With the aim of strengthening financial discipline and reduce delays in claim settlements, Bangladesh insurance regulator, the Insurance Development and Regulatory Authority (IDRA) has proposed tougher management expense limits for life and non-life insurance companies, reported the Daily Star.
Under the new draft, both life and non-life insurers would face deep cuts in allowable management expenses, which include operational costs such as agent commission, staff salaries and administrative overheads.
For life insurance, the management cost for annual premium policies will be cut from 5% to 4%, while for instalment-based policies it will drop from 10% to 7%. For group insurance policies, management costs on annual premiums will fall from 15% to 10%. For policies lasting one to five years, the first-year cost will drop from 95% to 85% and renewal costs from 25% to 20%.
For six to 10-year policies, first-year costs will decline from 94% to 84%, and renewal costs from 22% to 17%. Policies with a term of 10 years or more will see a sliding scale based on total premium value. For premiums under BTK1bn ($8.2m), first-year costs will fall from 95% to 82%; for BTK1-5bn, from 92% to 81%; and for over BTK5bn, from 91% to 76%. Renewal costs across all tenures will also be reduced from 15% to 10%.
In the non-life segment, which covers areas such as fire, marine and general insurance, management cost limits will also be reduced. For example, for the first BTK150m in premiums, fire and general insurers will now be allowed to spend 25% instead of 35%. For marine insurance, the cap will fall from 26% to 16%. As premium income rises, the limits become even tighter. For premiums over BTK1.2m crore, the cap will drop from 22% to 12% for fire and general insurance, and from 16% to 6% for marine insurance.
Over the past 14 years, over 2.6m insurance policies have lapsed and over 1.1m policyholders are unable to recover their dues.