IDRA moves to reduce management expenses in non-life insurance

The Insurance Development and Regulatory Authority (IDRA) has proposed a significant reduction in the maximum management expenses for non-life insurance companies. 

The draft amendment has been prepared to enforce stricter financial discipline, prevent excessive spending that could weaken insurance companies' financial capacity, and address delays in claim settlements. Stakeholders have been invited to submit their opinions on the proposal within the next 15 days.

Earlier, on 11 September, IDRA had sought feedback on a proposed new limit for management expenses in life insurance companies. Officials stated that this initiative is part of a broader reform plan aimed at restoring customer confidence in the non-life insurance sector and ensuring timely settlement of claims. The reform will cover all categories, including fire, general, and marine insurance.

Currently, under the "Non-Life Insurance Business Management Expenses Ceiling Rules, 2018," companies are allowed to spend a portion of their total premium income on salaries, commissions, marketing, and administrative expenses. 

However, many companies exceed this limit, weakening their financial strength. "Excessive spending ultimately affects the customer. If a company overspends, claim settlements are delayed, and customer confidence declines," said a senior IDRA official.

Proposed reduction in expense ceiling

The new draft amendment significantly lowers the maximum management expense limits across different premium income levels. For example, for the first Tk150 million of premium income, companies could previously spend 35% for fire and general insurance, and 26% for marine insurance. The proposed limits are now 25% and 16%, respectively.

For higher premium income, the limits have been reduced further. For premium income exceeding Tk1.2 billion, the management expense limit for fire and general insurance will fall to 12%, and for marine insurance to 6%, down from the current 22% and 16%.

The proposed amendment gradually reduces expenses at every income level. For the next Tk150 million, the fire and general insurance limit drops from 33% to 23%, and marine insurance from 25% to 15%. At the highest premium level above Tk1.2 billion, the limits are tightened to 12% for fire and general insurance and 6% for marine insurance.

However, industry insiders argue that considering the current inflationary context, where the ceiling should ideally have been increased, reducing it further poses a major challenge. 

Most companies are currently struggling to meet the existing expense limits, and further reductions may not yield positive results. They also suggest that discussions with companies, feedback from associations, and research should have preceded such a decision, and current inflation should have been factored in.

Khawja Manzer Nadeem, CEO of United Insurance Company Limited, said, "Inflation is very high, and office operation costs are increasing. Reducing management expenses under such circumstances will make it impossible for companies to comply. A lower ceiling will negatively impact the sector. Expense limits should be set after consulting companies and considering the current economic situation."

Experts believe that the changes will help companies reduce costs and become financially stronger, ultimately minimising delays in claim settlements. Companies will need to work more efficiently to comply with the new limits. Small companies may face difficulties, but in the long term, the reforms will enhance industry stability.

While the proposed measures will bring discipline, they may challenge small and inefficient companies, many of which rely heavily on commissions and administrative costs. Reducing expenses may require them to reconsider operational strategies.

By tightening the expense ceiling, IDRA aims to bring accountability and efficiency to the non-life insurance sector. This reform will strengthen companies' financial capacity, ensure timely claim settlements, and restore public trust in a sector long affected by inefficiency and mismanagement.

If implemented, the new rules will mark an important change in Bangladesh's non-life insurance industry, guiding companies toward financial discipline and protecting customer interests.

Currently, out of 82 insurance companies in Bangladesh, 46 are non-life companies, with 43 of them listed on the stock market. Non-life insurance companies provide financial protection against risks other than life, including property, health, motor, marine, and engineering insurance, as well as liability coverage. They protect individuals and businesses from financial losses due to accidents, natural disasters, business interruptions, and other unforeseen events.