settlement is the foundation of trust, and global practices emphasize the principle of good faith. In Bangladesh, the system has remained fragile," said Syed Sehab Ullah Al-Manjur, chief executive officer (CEO) of Pragati Insurance.
Private insurers have long been frustrated with the backlog of unsettled reinsurance claims at the SBC.
"In some cases, it has taken even 10 years to recover reinsurance funds from the Bima Corporation. As a result, insurers had to settle claims mostly from their own pockets," said the Pragati Insurance chief.
Reinsurance, often described as insurance for insurers, allows companies to share risks so they can pay large claims following incidents such as factory fires or cargo losses.
Under existing laws, insurers are required to reinsure 50 per cent of their risk with the SBC, while the remaining 50 per cent is optional, meaning a company may share the risk with either local insurers or foreign firms.
"The country's insurers are offering many policies to clients, but when it comes to placing reinsurance, insurers themselves do not enjoy similar freedom," added Mr Manjur.
He also pointed to systemic problems within the Bima Corporation. "Partners face unnecessary delays and repeated requests for irrelevant documents. They [SBC] act like a regulator in dealing with insurers rather than a partner working to improve services."
An SBC official, who requested anonymity, said the corporation was not solely responsible for delays in claim settlement, noting that insurance companies often fail to submit "proper documentation".
Meanwhile, insurers remain stuck with the SBC due to the compulsory reinsurance provision, even as the performance of the state-run organisation has remained poor.
This has intensified calls for corrective measures by the regulator.
The rule has also become a barrier to the inflow of foreign funds for development projects, as the SBC lacks an internationally recognised credit rating-a condition often required by donor agencies.
As a result, insurers face difficulties in arranging international reinsurance.
Proposed policy changes
Following the political changeover in August last year, the new IDRA chairman initiated an inquiry into the reasons behind the low claim settlement ratio and identified the SBC as one of the major factors.
The findings showed that every non-life insurer was required to reinsure with the SBC, but the state-owned entity was inefficient.
"We have found that there are claims that have remained unsettled for more than five years,"
said Saifunnahar Sumi, spokesperson of IDRA, earlier.
She explained that while an international reinsurer requires only four types of documents to settle claims, the Sadharan Bima Corporation demands 19 documents. As a result, many insurers are unable to settle claims submitted by their customers.
Based on these findings, the Financial Institutions Division (FID) has recommended amendments to the Insurance Corporation Act 2019, including scrapping the SBC's exclusive reinsurance right.
Industry insiders believe such changes would make the market more competitive and improve claim settlements, ultimately benefiting policyholders.
The CEO of Pragati Insurance said that as Bangladesh seeks increased foreign investment, global investors expect international-standard insurance protection, ideally provided by a capable local reinsurer.
"We want the Bima Corporation to become internationally recognised. I believe it has that capability. But until it meets those standards, direct insurers suffer because the reinsurer delays payments," Mr Manjur said.
Bangladesh appears uncompetitive compared to regional peers.
Countries such as India, Vietnam, Nepal, Malaysia, the Philippines, and even Ethiopia have reinsurers with AM Best ratings. India's GIC Re, for instance, holds an A- (Excellent) Financial Strength Rating and operates as a global reinsurer.
"In contrast, SBC has no internationally recognised rating. No one knows its ability to meet ongoing or long-term reinsurance obligations," said the Pragati Insurance chief.
Industry insiders said the SBC must secure an international credit rating and upgrade its operations to global standards.
Unless Bangladesh's reinsurance market becomes competitive, investor confidence will erode further, and the burden of delayed claims will continue to fall on policyholders and direct insurers.
farhan.fardaus@gmail.com
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