Insurance regulator puts pressure on 30 firms to comply with 60% shareholding

Infograph: TBS

The insurance regulator has asked the insurance companies again to ensure that their owners hold 60% shares in their paid-up capital to comply with the regulatory requirements.

The Insurance Development and Regulatory Authority (IDRA) has also directed the non-life insurance companies to maintain a minimum paid-up capital of Tk40 crore as per law.

On Tuesday, IDRA sent letters to the related insurers to comply with the rules.

Currently, 23 firms out of 30 comply with the rule regarding the minimum required paid-up capital, but no firm holds a 60% share of their paid-up capital.

According to the rules, life insurance companies have to maintain a minimum of Tk30 crore and non-life insurance companies a minimum of Tk40 crore paid-up capital.

Besides, the sponsors and directors have to jointly hold at least a 60% share in the paid-up capital of a company. 

Earlier, in January 2021, IDRA directed the insurance companies to comply with the rule but saw no results.

After IDRA issued the latest directive, the insurance sector witnessed positive gains in the country's two stock exchanges yesterday.

Industry insiders said the regulatory move was positive for the sector, but it would be difficult for the owners to comply with the rules as the insurers' share prices are often overvalued.

The insurance sector played a positive role in the capital market in recent years.

In 2020, its turnover stood at Tk25,669 crore, which was 19.02% of the Dhaka Stock Exchange's total transactions. It was the highest sectoral turnover of the stock exchange, and the investors received a 97.5% return from the sector.

According to industry insiders, the insurance regulator took initiatives for years to take this sector forward.

In March 2020, IDRA directed non-life insurance companies to stop giving "illegal" commissions to their agents, yielding a positive result for insurers.

Since then, the companies are trying to comply with the rules strictly and paying only a 15% commission to their insurance agents.

Earlier, insurance companies would provide 50-65% commission to their agents to increase business.

Currently, there are 78 insurance companies – 32 life and 46 non-life – in Bangladesh. Of them, 53 companies are listed on the stock exchanges.

Experts have been saying for a long time that Bangladesh is one of the most untapped insurance markets in terms of penetration rate.

Awareness and a strong culture of insurance service behind economic activities can help the industry thrive.

According to the Swiss Re Group, a leading global reinsurer, the overall insurance penetration in Bangladesh stood at 0.40% in 2020 – the lowest among emerging Asian countries.

The penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.

Insurance penetration was 5.4% in Malaysia in 2020, followed by 5.3% in Thailand, 4.5% in China, 4.2% in India, 2.3% in Vietnam, 1.9% in Indonesia, and 1.2% in Sri Lanka.