Welcoming you to our essay on the role of the insurance regulator in Bangladesh.
The insurance sector in Bangladesh is growing mainly because of the recent regulatory move to upgrade the market and to increase its participation in the GDP of Bangladesh.
Nation’s Expectation of IDRA Bangladesh Insurance Development and Regulatory Authority (IDRA) of Bangladesh is the sole statutory body shouldering responsibilities for the prudential regulation of 77 insurers operating in the country. It came into being on 18th of March 2010 under auspices of IDRA Act 2010 passed by the Bangladesh National Parliament, and thereby it replaces the office of the Chief Controller of Insurance (CCI), the then insurance regulator run by the Ministry of Commerce.
On the contrary; of late, the advent of IDRA as the insurance regulator since January 2011, has paved the way for optimism from all segments of the sector. Hopefully enough the measures so adopted by IDRA within its short tenure of five years to mobilize the market, and to protect the interest of policyholders and other beneficiaries, are quite exemplary as well as commendable by all means.
Albeit much recommendation, IDRA has a long way to go to really make the sector a vibrant one ensuring an orderly and systematic growth for the industry through effective supervisory and regulatory framework. Insurance companies, being one of the constituents of financial services market of the country, have a lot to play not only by ensuring the protection for our lives and properties but also by allowing us the peace of mind to concentrate on the core nation-building activities.
During my career in the insurance sector of Bangladesh for a period of more than 25 (twenty) years both in public and in private companies, I firmly believe that our nation now cherishes great expectations of IDRA as I personally do in my dreams for country’s insurance industry and recent move by our regulator is very praiseworthy.
The healing tool of IDRA can, therefore, lend a hand in the following areas on a priority basis:
COMMITTED AND DILIGENT RESEARCH ON INSURANCE
The committed and diligent research is to be undertaken so as to unearth the ways to make the sector a recognized financial industry as done in its banking counterpart. The private insurance companies have to come forwards with their respective research and study to assist IDRA. For these edges, the findings of research can be a great tool both for the regulator and for the market players. Researchers should try their level best for ensuring a better insurance sector in all respects. Insurance products should cater for the safety and security of the people, particularly those who are living below the poverty line.
ENDEAVORS TO STABILIZE INSURANCE MARKET:
The economy of Bangladesh is evolving rapidly in the recent years due to the expansion of the RMG (Ready-made garment) industry (targeting exports of US $50b by 2021) and the record-breaking remittance earning. International business (exports and imports) inevitably requires insurance supports for which the transparency and professionalism is essential. So the promotion of insurance profession through timely initiatives by IDRA indirectly supports the escalation of international business and facilitating professional insurance services, which can ultimately attract foreign direct investment (FDI) to different arenas of our country. In collaboration with the stakeholders and other bodies of the financial market, the IDRA should employ its resources to implement the stability of the market. Special attention can also be given to the critical factors that contribute to the deterioration of the sector. However; the major factors include:
- Higher inflation
- Weather patterns
- Government debt
- Enhanced cost for reinsurance
- Unhealthy competition
- Dull economic climate
- Improper risk perception
- Lower investment return
- Adverse claim trend
COVERING THE VAST UNINSURED COMMUNITY UNDER INSURANCE UMBRELLA
The insurance penetration rate in our country is too low to mention. Where there is a huge potential for insurance companies, the proper presentation of the beneficial aspects of insurance to the prospective buyers requires particular selling skills. So the professional sales skill is a must in this regard. And it is the young talent of the nation who can make use of their merits in the development activity. That is why; IDRA should ensure that every year a portion of talent of our country should enter the insurance industry to lead the sector. If IDRA can promote, as required, the talent would make use of their faculty for covering the un-insured community, and thus supporting the cause of “Financial Inclusion”.
REGIONAL CATASTROPHIC RISK POLLING:In the National Plan for Disaster Management for 2010-2015 developed by the Ministry of Disasters and Relief, there is a provision for exploring insurance options for proper coverage of risks in an earthquake. But such types of mega risks can be well addressed by risk pool. One of the fundamentals of insurance is the sharing of the effect of risk exposures amongst the homogenous group. And the members of the group taking the benefits of insurance operation in particular country, would pay/contribute premium to the insurance industry in accordance with their risks introduced. Moreover; there must be a practical correlation between the rate of their subscription / contribution (in case of Islamic Insurance Business) and the risks introduced. For these reasons, with the passage of time to cope up the nature of exposures, the IDRA should initiate the process of risk pooling on immediate basis in the ever-evolving environment of insurance sector. Establishing Catastrophic Risk pool in collaboration with foreign institution can be initiated by IDRA.
UTILIZATION OF INFORMATION TECHNOLOGY
Can the insurance companies stay away from information technology in its day to day operations? The answer is obviously negative. The call for of IT should be embedded into the corporate strategy of the insurers for serving customers with speedy and reliable services. IT can aid insurers in reducing cost control strategy, effective internal audit, and enhanced supervision, and it makes a significant difference for the top management in overall control of operational activities.
DIVERSIFICATION OF PRODUCTS AND SERVICES
Insurers cannot but bank upon new products in order to penetrate the new market, and to gain goodwill and reputation as a professional insurer providing various types of unconventional insurance services for its valued customers. So, there should be an on-going process, initialized by insurers, led by IDRA, to introduce new and alternative products in the market A cardinal principle of insurance is to diversify and achieve spread so that an insurer is not reliant on limited classes of business. IDRA’s rule is the pivotal in compelling insurers in this regards for providing broader coverage.
