Time to mull 2nd reinsurer as public-pvt joint venture

Nestled behind sleek glass partitions on the fifth floor of Rangs Babylonia, the headquarters of Pioneer Insurance PLC, Syed Shahriyar Ahsan's office offers a commanding view of Tejgaon's chaotic skyline.

From this vantage point, Dhaka presents a portrait of contrasts - glittering high-rises shoulder crumbling rooftops, while the Gulshan Link Road below pulses with perpetual traffic jams.

For Mr Ahsan, managing director and chief executive officer (CEO) of Pioneer Insurance, one of the "Big Three" non-life insurers in Bangladesh, these concrete towers are more than part of the cityscape.

In response to the introductory question, he described insurance as a risk management tool made available for mankind, providing security and a shield for human lives and properties in our world filled with many-fold risks and uncertainties.

He continued by explaining the difference between life and non-life insurance.

Life insurance covers the risks of human lives by concurrently providing a basket for investment as such.

The life insurance policyholders, besides enjoying the coverage of life risks, also get back the entire insurance premium, which they have paid during the policy period.

Thus, they get back the entire sum, along with the accrued profit, as a return on investment.

On the contrary, under a non-life insurance policy, coverage is provided against the risk on property or liability, while the insurer is obligated to compensate for the financial loss incurred by an accident or fortuitous event. The paid insurance premium is treated as the cost of covering the risk.

"They are risks waiting to be covered," Mr Ahsan said with a measured smile. "And they are also opportunities the insurance industry has yet to embrace fully."

He pointed out that the major commercial hubs, such as Tejgaon, Gulshan, and Motijheel, are filled with high-rises that remain uninsured.

Bringing them under insurance coverage, he argued, would not only protect these assets but also enforce greater compliance with building codes.

"If a building is not up to code, especially in terms of fire safety or structural resilience, insurers should refuse to cover it," he said.

"These buildings are not just assets. They are potential liabilities if not protected," he noted. "By bringing them under coverage, we not only grow revenue but also build public confidence in insurance."

A soft-spoken man with the quiet authority that comes from four decades in the insurance sector, Mr Ahsan once led Sadharan Bima Corporation (SBC), Bangladesh's only reinsurance company and a mandatory partner for all privately-owned non-life insurers by law.

Now, from the other side of the table, he is more outspoken about the system's inefficiencies.

"Bangladesh's reinsurance market is a monopoly by design," he told The Financial Express, settling into his seat.

"Private non-life insurers must cede 50 per cent of their reinsurance business to SBC. The corporation enjoys monopoly power but lacks the technical expertise and agility to keep up.

"Claims often take seven to eight years to settle. That is simply not workable in a fast-growing economy. The insurance business is global. So the Sadharan Bima Corporation has to follow global norms and systems to underwrite and settle claims, as well as settle accounts receivables and payables," he explained. His proposed solution is structural.

"It is high time that we considered a second reinsurance company - ideally a joint venture (JV) between the public and private sectors," he said.

"That would foster competition, improve services, and push the Sadharan Bima Corporation towards regional relevance.

"It will also avoid huge outflow of foreign currency and contrarily allow earning foreign currency by underwriting good risks of this region and improving technical knowledge."

It is a bold suggestion, but Mr Ahsan believes Bangladesh is well-positioned to emerge as a reinsurance hub in South Asia or Southeast Asia.

"There is no dominant regional reinsurance player. Bangladesh could serve neighbouring markets, build expertise, and earn valuable foreign exchange."

It is high time that the government considered introducing the much-needed reform in the insurance sector by allowing a regional reinsurance company to operate and giving licences to a few local brokerage houses from the Insurance Development and Regulatory Authority (IDRA), he said.

The proposed reforms would not only generate technical manpower in these fields, but also restrict the huge current outflow of foreign exchange through these channels, he further said.

But first, he said, the country must address its own underdeveloped insurance landscape.

"Insurance penetration in Bangladesh is still below 1.0 per cent of the gross domestic product (GDP). That shows how underutilised this sector is," he said.

"Some of the insurance coverage areas should be made mandatory like personal accident, health insurance, insurance of high-rise commercial buildings, professional liabilities, as well as government properties," said Mr Ahsan.

"All multi-national companies should be compelled to cover their properties in Bangladesh, instead of being allowed the scope of undertaking global insurance policies.

But the industry must also evolve beyond traditional models, he said. "We need products people actually need."

One such product is crop insurance, which Pioneer Insurance is preparing to roll out.

"We are designing it in collaboration with banks and non-governmental organisations (NGOs). Climate change has made floods and droughts more frequent, and farmers need protection," he said.

"We will use satellite imagery to validate losses. That makes claim settlements both accurate and fast."

Technology, he insisted, would be central to the company's future.

"We are going digital - not just in sales, but also in claims and policy management. That makes us faster, more transparent, and easier to regulate."

He also said, "The Insurance Development and Regulatory Authority should ask all insurance companies to go for a common digital programme mandatorily and also arrange a soft loan for this."

"People want speed, trust, and convenience," Mr Ahsan added. "And digitalisation is the key to delivering that."

He also highlighted the peculiar status of motor insurance in Bangladesh.

"We are one of only four countries in the world that withdrew mandatory third-party motor insurance," he said, referring to a decision made under the previous government.

That decision effectively removed a basic area of consumer protection - coverage for damages to third parties in road accidents - found in nearly every insurance system worldwide, he said.

But change, according to him, may be on the horizon.

"We have submitted our position for motor insurance to the Insurance Development and Regulatory Authority. There are early signs that the interim government could reinstate third-party coverage through a special order. It still needs clearance from the law ministry, though."

Restoring it, Mr Ahsan argued, would do more than offer legal protection to drivers. "It would help formalise what is still a chaotic road economy."

As our conversation wound down, the former SBC chief returned to a foundational idea.

"Insurance is about trust," he said. "But trust means nothing if claims are not settled on time or if clients are treated unfairly. That is why we need reforms. A monopoly cannot serve a dynamic economy."

If real reform does arrive, it may come from industry veterans like Mr Ahsan who have seen the system from the inside and are now determined to push it forward from the outside.

jasimharoon@yahoo.com