The Bangladesh government is preparing to amend the Insurance Act 2010 and introduce a new crisis-resolution framework as it moves to tackle persistent weaknesses in the country’s insurance sector.
The proposed reforms are expected to be placed before Parliament soon, Finance and Planning Minister Amir Khosru Mahmud Chowdhury said on Monday after visiting the headquarters of the Insurance Development and Regulatory Authority (IDRA) in Motijheel, Dhaka.
The initiative comes amid growing concerns over unpaid insurance claims, weak corporate management, regulatory shortcomings and alleged financial irregularities. The government is also considering provisions that would allow troubled insurers to be restructured as part of the proposed changes to the existing legal framework.
Khosru said legal disputes had become one of the obstacles to regulatory action. He alleged that some entities had repeatedly gone to court while seeking what he described as undue advantages, resulting in delays in addressing problems within the sector.
The absence of permanent managing directors at several insurance companies has also created management difficulties, he said. The government is therefore working on both legislative amendments and management restructuring to improve the functioning of troubled institutions.
When asked whether weaker insurers could eventually be merged with stronger companies, Khosru did not give a definitive answer. He said it would be premature to discuss possible mergers before the proposed crisis-resolution framework was finalised. However, he made clear that the government would consider whatever measures were necessary to address the problems facing distressed insurance companies.
Unpaid claims emerge as major concern
The scale of unpaid claims is among the most serious issues confronting the industry. Khosru said 57 per cent of life insurance claims remain unpaid, leaving a substantial number of policyholders waiting for money they are entitled to receive under their policies.
The minister said the government had identified widespread irregularities in the sector since taking office. Insurance companies that continue to withhold policyholders’ dues could face direct action, he warned.
According to Khosru, some insurers had invested customers’ funds in land, real estate and government securities instead of maintaining adequate liquidity to meet claims when they became due. Such investment practices, he said, had contributed to difficulties in paying policyholders.
Insurance plays an important role in providing financial protection against risks involving individuals, homes and other assets. Yet the sector has not developed in line with its potential, the minister acknowledged.
The government has instructed IDRA to adopt a stricter approach towards insurers that have failed to settle outstanding claims. Companies have reportedly been given specific deadlines to clear their dues.
Khosru also warned that insurers facing cash shortages could be required to sell land or other property to raise funds for paying policyholders. The approach reflects the government’s intention to prioritise the settlement of legitimate claims rather than allow financial difficulties to continue indefinitely.
Alleged dual record systems under scrutiny
The government has also raised concerns about record-keeping practices at some insurance companies.
Khosru said several insurers had allegedly been operating two parallel systems, with one being used as the official record and another kept separately. According to the minister, such arrangements had created opportunities for unauthorised transactions.
The government has stated that maintaining dual servers is not permitted. After a grace period, inspections will be carried out, and companies found to be violating the rules could face legal action.
The minister said around seven to eight insurance companies had repeatedly failed to comply with regulatory instructions and were now under close scrutiny. They will be expected to resolve their outstanding issues within a limited period, failing which stronger regulatory measures could follow.
Regulator also faces institutional challenges
The reform effort is not limited to insurance companies. The government has also identified structural weaknesses within IDRA, the industry’s principal regulatory body.
Khosru said the authority lacked a permanent and specialised workforce and relied considerably on commissioners and officials serving on deputation. Since deputed officials return to their original institutions after completing their assignments, the arrangement makes it difficult to develop and retain long-term institutional expertise, he said.
The government therefore plans to reduce IDRA’s dependence on deputed officials over the next three to five years. The aim is to establish a permanent and professionally trained workforce, supported by clearer career-development opportunities.
A stronger regulatory institution is seen as essential to enforcing rules consistently, monitoring insurers and responding more quickly when companies run into financial or management problems.
82 insurers face a tougher regulatory environment
Bangladesh currently has 82 insurance companies, many of which Khosru described as weak. He said successive governments had failed to develop the sector sufficiently despite its importance to the wider economy.
Under the proposed legal changes, provisions for restructuring insurance companies will be incorporated into the insurance framework. This could give regulators greater scope to respond to institutions facing serious financial or managerial difficulties.
The planned reforms come against a broader backdrop of efforts to strengthen financial-sector governance in Bangladesh. For insurance companies, the immediate challenge is restoring their ability to meet policyholders’ claims while improving internal management and compliance.
For IDRA, the task will be to strengthen supervision and ensure that regulatory directives are followed consistently. The government also faces the challenge of balancing action against distressed companies with protecting policyholders and maintaining confidence in the wider insurance market.
The proposed amendments are therefore intended to address both immediate problems and longer-term weaknesses. By combining changes to the Insurance Act with management restructuring, stricter enforcement and reforms to IDRA’s workforce, the government hopes to create a more accountable and resilient insurance sector.
The success of the initiative, however, will ultimately depend on how effectively the new rules are implemented and whether insurers can restore confidence by settling outstanding claims and complying with regulatory requirements.
