Implementing solvency margin law stressed to protect insurance policyholders

Implementing the solvency margin law is essential to protect policyholders in the insurance sector, Mohammad Jainul Bari, chairman of the Sadharan Bima Corporation, said in Dhaka today (12 November).

Speaking at a seminar titled "How to Enhance Transparency in Insurance Business" organised by the Bangladesh Institute for Professional Development, Bari emphasised that ensuring the solvency of insurance companies is paramount for protecting policyholders.

"Many people believe implementing the solvency margin could cause several companies to go out of business or fail to survive. However, in his view, if an insurance company itself is not solvent, how can it ensure the protection of its policyholders?" he said.

He also said ensuring transparency is essential to dispel the negative perceptions people have about the insurance sector.

The seminar was attended by Mustafa Kamal Mujeri, vice president of the Academic Council of Bangladesh Institute for Professional Development, Mohammad Sohorab Uddin, former chairman of Sadharan Bima Corporation and Jiban Bima Corporation, and Nasir Uddin Ahmed, president of Bangladesh Insurance Association, among others.

Addressing as chief guest, Bari said advancing the insurance sector is not possible without financial transparency. Financially unstable companies will face difficulties in settling future insurance claims and are at risk of bankruptcy, he said. 

Many companies have also deteriorated due to their failure to adhere to the legally stipulated investment policies, Bari said.

The solvency margin is the surplus of assets that an insurance company must maintain over its liabilities. This requirement ensures the company can fulfil its obligations and pay claims on time. Essentially, the solvency margin acts as a financial safety net, ensuring that the company has enough extra assets to protect policyholders and maintain financial stability.

In April last year, Bari, the then chairman of Insurance Development and Regulatory Authority, had told TBS that Bangladesh is preparing a new law similar to global standards to enhance the insurance sector's sustainability. "This law aims to strengthen solvency to help companies reliably pay claims." 

He had emphasised that solvency is essential for the long-term growth of non-life insurance companies, as it enables continuous monitoring of risks.

Bari at the seminar noted that there is a troubling practice in the insurance sector focused on first-year premium income, where employees are often judged by the volume of first-year business they generate. However, this approach is an obstacle to sustainable growth in the industry, he said. 

The Sadharan Bima Corporation chairman further stated that insurance customers expect to receive the promised benefits, making it essential to provide them with a clear understanding of the advantages of insurance policies.

He pointed out that despite significant potential, the insurance sector contributes very little to the GDP, indicating a lack of financial security in the economy. "While there are adequate regulations in place, it is crucial to implement them effectively."

Mujeri emphasised that the insurance industry must be advanced in the national interest. He stated that without ensuring transparency in every aspect, it will not be possible to move the sector forward. 

He noted that if trust cannot be established, insurance services will not be utilised effectively. In this regard, transparency is crucial, and it must be implemented through actions, Mujeri said.

Sohorab said insurance companies must manage expenses in line with product pricing. "However, many companies do not adhere to this, resulting in higher administrative costs." 

He added that life insurance companies operate under the same regulator and regulations, yet some companies follow these rules while others do not. "This inconsistency compromises transparency within the companies."

Nasir said increasing transparency between customers and insurance companies will boost public trust in the sector, which in turn will lead to a significant rise in premium income for the industry.

Senior officers of different financial institutions, chartered accountant firms and university teachers and students took part in the daylong professional seminar.