An Empirical Analysis on Sadharan Bima Corporation Bangladesh
Sadharan Bima Corporation, the only State owned insurer, has been providing reinsurance support to nation’s non-life insurers since its birth in 1973 in addition to its o w n underwriting o f public and private i n s u r a b l e business. The government has established two insurance corporations Sadharan Bima Corporation (SBC), the non-life insurer, and Jibon Bima Corporation (JBC), the life insurer under the Insurance Corporation Act (Act No. VI) of 1973 in its way to help develop the economy of Bangladesh.
Since their establishment, the development initiatives so taken to upgrade are inadequate in terms of the nation-building role to the Bangladesh economy as insurance sector is one of the integral parts of our country’s economy despite its lower contribution to the Gross domestic Products (GDP). But the industry has potentialities to flourish through the leadership of SBC and JBC.
World Bank Recommendation for Digitalization of Service
The infra-structure of SBC has not been so developed in the last 40 years or so. Therefore the WB’s suggestion for automation the services of SBC will be a milestone for the country’s insurance industry. There should be a massive adaptation procedure, particularly in terms of using information technology in customer services. The healing touch of IT can be a head step for SBC. The service standard will be upgraded if the authority can computerize the operational aspects of all departments. The computers systems should also be enriched with modern software and hardwires enabling prompt customer services such as online premium payment facility.
The wholesome role of IT is simply ubiquitous. The insurers like SBC by processing a larger number of data accurately, quickly and meaningfully can change the current state of services to its clients. Moreover computer system will also allow simultaneous multiple users’ access to the data base.
Expert view the use of computer system can detect fraud most effectively. It may be amazing that the 30% of the world insurance transaction is more or less related to deception and fraud. According to 2014 Market Data prepared by Association of British Insurers (ABI) every year about 50 pound starlings is borne by every British Citizen mainly due to fraud in insurance.
Implementation of Insurance Corporation Act 2015
The market will be improved after implementation of the provisions set by Insurance Corporation Act 2015. The Act will work for the enhancement of paid-up capitals of two state-owned insurance corporations. The new paid-up capital recommended for SBC is about BDT 1.25 billion. It is BDT 300 million for Jiban Bima Corporation (JBC).
The experts go on saying that the raising paid-up capital will accelerate the corporations in doing business. The ICA 2015 The board will put due emphasis for the strict internal control of the corporation, which will ensure transparency in the administration of SBC and JBC. Moreover the implementation will help the operational aspects of Insurance Act 2010 and Insurance Development and Regulatory Authority Act 2010.
It is expected that these 03 Acts will surely make the true revival of SBC and JBC happen.
Dual Roles of SBC Leading To Conflicts of Interests
Insurance, being the means of transferring the burden of an unwelcome event to the insurance company while reinsurance, is the mechanism for spreading the burden / liabilities of the insurance company to another insurance company i.e. reinsurers. Reinsurers can be from home and abroad. This is the base of insurance business.
Let’s have look at the London Market Spiral 1980. T he LMX spiral (London Market Excess of Loss spiral) the collapse of the entire insurance and reinsurance market in London in 1980, which was the direct consequence of insuring each other or reinsuring within the same market, ignoring the core principle of sharing risks in insurance. That catastrophic event has impacted most of the market players because of their reinsuring one another. We can take lessons out of 1980 London LMX spiral.
Re-Structuring Sadharan Bima Corporation
The proposed restructure of SBC by separating reinsurance and underwriting will be a timely action for the development of the services offered by SBC. In our case, the dual role now played by SBC may face in the foreseeable future the events like London market spiral in 1980 due to some technical aspects of reinsurance. Moreover; there might be some sort of conflict of interests in addressing the need of the insured in the policies involving reinsurance.
Therefore; the expert views that time has arrived to re-structure the operational aspect of SBC. I personally believe that the then insurance market of Bangladesh was too small to have separate organization. But currently the size of market has achieved a decent shape. The ministry concerned can look into the matter with a view to keeping pace with time for the greater interests of the nation.
Few words on the proposed post of o2 Deputy Managing Directors
Reinsurance is the business of insuring insurance companies in which case the professional knowledge is a must. Basically the global nature of reinsurance business requires its handling by the professional people. The insiders think that the proposed DMD should be adopted from insurance market of the country and he/she should be professionally qualified so as to bring the intended results from the above restructure of SBC. In respect of underwriting wing, the same qualified people across the insurance market can be engaged.
Turning 1984 Govt. MOU into Act
The Memorandum of Agreement (MOA) made in 1984 between Sadharan Bima Corporation and Private Non-life insurance companies is the basis of operation relationship with private insurers. Under the said MOU, the insurance for Public Property is to be insured solely by SBC. The insiders consider that the MOU in question should be turned into Act for the proper operation of the insurance business in the country. As a result, the hidden insurance of public property done by some private companies can be reduced significantly.
Logical Sharing of Public Sector Business
Time has arrived to define a specific base for sharing of Public sector business to the private insurance operators. It seems inequitable that SBC distribute the equal proportion of PSB business toward all operators. There must be a correlation between the percentage of PSB share and the performance of the particular private insurance company.
In this regard performance refers to the reinsurance premium amount to SBC and less reinsurance recovery from SBC. It should mainly depend on amount of reinsurance cession made by the private insurers. It is in line with the basic principles of insurance that the participation of premium must be on basis of risk introduced. In this regard the claims performance of the particular insurance company must also be taken into consideration while distributing PSB business.
Foreign Direct Investment (FDI) in Insurance
Foreign life insurers have entering market and the local existing insurers should get prepared. As an instance, in the 2014-2015, Modi’s Government has increased the limit for FDI up to 49.0%. Thus they can attract more investment in insurance and thereby develop the sector as a whole.
To sum up, the revitalization of Sadharan Bima Corporation has been envisaged by all and sundry concerned with non-life insurance sector of Bangladesh. The views and suggestions presented above is the summary of more than 12 years services in SBC, and a total of 23 years experience in the insurance market of Bangladesh. I think if those are implemented, the SBC will effectively meet the requirement of a national insurer as well as reinsurer ensuing financial protection for our properties.
Note: The article was earlier published in www.the-Insured.com.
Md. Khaled Mamun, M.Sc, M.Demo, DDP, ABIA, ACII (London), Chartered Insurer is the Chief Executive Officer of Reliance Insurance Limited, Bangladesh since 2014. Prior to this, he has been discharging his dedicated service for more than a decade to the company in a different management position such as Executive Director, Deputy Managing Director (DMD).