Merger is the answer to dysfunctional insurance industry: Studies

Stakeholders in the country's insurance sector have suggested that weak companies should be merged with better performers to ease competition and improve service quality.

The recommendation has been made in a research paper recently submitted to the chief of the insurance regulator.

Brig. Gen. Md Shafique Shamim, chief executive officer and managing director of general insurer Sena Insurance, who had prepared the report, urged the Insurance Development and Regulatory Authority (IDRA) to make a prompt decision on mergers and disclose which companies need merger for survival.

The report compares Bangladesh's insurance industry with that of India, Pakistan and Sri Lanka to establish the unhealthy competition that insurance companies here are facing.

India, with a gross domestic product (GDP) of $3.9 trillion and a population of 1.44 billion, has only 59 insurance companies whereas Bangladesh has 82 insurance companies operating in an economy that is just 11.66 per cent of India's GDP and serves a population of 171 million.

Pakistan and Sri Lanka, economies that are significantly smaller than Bangladesh, have only 40 and 28 insurance companies.

"Excessive competition is leading to unethical practices," said Mr Shamim.

The concern has also been raised by the chief of a life insurance company.

Md. Jalalul Azim, managing director & CEO of Pragati Life Insurance, who prepared another research paper and submitted it to the

regulatory body, said Bangladesh has too many insurance companies "considering our per capita income, education rate, and quality of life."

Licences had been given to many insurance companies by the previous government because of the owners' allegiance to the then ruling party, said Mr Azim, adding that they lacked professionalism and had ill intentions. As a result, the industry has regressed; 10 years ago, insurance penetration stood at 1 per cent in Bangladesh, which shrunk to 0.45 per cent by 2023.

Insurance sector penetration, which measures total insurance premiums (both life and non-life) as a percentage of GDP, reflects the depth of insurance coverage in an economy.

Explaining the impact of excessive competition, Mr Azim said the insurance market has become oversaturated. Previously, a single company would serve a particular customer base, but now the same group is being served by three to four companies. This has driven group insurance premiums to historic lows, while unethical competition has skyrocketed.

The view has been echoed by IDRA chairman Dr M Aslam Alam.

"A few days ago, the governor of the Bangladesh Bank told the media that the banking sector is on the brink of a disaster. However, I believe the insurance sector is facing an even deeper crisis," he said at a programme recently.

"The misdeeds in the insurance sector over the past 15 years have led to this crisis. The previous regime granted licences to insurance companies, allowing them to exploit the public. They systematically looted people's money on the pretext of doing business," he added.

Mr Azim in his report cited several other factors that contribute to the decline of the sector. These include the inability of many insurance companies to settle claims, a lack of skilled human resources in the industry, low public awareness about insurance products, and the limited regulatory authority of IDRA.

Supporting his analysis, the chief of IDRA said insurance companies could not be held accountable for financial frauds as the regulatory body had little power to enforce disciplinary actions.

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