Govt plans insurance law changes as crisis grips sector

The government is preparing amendments to the Insurance Act 2010 and drafting a crisis-resolution framework for the insurance sector as it moves to address widespread weaknesses in the industry.

Both measures are expected to be placed before Parliament in the coming days, Finance and Planning Minister Amir Khosru Mahmud Chowdhury told journalists yesterday after visiting the head office of the Insurance Development and Regulatory Authority (IDRA) in Motijheel, Dhaka.

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The minister acknowledged that legal battles were delaying reforms, with entities “seeking undue advantage” frequently moving the courts, leaving several companies without regular managing directors.

He said amendments to the insurance law and management restructuring were under way to address the problem.

Asked whether mergers were being considered for the weakest firms, he declined to give a definitive answer.

“Until the resolution framework is finalised, it would be premature to comment,” he noted. “Whatever actions are required for insurance companies will be taken.”

WIDESPREAD IRREGULARITIES UNCOVERED

The insurance sector has fallen into the same mire of corruption, mismanagement and regulatory neglect that once crippled the banking industry, the minister said, noting that 57 percent of life insurance claims remain unpaid.

Khosru said the BNP-led government has uncovered widespread irregularities in the sector since taking charge.

He warned that companies that continue to withhold policyholders’ dues could be forced to liquidate assets to settle their obligations.

“Insurance plays a vital role in our economy, offering security for people’s lives, their homes, and their belongings,” he said. “But we have failed to elevate this sector to where it belongs, and today it offers little good news.”

Drawing a parallel with the country’s banking crisis, the minister said insurers had misappropriated policyholders’ funds through similar patterns of exploitation and unchecked corruption.

“Just as the banking sector was exploited through siphoning and corruption, we found the same mismanagement and lack of regulation when we took charge of the insurance sector,” he said.

Many firms had funnelled clients’ money into land, real estate and government securities instead of maintaining the liquidity needed to pay claims, the minister stated.

“Citizens invest a portion of their income in life insurance to protect themselves in hard times. Yet the majority of them have not received their legitimate payouts,” he said.

The minister also said IDRA had been empowered to take a firmer line, with every company that had failed to settle claims now given a strict deadline.

“Companies that fail to pay will face direct consequences,” he said. “If they face cash shortages, they will be forced to sell their properties and land assets to settle public claims.”

Investigations have also found several insurers operating two parallel record-keeping systems, one genuine and another concealed, which were used to process unauthorised transactions, he said.

“Maintaining dual servers is strictly banned. Following a grace period, inspections will begin, and strict legal action will be taken against violators,” he added.

Seven to eight insurance companies have persistently defied regulatory directives and now face serious scrutiny over their continued operation, the minister said, adding that they must resolve their outstanding issues shortly or face severe action.

He also flagged deep structural weaknesses within IDRA, saying the regulator lacked a permanent, specialised workforce and instead relied on commissioners and officers on temporary deputation who leave after their tenures end.

“Our three-to-five-year plan is to reduce dependence on externally deputed staff and build IDRA’s own trained, professional and permanent workforce, with a clear career path,” he said.

The sector, comprising 82 insurance companies, “many of which are weak”, remains a vital national issue that successive governments have failed to harness to its full economic potential, said Khosru.

“Company restructuring provisions will be embedded in the updated insurance laws. Once IDRA’s enforcement steps are implemented, a positive public image will naturally follow,” he added.