Rescuing the ailing insurance sector

Much like banks and other non-bank financial institutions, insurance companies rely fundamentally on public trust for their survival and growth. Yet, trust is precisely what many of the country's insurance companies have sacrificed by failing to settle claims in a timely manner. When a large number of policyholders do not receive their dues after paying premiums regularly over the years, it is not merely the failure of one or two companies; it affects the entire sector. This can explain why the country's insurance industry has failed to grow and establish itself as a dependable financial safety net for both households and businesses.

A recent report in this daily exposes an alarming state of affairs in the insurance sector, as unsettled claims stood at a staggering Tk 72.49 billion in the first quarter of the current fiscal year. According to the report, the life insurance sector recorded total claims of Tk 62.61 billion during the July-September quarter of the current fiscal year. Of this, only Tk 22.75 billion was settled, resulting in a settlement rate of just 36.34 per cent, while Tk 39.86 billion, nearly two-thirds of total claims, remains outstanding. The backlog is even more alarming in the non-life segment, where insurers settled only Tk 2.75 billion of Tk 35.37 billion in claims, reflecting a dismal 7.76 per cent settlement rate. A massive Tk 32.63 billion - over 92 per cent - remains pending. When more than 90 per cent of claims remain unsettled, public confidence in the insurance sector is inevitably shaken.

The life insurance segment may appear to have fared better than its non-life counterpart, but a closer look reveals a troubling trend. The settlement rate in life insurance has been steadily declining since 2019, when it stood at a robust 89.55 per cent. By 2024, it had fallen to 65.31 per cent, and for the July-September quarter of the current fiscal year, it plummeted further to just 36.34 per cent. To put this in perspective, the global average settlement rate hovers around 97-98 per cent, while in neighbouring India it exceeds 98 per cent. It is therefore hardly surprising that insurance penetration in Bangladesh is abysmally low, at just 0.4-0.5 per cent of GDP - far below the global average of nearly 7 per cent.  Ironically, however, Bangladesh has more insurance companies than its regional peers. With 82 insurers, including 36 life insurance and 46 non-life ones, Bangladesh leads South Asia in numbers, if not in substance. By contrast, India - with more than eight times Bangladesh's population - has only 57 insurance companies, while Malaysia has just 17 insurers. Clearly, Bangladesh has more insurance companies than it needs. It is worth noting that around 60 of the existing insurers were approved during the tenure of the fallen Awami League government. A large number of licences were granted in the name of creating employment opportunities. While this proliferation did generate some jobs, it has, in effect, led to unhealthy competition, performance anomalies and even fraudulent activities, ultimately crippling the sector. 

Things have come to such a pass that many insurance companies now seems to be facing serious liquidity crises, which is why they are delaying claim settlements under various pretexts. It would be unwise for the government and the regulator to remain indifferent when the sector is in such a mess and a large number of policyholders are being denied their rightful dues. The government would do well to form a taskforce to assess the overall situation. Underperforming companies and those short-changing their clients must be held accountable, while weaker firms could be considered for mergers.  Overall, steps must be taken to ensure that policyholders receive their due payments, and the insurance sector - a vital pillar of the economy - can stand on a firm footing. This is the only way to rebuild the bruised image of the insurance sector.