FACILITATING NEWER DISTRIBUTION CHANNELS
Currently in our market, the primary distribution channels are agents and branch offices across the country. The selling insurance products and receiving of premium online should be approved by IDRA. Regarding my company, we have already sought approval from the regulator. Moreover; Bancassurance as an insurance distribution channel has not yet been recognised in our country as yet on which IDRA can play its positive roles.
RISK MANAGEMENT FOR INSURERS (SOLVENCY MARGIN)Unlike BASEL in our banking system, there is no solvency requirement in the insurance sector of the country till today other than a fixed capital requirement for registering as an insurer in Bangladesh. Despite that fact that in 2015, a committee of IDRA has been working for defining a minimum regulatory solvency for the insurers, there should also be risk based solvency requirement based on the risk profile of the respective company.
SUPERVISORY VISITS BY IDRA
IDRA team should pay sudden visits to the regulated firm in order to oversee their day to day activities. Close supervision of handling of larger risks/claims is also required. Most of compliance issues are checked in this way in the developed countries of the world.
ESTABLISHING DHAKA AS A FINANCIAL HUB LIKE MANAMA / BERMUDA
Promotion of the insurance profession in Bangladesh in line with the Banking industry would surely lay the foundations for Dhaka being the financial hub in SAARC regions in the days to come. We have the young & energetic workforces who, for this purpose, only require to be groomed up as business professional for the challenges ahead. Let’s take into account the case of Bermuda. It has already been branded to be the tax haven for the international firms through creating skilled financial professionals for providing ancillary financial services, in tandem with world-class infrastructures. This has successfully become the dominant factors in their economy which contributed a sharp increase in the share of GDP accounting for 12.6% in 1996 to 13.8% in 2000. The same success story is in Manama, Bahrain. The economy of Bahrain centers round the city of Manama, which fosters over two hundred financial institutions and banks, having been recognized as financial hub for the Persian Gulf region focusing Islamic finance.
FOREIGN DIRECT INVESTMENT (FDI) IN INSURANCE
With the advent of two foreign companies (Taiyo Summit Life Insurance Company and Life Insurance Corporation of India) in 2015, the number of foreign insurers reaches at three who are supposed to make use of their international experiences to local policyholders. As the customer currently gets no risk improvement advice other than conventional and non-focused insurance solution (based upon the premium rate set by CRC), the expectations of the customers exclusively revolves round the cost-effective as well as tailor-made products, and the prompt settlement of claims. Resultantly the existing insurers have to leave no stone unturned to retain their market share through innovation and professionalism. IDRA can refer to Indian and Indonesian experiences while decision is made in respect of approving foreign insurers. However; government has its plans for increasing the limit for FDI up to 83% and of paid-up capital requirement of BDT 1000 million for the life companies.
HELPING INSURERS IN MAKING USE OF BIG DATA
Being in an era of information technology, the insurance companies should take a bold step towards the adoption of the blessing of IT in order to reap the good harvest from its day to day operational activities. Information technology surely facilitates the sophisticated analysis of consumer’s data at a lower cost, which ultimately paves the way for making an informed decision regarding rating a risk. Could you please think Google processes 3.5 billion requests per day? Micro bloging platform Twitter has 500 million tweets per day. 654 million people use Facebook on mobile device on a daily basis.
Some 30 billion Pieces of content are shared between Facebook users every day. Experts predict that 24 billion would be the total number of networked devices and connections by 2019. Oscar Health Insurance in USA provides a quote in 42 seconds with 5 questions. This BIG DATA has bearing on the insurers in respect of the structure of the industry in providing top-notch customer service; development of customers insight, rise of fraudulent claims and losses (in 2014 UK fraudulent claims amounts to about USD 3 billion), and managing risk by designing policies, particularly catastrophe policies based on big data and reinsurance information. It is the insurers that have to make sure that the customer views are recognized in the decisions making process. IDRA should pay heed to fair treatment of customers.
POINTS THAT DESERVES SPECIAL ATTENTION BY IDRA :
- Ensuring Massive Insurance Education for consumers
- Establishing Bangladesh Chartered Insurance Institute
- Establishing independent reinsurance company
- Introducing national social insurance
- Introducing national insurance day
- Introducing national awards for the best practices in insurance
- Facilitating banassurance, online policy sales, and e-commerce system in Bangladesh
- Regulation for Compulsory insurances: Group health insurance, Workers’ compensation insurance, public property insurance,
Encouraging the expansion of insurance industry and providing consultative guidelines to the government regarding the advancement of the insurance industry· Enlivening the development of the insurance training centers in order for the development of service standard in the insurance and reinsurance industry of Bangladesh· Arrangements for seminar, workshop, and meeting to enhance public consciousness about insurance.· Approval and Registration of reinsurance brokers in the country.· Providing guidelines to training as well as conduct of business for brokers, reinsurance brokers and agents.
To sum up, the operational strategy of IDRA should aim at ensuring not only the prudential regulation of the insurance companies but also financial inclusion of vast uncovered population for the sustainable development of the country. It should also stimulate products diversification for alleviating hardcore poverty in the root through providing them with need-based low-cost insurance services.
In line with the regulatory activities of IDRA for ensuring fair treatment of customer, we, as the private insurance companies have to explore each and every potentiality in the coming days in our way to contributing towards the nation-building activities for our beloved Bangladesh.
Dear Readers, your opinion are welcome regarding our article “Nation’s Expectation of IDRA Bangladesh”.
Note: The article was earlier published in www.the-Insured.com.
Md. Khaled Mamun, M.Sc, M.Demo, DDP, ABIA, FCII (London), the Chartered Insurer is the Chief Executive Officer of Reliance Insurance Limited.