Regulatory reforms and the IDRA

Regulatory reforms and the IDRA
Bringing discipline and stability to insurance industry
Published : Sunday, 21 April 2013
Naba Gopal Banik

In the aftermath of the Liberation War, the Government of Bangladesh took over the control and management of all Pakistani insurance companies and the entire insurance industry was nationalised in August 1972. The newly-formed life insurance corporation, namely Jiban Bima Corporation (JBC), started its operation by taking over the liabilities of all life policies written by the Pakistani insurers. The Jiban Bima Corporation (JBC) on January 01, 1973 took over Tk 148 million as assets of Pakistani life insurers against the total liabilities of Tk 264 million. The country's newly-formed general insurance corporation, namely Shadharan Bima Corporation (SBC), started its journey in the same style by inheriting assets of Tk 103 million against the liabilities of Tk 76.5 million.
In 1984, the Government of Bangladesh promulgated an ordinance providing for the formation of insurance companies in the private sector and thus the insurance sector in Bangladesh started growing. At present, there are 60 insurance companies operating in the private sector in the country, out of which 43 are general insurance companies and 17 are life insurance companies. ALICO (now named Metlife Alico) is the only foreign company operating in Bangladesh.
Although the insurance industry plays an important role in the economy it has not seen the desired regulatory changes compared to the banking industry. However, steps have been taken by the government to bring changes in better supervision of the insurance industry.
In 1995, a report was submitted by M/S Watson Wyatt of Singapore in association with Janet Tay, consultant to the Government of Bangladesh, regarding changes needed in insurance regulation. As many as 20 specific recommendations were made in respect of insurance legislation and deregulatory aspects. A committee was formed by the government that conducted a detailed study on the consultants' recommendations and submitted its report to the government in March 2000. In July 2001, the government formed a specialist committee by the then Chief Controller of Insurance. Subsequently as per decision of the Ministry of Commerce, the World Bank appointed Mr. Craig Thorbon in mid-2003 to submit a report on reforms of insurance laws in Bangladesh. On the basis of the report of Mr. Craig Thorbon, a new insurance law reform committee was formed in January 2005. This committee submitted three draft acts: (a) Insurance Act 2005, (b) Insurance Regulatory Authority Act 2005, and (c) The Takaful Act 2005 in December 2005. Finally, after a lengthy process of review and discussion the parliament on March 03, 2010 passed two insurance laws to further reinforce the regulatory framework. The new laws are the Insurance Act 2010 and the Insurance Development and Regulatory Authority (IDRA) Act 2010. These came into effect on March 18, 2010.
Until 2010 the Department of Insurance as the regulatory and supervisory authority under the Ministry of Commerce administered the insurance industry of Bangladesh as per the Insurance Act, 1938 and the Insurance Rules, 1958.
The Insurance Development and Regulatory Authority (IDRA) as the new regulatory body started its journey on January 26, 2011 with the vision to establish the insurance industry as the premier financial service provider in the country.
Since the inception the IDRA has faced many challenges, namely excess commission, tariff violation, business on credit, lack of transparency etc.
In order to bring discipline and stability in the industry 11 regulations/rules have been framed including Fund Management Regulations 2011, Fit and Proper Test of Person for Appointment of Chief Executive Officer Regulations 2012, Fees for Licensing of Branch and Office of Insurers Regulations 2012, Fees for Registrations Rules 2012, Obligations of Insurers to Rural and Social Sectors Regulations 2012, Central Rating Committee Regulation 2012, and Dispute Resolution Regulations 2012.
Eleven rules/regulations including Investment of Assets of Life Insurance Regulations 2012, Investment of Assets of Non Life Insurance Regulations 2012, Paid-up Capital and Shareholdings of Insurer Regulations 2012, Reinsurance for Life Insurance Business Regulation 2012, Statistics Regulations 2012, and Life Insurance Policy Holders Protection Fund Regulations 2012 are in the pipeline. The IDRA has already issued 43 circulars giving different instructions to follow.
IDRA's vigilance teams inspect different branches of insurance companies in order to detect violation of rules and regulation. The vigilance teams already have inspected 181 branches of different insurance companies and their visits have yielded significant success, as a result of which remarkable improvement in the insurance industry has been achieved.
To ensure the protection of policyholders, the IDRA on receipt of complaints holds hearing. The IDRA has settled a significant number of claims by holding hearing with the concerned parties.
To bring any changes the IDRA always consult the concerned parties. The IDRA used to organise meetings with the chairmen and chief executive officers of insurance companies to solve different problems. To become conversant with problems of the insurance industry the IDRA has organised meetings with the officers and employees of the insurance industry in different parts of the country.
The IDRA is working to develop standardised reporting templates by which electronic data exchange and implementation of a computerised risk-based regulatory system will be ensured.
The IDRA has also become a member of the International Association of Insurance Supervisors (IAIS) and this will help it get access to the latest supervisory techniques and international best practices.
The IDRA's steps appear to have yielded some positive results. The net premium income of life insurance companies increased by 8.92 per cent from about Tk 57.26 billion in 2010 to Tk 62.37 billion in 2011. The total life funds of life insurance companies increased by 29.49 per cent from about Tk 138.34 billion in 2010 to Tk 199.67 billion in 2011. The gross premium income of non life insurance companies increased by 13.66 per cent from Tk 20.60 billion in 2010 to Tk 23.41 billion in 2011. The total assets of life insurance companies were Tk 55.35 billion, an increase of 17.10 per cent from Tk 47.26 billion in 2010.
The insurance industry in Bangladesh has managed to maintain stability and growth in the turbulent global environment. A lot of things still need to be done to achieve the desired level of improvement by ensuring transparency and abolishing the culture of violation of rules/regulations. A few initial reform measures have yielded positive results. Further reforms are needed on way to the coveted goal of development.
The writer is member of
IDRA, Bangladesh.
ngbanik@idra.org.bd