Foreign investments may drive small firms out

Local insurance companies fear that allowing foreign investments into the country's insurance industry may force local firms, especially weaker ones, out of the business.
The interim government approved two insurance ordinances last week, aiming to bring massive changes in the 70-year-old insurance laws. Allowing foreign direct investment in the sector is among the major changes the new laws will bring about. The new rule will determine the level of foreign investment in the sector.
“It is impossible to disregard the risk that entry of foreign companies into the country's insurance industry may force local firms out of the business, rather than making them efficient,” said Nasir A Choudhury, managing director of Green Delta Insurance Co Ltd.
“The local insurance companies should be protected for a certain period of time,” Sabir Ahmed, executive vice president of Reliance Insurance Limited, said.
They, however, criticised the local companies, particularly the weak ones, for not getting merged.
The government last Sunday approved two ordinances -- Insurance Regulatory Authority (IRA) Ordinance 2008 and Insurance Ordinance (IO) 2008. The IRA Ordinance 2008 will repeal the Department of Insurance and the Insurance Ordinance (IO) 2008 will replace 1938 Act to guide the operations of the insurance companies.
Other major changes that these ordinances will bring about are an increase in paid-up capital for both general and life insurance companies. The amount of paid-up capital for any general insurance company has been raised to Tk 40 crore from Tk 15 crore, while it has been raised to Tk 30 crore for life insurance companies from Tk 7.5 crore.
The ordinances will come into effect after president's approval.
Industry people hailed the government initiatives, saying that it would help rectify the country's outdated insurance laws. But they expressed conservative views regarding foreign investments in the sector and the increase in paid-up capital base.
M R Khan, technical director of Tyser Risk Management (Bangladesh) Limited, said foreign investments should come in a controlled way.
“India can be a model for Bangladesh,” Khan said, adding that India initially allowed 24 percent foreign investment, eventually raising it to 49 percent.
He, however, said the move would create an environment for healthy competition.