IDRA ramps up scrutiny on life insurers amid soaring unpaid claims

The Insurance Development and Regulatory Authority (IDRA) has instructed 15 life insurance companies to submit detailed information on claim settlements and related bank accounts in a bid to intensify its supervision of the sector, which is grappling with a significant rise in unpaid policyholder dues.

The IDRA asked the companies to submit data on claims paid during 2022, 2023 and 2024, along with bank statements linked to those transactions within seven working days, officials familiar with the matter told TBS.

The companies that received the directive are Sunlife, Homeland Life, Padma Islami Life, Progressive Life, Protective Islami Life, Best Life, Prime Islami Life, Jamuna Life, Diamond Life, Swadesh Islami Life, Sunflower Life, Fareast Islami Life, Golden Life, Baira Life and NRB Islamic Life.

According to IDRA sources, a formal letter was sent to the CEOs of these companies last week. The regulator wants to actively monitor the claim settlement performance of these insurers to ensure faster and fairer service to policyholders, they said.

Previously, the IDRA held meetings with the heads of six underperforming life insurance companies and asked them to submit a three-month claim settlement data.

The regulator aims to improve the overall claims settlement ratio by closely monitoring and supervising these companies. As part of this initiative, the IDRA wants to examine the claim settlement records and related documents of the insurers to ensure transparency and timely payouts to clients.

The core responsibility of insurance companies is to safeguard policyholders' premium funds and settle claims on time. However, in the case of six companies, there are allegations that their sponsor-directors misappropriated premium funds under the guise of investment.

As of December 2023, the six companies – Fareast Islami Life, Padma Islami Life, Baira Life, Golden Life, Sunlife and Sunflower Life – had a combined outstanding claim liability of approximately Tk3,736 crore owed to policyholders.

To address the crisis, the IDRA is planning to introduce a new legal framework called the "Insurance Resolution Ordinance," modelled after the existing Bank Resolution Ordinance. 

According to the proposed law, sponsor-directors involved in fund embezzlement may have their assets seized and sold to recover funds. Besides, the ownership of bankrupt or failing insurance companies may be transferred, liquidated, or merged with other institutions.

Provisions may also be included for government subsidies to partially or fully repay policyholders' dues.

Additionally, there could be arrangements for bank loans to help insurance companies generate the necessary funds for claim settlements.

Grim performance

According to IDRA data, life insurers failed to settle around 34% of the claims, leaving outstanding claims worth approximately Tk4,374 crore by the end of 2024. 

By the end of 2024, total outstanding claims stood at Tk13,014 crore. However, life insurers were able to settle around Tk8,593 crore, which is 66.03% of the total outstanding amount. 

This marks a decline from 2023, when the settlement ratio was higher at 72.43%, with Tk8,728.90 crore settled out of a total outstanding amount of Tk12,051 crore.

As a result, many policyholders are suffering, as they have not received their rightful compensation. In many cases, policyholders did not get their money even years after their policies had matured.

Industry insiders said the second half of last year was particularly challenging for the life insurance sector. Following widespread political and economic uncertainty, the industry was affected by growing mistrust, similar to what has been seen in the broader financial sector. 

At the end of 2024, Fareast Islami Life Insurance, once a top premium earner in the industry, had a total claim liability of Tk2,947 crore. However, Tk1,94 crore remained unpaid, settling just 6.59% of claims.

An audit by the Bangladesh Securities and Exchange Commission (BSEC) revealed that Fareast's former chairman and directors embezzled Tk2,100 crore between 2010 and 2020.

In September 2022, Fareast Islami Life sold several properties to pay policyholders' claims, which had been overdue for years.

Padma Islami Life had pending liabilities of Tk262 crore but paid only 4.49% of claims.

Baira Life Insurance had total claims of Tk84 crore, out of which Tk78 crore remained unpaid.

Sunflower Life had total claims of Tk599 crore, with Tk586 crore still unpaid.

Golden Life had total claims of Tk38 crore, with Tk37 crore still unpaid as of September 2024.