The Financial Institutions Division in Bangladesh has proposed removing a provision from the Insurance Corporation Act 2019 that requires non-life insurers to cede half of their reinsurance business to Sadharan Bima Corporation (SBC), the state-owned insurer and reinsurer.
The proposal follows recommendations from the Insurance Development and Regulatory Authority (IDRA), which identified the mandatory reinsurance arrangement as a key factor behind Bangladesh’s poor claim settlement performance.
The country’s non-life insurance sector had a claim settlement ratio of only 35.54% as of December 2023, according to IDRA data reported by the Financial Express.
After the political changeover in August 2024, the new IDRA chair initiated research to determine why the ratio remained so low. The findings pointed to SBC as one of the main reasons.
“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,” IDRA spokesperson Saifunnahar Sumi told the Financial Express.
The situation has made it difficult for 42 non-life insurers to settle customer claims.
Audited IDRA data updated to December 2024 show SBC owes more than Tk 14 billion to insurers. Insurers, unable to receive payments from SBC, have struggled to clear their own dues.
SBC general manager S.M. Shah Alom said the corporation had been working to settle claims but found many necessary documents missing from claim files. He noted that insurers owed Tk 9.28 billion to SBC in unpaid premiums.
The mandatory reinsurance arrangement has also deterred foreign funds for development projects, according to industry sources cited by the Financial Express. SBC lacks an internationally recognized credit rating, a condition often required by donor agencies.
“Funding agencies frequently demand that insurance be obtained from companies with specific credit ratings. Since SBC does not meet that standard, project financing is often affected,” Sumi told The Daily Star.
SBC employees hung a banner outside their Dilkusha office, claiming the move would “destroy the organization,” the Financial Express reported. They argued that no legal changes should be implemented before an elected government takes office.
The IDRA highlighted the reform would improve claim settlement ratios and facilitate foreign fund inflows into Bangladesh.
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