General insurers must keep 40% to 100% reserve against risk: Idra [Boss Insurance]

General Insurers Have To Keep 40%-100% Reserve Against Risk: Idra

The proposed draft regulations were uploaded to the Financial Institutions Division of the Ministry of Finance on April 6

Non-life insurance companies must maintain a reserve between 40% and 100% as a solvency margin against their insurance cover risk because the regulator, the Insurance Development and Regulatory Authority (Idra), will issue regulations on the solvency margin to increase the risk-bearing capacity of the insurance sector, for the first time in the country.

The regulator has proposed a draft regulation in this regard.

The solvency margin is a minimum excess of an insurer’s assets over its liabilities set by regulators, similar to capital adequacy requirements for banks.

The financial base of insurance companies in Bangladesh is very weak and no company can pay the insurance claim on time, which creates a crisis of public confidence in the insurance industry. Therefore, the insurance regulator has established these regulations which will increase the financial risk taking capacity of the insurance companies.

The national insurance policy also provided for the publication of solvency margin regulations.

The proposed draft regulations were uploaded to the Financial Institutions Division of the Department of Finance on April 6. Stakeholders have been invited to give their opinion on the draft regulation within the next 15 days.

In the draft regulations, general insurance companies are required to reserve a specified percentage of risk cover in various sectoral insurance policies.

Idra Chairman Mohammad Jainul Bari told The Business Standard: “There are such laws all over the world, but not in Bangladesh. We took the initiative to promulgate the law to ensure the sustainability of the insurance sector.

“This law aims to make insurance companies able to easily pay insurance claims against their risks, as we have recently seen such problems in the payment of insurance claims,” he added.

“The long-term development of non-life insurance companies requires ensuring solvency. With this law, we can continuously monitor the activities of the insurance company, whether the insurance company takes risks beyond beyond its capacity,” he added.

So far this is a draft settlement and time will be given to insurance companies that cannot confirm the reservation. How much time will be given after the publication of the gazette, he added.

Although the insurance business started after the independence of the country, the policy of solvency margin was not adopted to strengthen the financial base of the respective companies. Solvency margin regulation was introduced in neighboring India in 2000.

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According to the draft resolution, against the risk taken, the fire insurance policy shall retain 40%, marine insurance 50%, marine-hull 100%, motor 40%, aviation 100%, miscellaneous 50% and 100% health insurance as a reserve.

Idra’s source said that if a general insurance company accepts a risk of Tk1 crore from a customer through a fire insurance policy, then according to the solvency margin, the company concerned must retain a reserves 40% of this risk.

In this case, the company must constitute this reserve on its profits. If it is not covered by profit, the reserve must be increased by injecting fresh capital.

Sources say those with low reserves will not be able to sell large policies if solvency margin regulations come into force.

In addition, the insurance company must maintain a 100% reserve against unpaid claims. Doubtful and doubtful loans, proposed dividends, taxes, unexpected losses and bank loans with reserve of interest should be kept in the proposed regulations.

A list of assets that cannot be valued, i.e. zero value, is also included in the draft regulations.

In the draft regulations, three schedules are prescribed for companies to report, and companies will report to the insurance regulator on the prescribed schedule.

The President of Idra said at a press conference on the occasion of Insurance Day: “The rate of claims settlement in the insurance sector is over 30%.

However, if four to five companies are excluded, the rate will reach almost 90%.

More than half a century after the country gained independence, Bangladesh now has 81 insurance companies. Among them, there are 35 life insurance companies and 46 non-life insurance companies.

According to IDRA statistics, the gross premium amount at the end of 2022 stood at Tk 16,812.65 crore, 17% higher than the previous year amid the challenges caused by the pandemic and the Russian-Ukrainian war.

The gross premium for life insurance was Tk 11,399.51 crore, while the gross premium for non-life insurance was Tk 5,413.14 crore.

The total number of insurance claims in 2021 was 30,62,468. Among them, 18,92,992 were life insurance and 19,877 non-life insurance. Insurance companies settled a total of 19,12,869 claims. Also, the total amount of unpaid claims is Tk 6,559.81 crore.