Life insurance claims settlement grows to 67% in 2022

TBS Illustration

The claims settlement ratio of life insurance companies experienced a 9.13% increase, reaching 66.97% in 2022, as revealed by the Financial Stability Report by the Bangladesh Bank. 

This growth was observed within the life insurance sector, contrasting with a decline in the non-life insurance sector.

The term "claims settlement ratio" refers to the percentage of claims resolved by an insurance provider during a year out of the total claims received. This metric reflects an insurer's credibility by comparing successful claims resolutions to total customer requests.

The report says the claims settlement ratio for the life insurance sector surged from 57.84% in 2021 to 66.97% in 2022. This signifies that claims amounting to Tk66.97 were settled out of Tk100 in 2022, compared to Tk57.84 in 2021.

Conversely, the non-life sector's claims settlement ratio dropped from 39.31% in 2021 to 33.44% in 2022. This implies that Tk33.44 worth of claims were resolved per Tk100 in 2022, down from Tk39.31 in 2021.

SM Ibrahim Hossain, director of the Bangladesh Insurance Academy, told The Business Standard, "A few years ago, the companies used to spend excessively in order to increase business procurement. For instance, to bring fresh Tk100, we used to spend Tk120."

This is why it was difficult for life insurance companies to build adequate life funds to meet claims of policyholders back then, he said, adding that the regulator is now taking measures to control insurers' cost management.  

Md Jahangir Alam, spokesperson of the Insurance Development and Regulatory Authority (Idra), said the present board of Idra has emphasised the importance of life insurance companies honouring their mature policies for the benefit of the general public involved in this sector.

Idra's approach to resolving issues on a case-by-case basis yielded positive outcomes in the life insurance domain, he added.

In terms of the general insurance sector's key indicators, the review year displayed a mixed performance. 

While the management expense ratio improved, the claims settlement ratio, return on investment, risk retention rate, and investment to total assets ratio deteriorated compared to the previous year.

In 2022, the return on investment decreased in both the life and non-life insurance sector.

During the year, the return on Investment in the non-life insurance sector stood at 5.65% from 7.66% compared to the previous year. 

During 2022, the return on investment witnessed a decline in both the life and non-life insurance sectors. In the non-life sector, the return on investment decreased to 5.65% in 2022 from 7.66% a year ago. Similarly, the life insurance sector's return on investment stood at 7.39% in 2022, down from 7.56% in 2021.

The insurance density ratio, reflecting the average per capita expenditure on gross insurance premiums in the country, remains low in Bangladesh due to a significant portion of the population lacking insurance coverage. This is primarily attributed to lower savings rates and limited financial literacy.

In Bangladesh, general insurance services are categorised as fire, marine, motor, and miscellaneous insurance.

In 2022, fire insurance constituted the highest source of gross premiums, followed by marine, miscellaneous, and motor insurance. However, based on net premiums, marine insurance claimed the top position, followed by fire, miscellaneous, and motor insurance.

Interconnection between insurance and other sectors

The insurance industry is closely linked to banks, financial institutions, bonds, and capital markets through investments. Disruptions in these markets can negatively affect the insurance sector.

Insurers earn a large portion of their interest income by maintaining fixed deposits with banks and financial institutions. 

While over 20% of insurance assets were in fixed deposits with banks and nonbank financial institutions in 2022, this represented only 1.82% of total banking sector fixed deposits. Hence, sudden withdrawals by insurers might not greatly impact the banking sector.

Conversely, a crisis in banks and NBFIs could harm insurers due to their substantial exposure.

Insurance companies investing in stocks face equity price risks that can stress their investments amid poor performance of the stock market.

However, the impact of insurance market stress on the stock market might be limited, given that the aggregate market capitalisation of listed insurance companies on the DSE was just 3.63% in 2022, as per the central bank's report.