Insurance sector reform urgent

Bangladesh's insurance sector presents a striking paradox: despite having an unusually large number of insurance companies, insurance penetration remains among the lowest in the world. For example, while most vehicles on the country's roads are insured, most drivers and passengers do not have life insurance coverage. In a country where the road fatality rate is among the highest in the world, life insurance could act as a cushion for economically vulnerable families in the event of the death or disability of a breadwinner.

Similarly, very few people -- less than one per cent of the population -- have health insurance coverage. As a result, an illness can quickly turn into a full-blown crisis for low- and middle-income families. Beyond the direct effects on their short-run incomes, there are wider welfare implications with children's education being interrupted, savings dissipating, and productivity being stifled. Moreover, people are likely to fall into debt traps, turning to informal lenders to fund their medical bills.

These examples illustrate the significant untapped potential for insurance companies and the positive impact they could have on society. However, the pressing question is, why is insurance penetration so low, and why has the sector failed to tap into this potential despite the high number of active insurance firms?

Citing Bangladesh Bank's Financial Stability Report 2025, a vernacular daily brought to light an alarming state of affairs in the insurance sector. According to the report, unsettled claims in the country's insurance sector ballooned to nearly Tk 80 billion by the end of 2025. Of this, the life insurance sector had unsettled claims of Tk 44.03 billion at the end of 2025, while the non-life insurance sector's unsettled claims stood at Tk 35.09 billion. Taken together, the total volume of unsettled claims across the insurance industry stood at a staggering Tk 79.12 billion.

In 2025, the claim settlement rate in the life insurance sector stood at 66.54 per cent, while in the non-life segment the claim settlement rate was just 28.51 per cent. The life insurance segment may appear to have fared better than its non-life counterpart, but a closer look reveals that the claim settlement rate has been steadily declining since 2019. The life insurance segment boasted a settlement rate of 89.55 per cent in 2019, but by 2025 it had fallen to 66.54 per cent. To put this into 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 companies and 46 non-life insurers, 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 seem 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 regulators to remain indifferent when the sector is in such a mess and a large number of policyholders are being denied their rightful dues. 

Newly appointed Chairman of the Insurance Development and Regulatory Authority (IDRA), Mir Nadia Nivin, has recently said that the insurance sector would be overhauled through stronger governance. She also announced plans to introduce risk-based supervision aimed at bringing the industry in line with international standards. However, the regulator needs to do more to reform Bangladesh's insurance industry and align it with regional, if not global, standards. 

To this end, restoring public confidence in the insurance sector must be the foremost priority. Trust can only be rebuilt when claims are settled promptly, transparently, and fairly, in accordance with policy terms and regulatory standards.

The government would do well to form a taskforce to assess the overall situation. Financially troubled insurance companies should be liquidated or merged with better-performing ones to ease competition and improve service quality. Strict enforcement is needed to ensure that insurance companies adhere to the prescribed timelines for claim settlement. Delays in settling claims not only cause hardship for policyholders but also undermine confidence in the entire sector. 

The ministry concerned should strengthen the IDRA to enhance its regulatory and supervisory capacity. Regulators should closely monitor insurers' investment activities and liquidity positions to ensure that funds are managed prudently and remain available to meet claim obligations. Weak oversight in these areas can jeopardise the financial stability of insurance companies and expose policyholders to unnecessary risks. 

Finally, the claim verification and settlement process should be modernised through greater use of technology, simplified procedures, and enhanced transparency. Policyholders should be able to track the progress of their claims easily and receive timely updates without facing excessive paperwork or bureaucratic hurdles. Such comprehensive reforms are imperative if the insurance sector is to rebuild its credibility, restore public trust, and fulfil its role as a reliable pillar of financial security and economic development.

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