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The government has moved to give the Insurance Development and Regulatory Authority (IDRA) 'search and seizing' powers in a bid to curb fraudulence, malpractice and irregularities in the insurance sector.
The proposed amendments to the existing law have been put forward to the Ministry of Finance for the next course of action, according to the sources.
Acknowledging the move, IDRA Chairman Dr M Aslam Alam said: "We are bringing in the power to search and seize. This authority does not exist under the existing law."
At present, IDRA can request information from insurance companies or send inspection teams. However, if a company refuses to cooperate, the regulator has very limited recourse.
"At best, we can impose a fine. Whether the fine is paid or not, there is nothing for us to do. Even if it is not paid, I cannot take any further action," he said.
Under the existing system, such cases must be filed under the Public Demands Recovery (PDR) Act, which often drags on for years, making enforcement ineffective.
Dr Alam said the proposed amendments aim to grant search and seizure powers for both life and non-life insurance companies.
"If we need to conduct an investigation or obtain specific information and a company does not cooperate, we should be able to carry out a search and collect the information. We have sought authority to seize documents and computers if necessary," he added.
According to him, similar powers exist under India's Insurance Act. In Bangladesh, other regulatory agencies such as Customs, the National Board of Revenue (NBR), and income tax authorities already have search and seizure authority.
Dr Alam also highlighted cases where insurance company head offices have remained locked for months with no staff present.
"In such situations, if I break the lock and enter, cases could be filed against me and my officials on charges of robbery. This has happened in multiple instances," he said.
There are also allegations that some insurance companies share only partial data with IDRA.
"Some companies maintain two separate databases--one they provide to us and another for their own use. This is clear malpractice. To detect such irregularities, we need to act decisively, including seizing computers. But we currently do not have that authority," Dr Alam said.
According to IDRA, widespread fraud and malpractice have contributed to the sector's current state of distress. Search and seizure powers are seen as crucial to restoring discipline and protecting policyholders.
On condition of anonymity, CEOs of two leading insurance companies told the FE that the negative publicity was mainly directed at some life insurers in poor financial health. They said these companies lack the capacity to repay insurance claims.
The top executives said a weak regulatory regime has contributed to such problems, despite the fact that the existing laws allow oversight.
One of them said life insurers typically have minimal expenses in the first eight years, as most insurance policies run for at least ten years and premiums are often treated as company funds.
He emphasised that stronger monitoring could prevent such situations. After granting search and seizure powers, the regulator should also strengthen its supervision to prevent insurance companies from falling into deeper crises.
Talking to the FE, Snehasish Barua, Managing Director of SMAC Advisory Services, said a strategic framework must be developed to manage and mitigate such risks through search and seizure operations.
He further said the search team conducting such operations should have pre-emptive preparation including approval from higher authority, smoothly conduct the operations within legal framework, document the seizure showing exactly what was seized and time bound reporting to the higher authority.
He also highlighted the importance of a complaint management cell within the regulator to protect insurers' interests if anyone feels victimised.
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