Finance Minister warns 28 insurance companies not listed with the stock market
Finance Minister AHM Mustafa Kamal has directed 28 insurance companies to be listed with the stock market by December this year.
"If they cannot comply with the government's condition, their licences will be scrapped," Kamal warned.
The minister came up with the warning at a press briefing soon after a meeting with managing directors and chairmen of insurance companies at the National Economic Council auditorium in the capital's Sher-e-Bangla Nagar on Sunday.
Insurance companies were given licences on condition that they would get listed with the capital market within a certain period.
"It is unfortunate that many of them are yet to enter the market," he said.
Currently, there are 47 insurance companies listed with the stock market.
He said actions will be taken at three phases. In the first step, their licences will be suspended on a temporary basis, if they fail to comply with the instruction.
If they cannot make progress, they will be merged in the second phase and finally, their licences will be cancelled.
Insurance companies will have to come to the stock market within three years of their operation, according to the Insurance Act.
If they fail to do so, they will have to count a fine of Tk5,000 for each day after the period.
In 2013, the government issued licences to 16 insurance companies. None of them entered the market even in six years.
Most new generation companies are now incurring losses and struggling to survive in the competitive market.
Currently, a total of 78 insurance companies are in operation, of whom 32 are life and 46 non-life, according to Insurance Development Regulatory Authority (IDRA).
The finance minister also emphaised expanding the insurance coverage, saying that private houses, office buildings, vehicles etc will have to be brought under the coverage.
Apart from human lives and assets, animals like dog, cat have to be brought under the insurance coverage, he said.
Currently, the insurance penetration in Bangladesh is 0.55 percent which is the lowest in the South Asian Countries, according to the IDRA.
The insurance penetration rate refers to the level of development of insurance sector in a country.
He said the insurance industry has overcome its image crisis by building confidence among clients.
Insurers themselves claimed that the industry has bounced back from a previous miserable situation, Minister Kamal added.
Insurance companies are now trying to bring product diversification and innovation in the sector, he added.
The life insurance industry saw 10 percent growth in premium collection last year when non-life insurance business grew 14 percent.
The market size of life insurance industry was Tk9,000 crore as of December last year and non-life insurance industry was Tk3,400 crore.
The insurance-claim growth was 20 percent for life and 19 percent for non-life last year, according to the IDRA.
Non-life insurance companies are far behind in the claim settlement compared to life insurance companies.
The claim the settlement rate, which impacts policy holder's mind, was less than 30 percent for non-life insurance, while the rate is above 85 percent for life-insurance, the IDRA data showed.
The IDRA will take initiatives to improve insurance penetration by improving confidence level of policy holders, said Shafiqur Rahman Patwari, chairman of the IDRA.
He said the IDRA successfully curbed the unhealthy practice of giving commission beyond the authorised limit of 15 percent.
Non-life insurances were sometime giving above 70 percent commission which hurts their business.
The IDRA stopped this practice by bringing them in discipline, he added.
He said it was out of rudder of the authority as to where the money of extra commission was going.
Insurance companies would maintain hundreds of bank accounts to deal with the commission. But the bank account number was brought down to three to bring transparency.
When contacted, Sheikh Kabir Hossain, president of Bangladesh Insurance Association, said all the 28 companies are in profit. But they are unwilling to come to the stock market because of transparency issue.
Mirza Azizul Islam, former adviser to caretaker government, said listing with the stock market will increase transparency of the insurance companies. The government should force them to enter the stock market.
Mohammed Nasir Uddin Chowdhury, president of Bangladesh Merchant Bankers Association, told The Business Standard that the stock market needs well-performing companies with good governance from different sectors.
Banks, non-bank financial institutions and all the insurance businesses are under primary regulators' radar that adds to the protection of shareholders' interest.