Scrap compulsory reinsurance
The insurance industry has demanded that the government annul the compulsory cession of reinsurance business to the lone state-run general insurer, Sadharan Bima Corporation.
Currently, all the 43 non-life insurers in the private sector have to cede 50 percent of their reinsurance business to the corporation. This system allowed by the Insurance Corporations Act 1973 is considered detrimental.
Although two ordinances are already in place to regulate the industry, which grows around 15 percent a year on an average, the age-old insurance corporation law has been left unchanged by the government, according to the sector people.
Reinsurance cession is the system of reinsuring an individual risk. Reinsurance is the transfer of some or all of an insurance risk to another insurer. The company transferring the risk is called the "ceding company" and the company receiving the risk is called the "assuming company" or "reinsurer."
“The compulsory reinsurance cession is detrimental to the general insurance companies,” said the Bangladesh Insurance Association in a recent letter to the commerce ministry.
Rafiqul Islam, president of the association, pointed to the fact that the ministry concerned has not yet reduced the amount of reinsurance cession money by 25 percent as per its earlier commitment.
Almost all countries around the globe, including India and Pakistan, have ceased to continue such a cession of reinsurance with state-owned re-insurers, he also pointed out.
“If we don't get our claims settled, what is the use of such reinsurance with the Sadharan Bima,” said Akhtar Ahmed, chief executive officer of Reliance Insurance.
According to the sectoral trade body, at least Tk 200 crore claims from the 43 insurance companies remained unsettled with the state-owned insurer because of what it says unprofessional attitude and bureaucratic tangles.
Nasir A Choudhury, managing director of Green Delta Insurance, is of the similar view. “Sadharan Bima has left many of the claims undecided even for years.”
Choudhury said: “Green Delta has paid the last instalment of a Tk 33 crore claim of Lafarge Cement Company two months ago. But the corporation has failed to pay its reinsurance amount of only Tk 72 lakh.”
Admitting the delay in settling claims, Sadharan Bima Corporation Managing Director Shafiqul Azam said, “ We cannot do business like a private entity. We have to comply with many government rules as a state-run organisation.”
However, he said his organisation has settled some 300 claims out of 366 since April this year.
“We have recently taken a crash programme to expedite the settlement of claims of the insurance companies,” Azam added.
On the annulment of compulsory reinsurance cession, he said, “ It's a matter of government's decision.”
The private insurers also demanded that Sadharan Bima should confine its functions to either as a direct insurer or a re-insurer.
Meanwhile, a senior official at a private insurance company pointed out that the removal of the obligatory cession might result in a rise in reinsurance cost, as reinsurance brokers would get involved in the business.
“The other view is that the premium and risk retention with the primary insurers will go up,” he added.
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