Muhith's plan for insurers hits snag
The bar on a director of an insurance company to hold the same post in a bank or finance company has turned into a big challenge for the finance minister.
AMA Muhith included the provision in a bid to prevent concentration of wealth in the hands of a few.
But the minister's plan hit a rough patch and was dubbed 'contradictory' as the laws for governing banks and finance companies allow a director to hold the same post in other finance companies, including insurance.
Now the government will have to amend two related laws -- Banking Companies Act and Finance Act -- if it wants to impose the restriction.
“We'll not enforce it for now as it is contradictory,” said Shefaque Ahmed, chairman of the Insurance Development and Regulatory Authority.
Also, industry people were surprised to see the bar in the newly enacted laws, as the government could not apply the provision despite its presence in the previous laws because of a court order.
The government passed laws for the insurance sector in March 2010 and after 10 months it appointed a chairman and four members for the regulatory authority. But the industry, which has been growing at double-digit rates for years, is yet to benefit from the new laws for absence of rules and regulations and contradiction with the directorship.
“The finance minister included the bar on the directorship of an insurance company because he did not want concentration of wealth to a few people,” said a top official of an insurance company who along with other companies had several meetings with the minister before the law was finally enacted last year.
He said: “If the bar is imposed, the directors would shift their shares to their wives, children or even servants.”
According to the insurance industry, there are at least 150 insurance directors who are either directors in a bank or a finance company or the both. Many renowned businessmen are included on this list.
“Many are capable and have much-needed resources. It is not wise to bar them (insurance entrepreneurs) from becoming directors in banks or non-banks,” said Rafiqul Islam, former chairman of Bangladesh Insurance Association.
Chief regulator Ahmed said it is not feasible to impose the bar on directors unless the government amends banking and financial company laws.
The insurance sector is increasingly becoming an important lifeline to the economy. The industry has employed thousands of educated youths. But successive governments have long neglected the industry and vested quarters took the chance by opening name-based insurance companies.
Sixty-two insurance companies operate in the private sector, of which 17 are life insurers and 43 are general. The government owns two companies -- Sadharan Bima (general) Corporation and Jiban Bima (life) Corporation.
The industry generated premium income worth nearly Tk 1,500 crore in 2009.