Govt set to adopt Insurer Resolution Ordinance 2025 to safeguard customer interest

The government is set to adopt the "Insurer Resolution Ordinance 2025" to protect the interests of insurance sector customers and maintain public confidence in the financial system. 

In the resolution, "insurer" will be referred to as insurance company.

The new law will allow regulators to transfer the insurer's shares, assets, and liabilities to third parties, and even give them the power to liquidate the company, sources say.

The Insurance Development and Regulatory Authority (IDRA), the regulatory body for the insurance sector, will also have the power to remove or replace the chairman, director, chief executive officer, key management personnel or any other officer or employee of the insurer.

A senior official of IDRA said a draft of the ordinance has already been prepared. "The draft ordinance will soon be published on the websites of IDRA and the Financial Institutions Department for the views of relevant parties.

"The ordinance for the insurance sector will protect the interests of the customers of the sector. Also, measures have been taken for the structural development of insurance companies."

The draft states that the main objective of the ordinance is to maintain the stability of the financial system, including the payment, settlement and liquidation system of insurance companies.

It also aims to protect the interests of customers, maintain the vital activities of insurance companies, protect government funds by minimising aid, avoid the decline in the value of insurance companies' assets and keep losses to creditors to a minimum, and maintain public confidence in the financial system.

The terms of the resolution can be applied to Islamic insurance companies. However, IDRA will have to formulate regulations in this regard.

The draft further states that the capital of the companies will be increased through those who currently hold shares of the insurance company, or through new shareholders. 

"One or more bridge insurance companies will be established, so that the troubled company or shares can be sold to a third party later. Through the ordinance, the IDRA will be able to decide to temporarily bring the ownership of any insurance company into government ownership," it adds.

The ordinance also includes provisions for the formation of a consumer protection fund, and for compensation to shareholders and creditors.

It also mentions the formation of a council for crisis management in the sector. The council will work to address systemic and natural crises in the insurance sector and other crises. 

The ordinance will allow the regulatory authority to liquidate an insurance company for certain specific reasons. By liquidating an insurance company, the regulatory authority can settle the company's liabilities.

The regulatory authority will also be able to liquidate insurance companies headquartered outside Bangladesh— meaning foreign insurance companies can also be liquidated. In addition, insurance companies will even have the opportunity to liquidate voluntarily.

In addition, if the insurance company misuses assets and funds, the individuals identified as responsible will be charged as "embezzlers". The regulatory authorities can seize their permanent and temporary assets.

In case of such offense, directors and officers of the insurance company responsible will be punished with a fine of Tk1 crore and seven years of imprisonment, or both at the same time under the existing law.

Insurance companies are meant to protect customers' premium, but IDRA has found evidence that several insurance companies in the country are embezzling customers' money instead.

A recent investigation by the IDRA revealed that Fareast Islamic Life Insurance, Padma Islamic Life Insurance, Byra Life Insurance, Golden Life Insurance, Sunlife Insurance and Sunflower Life Insurance have been unable to return the money deposited by customers. As of December 2024, these companies owed customers a total of Tk3,736 crore. There are several other insurance companies whose financial situation has also become quite weak.

Since the country's independence, there have been allegations of various irregularities and customer harassment in the insurance sector of Bangladesh. 

During the previous governments, insurance companies were granted licences mostly on political considerations. Although the commerce ministry and later the Financial Institutions Department acted as regulators in the sector, the government formed the Insurance Development and Regulatory Authority in 2010.  However, due to the dominance of insurance companies mired in corruption, any of the former chairmen of IDRA has not been able to complete their terms with ease. 

At present, it is reported that approximately 11 lakh customers are not receiving the refunds they are entitled to from insurance companies.