Originally posted in The Daily Star on 26 February 2025
Corruption-plagued insurance sector overlooked in reforms
The interim government has not pursued significant reforms in the insurance sector
Although Bangladesh’s insurance sector has suffered a confidence crisis due to widespread corruption over the past 15 years, the interim government has not taken notable reform measures for the industry.
The liquidity crisis has intensified so much in the sector that the accumulated amount of unsettled life insurance claims increased by over 66 percent in the last five years to the second quarter of 2024.
Moreover, insurance penetration in Bangladesh currently hovers around 0.5 percent—placing it among the lowest globally—compared to the emerging markets’ average of 3.3 percent, India’s 3.2 percent, and China’s 2.4 percent, according to data from the Insurance Development and Regulatory Authority (IDRA).
Despite these figures, the interim government has not pursued significant reforms in the insurance sector beyond replacing the chairman and members of the IDRA following the political shift caused by the July 2024 uprising.
Instead, initiatives have been taken to strengthen governance in the banking, stock market, and revenue sectors to curb corruption and reduce irregularities, while no notable actions have been implemented for insurance.
However, the insurance sector continues to struggle with longstanding challenges, including a lack of transparency and poor protection of policyholders.
An audit commissioned by the Bangladesh Securities and Exchange Commission in 2021 partially revealed the industry’s condition, showing that Fareast Islami Life Insurance alone siphoned off over Tk 2,100 crore from policyholders’ funds between 2010 and 2020.
Meanwhile, Sikder Insurance invested approximately 73 percent of its total assets in the stock market, primarily in a junk stock like National Bank, in violation of IDRA regulations.
These are just a few of the scams that have occurred in the sector.
Of Bangladesh’s 82 insurance companies, 36 are life insurers and 46 are non-life insurers.
Life insurers in Bangladesh have settled 34 percent of claims as of 2024, while non-life insurance companies have settled just 10 percent of claims in the first nine months of the year, according to IDRA.
Data from the past 14 years paints a grimmer picture, with over 26 lakh insurance policies lapsing in Bangladesh.
In 2009, the total number of policies was nearly 1.12 crore, but by 2023, it had declined to 85.88 lakh, according to IDRA.
Despite the availability of this data, the interim government has avoided taking comprehensive reform measures for the sector.
Professor Md Main Uddin of Dhaka University believes the interim government has not taken the necessary steps to resolve these issues or to curb corruption and irregularities in the sector.
“Corruption, whether it involves Tk 1 or Tk 100 crore, should be treated with equal importance,” the insurance and banking expert told The Daily Star.
Banking, the stock market, and insurance should all be reformed together to ensure an overall improvement in financial sector governance, he added.
“Those responsible for dragging down the insurance market must be identified and punished. However, even after six months in office, the interim government has yet to take any initiative in this regard.”
Corruption in the banking sector receives more attention because the amounts involved are significantly larger, he noted.
However, in percentage terms, the insurance sector is more corrupt than banking, Main Uddin said.
Bangladesh’s relatively small insurance market could have been operating efficiently with proper management, he added.
The professor also pointed out that the task force formed for financial sector reforms has given almost no attention to the insurance sector.
He recalled attending a task force meeting as a discussant, where the topic of the insurance market was brought up but was dismissed in a manner suggesting it was better not to discuss the sector at all.
However, Md Solaiman, deputy director of the non-life department and spokesperson for IDRA, thinks differently.
He said the interim government has taken several initiatives to address the problems in the insurance sector.
A draft amendment of the Insurance Act 2010 has been prepared to help resolve industry challenges, he said.
Additionally, solvency margin regulations for life and non-life insurers have been issued, and a draft amendment of the Insurance Policy 2014 has been prepared, Solaiman added.
He also mentioned the issuance of the IDRA Research Guidelines, 2025.
However, Fahmida Khatun, executive director of the Centre for Policy Dialogue, also thinks the insurance sector has remained underdeveloped in Bangladesh due to several challenges and the lack of adequate regulatory reforms.
Reforming the sector does not mean only changing the IDRA chairman and preparing guidelines, she mentioned.
The existing problems should be identified, and bottlenecks should be removed, she added.
Regulatory reforms should be implemented by strengthening solvency regulations to ensure financial stability and expanding digital platforms for better customer service and claims processing, she said.
The insurance sector in Bangladesh should also encourage foreign direct investment to meet the demand for better services, Khatun said.
Bangladesh needs to adopt global insurance regulatory frameworks, she added.
Though most people have limited disposable income for insurance, the potential for agricultural insurance, health insurance, and pension schemes is huge given the large size of the population, she said.
There is also a need for financial literacy and insurance awareness programmes among the people, the economist said.
Another insurance expert, speaking on condition of anonymity, also highlighted some major reforms needed for the insurance sector, such as granting IDRA the power to dissolve and restructure the boards of insurers when necessary.
Bangladesh Bank has the authority to restructure the boards of private commercial banks, but IDRA lacks similar legal powers in the case of insurance companies.
While Bangladesh Bank can track and report daily transaction volumes for banks, IDRA does not have real-time access to transaction data from insurance companies, the expert said.
“Addressing this gap through regulatory reforms could improve monitoring and accountability within the sector.”
The expert also noted that IDRA can only appoint administrators, which limits its ability to take broader corrective actions.
Liquidity crises remain a major challenge for many life insurance companies in Bangladesh.
Additionally, the expert pointed out the need to reform the mandatory investment requirements for insurance companies.
There is room for improvement, as insurance companies in Bangladesh have to invest 30 percent of their total investments in government securities, whereas the requirement in India is 50 percent, the industry insider added.