Bangladesh Govt Plans Insurance Act Amendments As Crisis Grips Sector

🏛 The government is preparing amendments to the Insurance Act 2010 and drafting a crisis-resolution framework for the insurance sector as it moves to address widespread weaknesses in the industry. The reform package — to be placed before Parliament in the coming days — represents the most comprehensive intervention in Bangladesh's troubled insurance sector in over a decade.

📜 Both measures are expected to be placed before Parliament in the coming days, Finance and Planning Minister Amir Khosru Mahmud Chowdhury told journalists yesterday after visiting the head office of the Insurance Development and Regulatory Authority (IDRA) in Motijheel, Dhaka. The minister acknowledged that legal battles were delaying reforms, with entities "seeking undue advantage" frequently moving the courts, leaving several companies without regular managing directors. He said amendments to the insurance law and management restructuring were under way to address the problem.

⚠ 57% Of Life Insurance Claims Unpaid

The insurance sector has fallen into the same mire of corruption, mismanagement and regulatory neglect that once crippled the banking industry, the minister said, noting that 57 percent of life insurance claims remain unpaid. Khosru said the BNP-led government has uncovered widespread irregularities in the sector since taking charge. He warned that companies that continue to withhold policyholders' dues could be forced to liquidate assets to settle their obligations.

"Insurance plays a vital role in our economy, offering security for people's lives, their homes, and their belongings," he said. "But we have failed to elevate this sector to where it belongs, and today it offers little good news." The 57% unpaid claims ratio is among the highest in any major Asian insurance market — translating into structural failure of the sector's core function of providing financial security to policyholders who have paid premiums in good faith.

• 📊 Unpaid life insurance claims: 57%
• 🏛 Total insurance companies: 82
• 📜 Insurance Act 2010 amendment: In preparation
• 📜 Crisis-resolution framework: In drafting
• ⚠ Companies defying regulatory directives: 7-8
• 💰 Two-server systems: Banned
• 📅 IDRA workforce development plan: 3-5 years
• 🏛 Bankruptcy parallel: Banking sector crisis

📜 Banking Sector Parallel: Same Patterns Of Exploitation

Drawing a parallel with the country's banking crisis, the minister said insurers had misappropriated policyholders' funds through similar patterns of exploitation and unchecked corruption. "Just as the banking sector was exploited through siphoning and corruption, we found the same mismanagement and lack of regulation when we took charge of the insurance sector," he said. Many firms had funnelled clients' money into land, real estate and government securities instead of maintaining the liquidity needed to pay claims, the minister stated.

"Citizens invest a portion of their income in life insurance to protect themselves in hard times. Yet the majority of them have not received their legitimate payouts," he said. The reference to fund diversion into real estate and government securities is significant — insurance companies are required to maintain statutory deposits and liquid assets to meet claim obligations, but weak regulatory oversight has allowed companies to invest premium income in illiquid assets that cannot be quickly converted to pay claims.

💰 Asset Liquidation Warning

The minister also said IDRA had been empowered to take a firmer line, with every company that had failed to settle claims now given a strict deadline. "Companies that fail to pay will face direct consequences," he said. "If they face cash shortages, they will be forced to sell their properties and land assets to settle public claims."

Investigations have also found several insurers operating two parallel record-keeping systems, one genuine and another concealed, which were used to process unauthorised transactions, he said. "Maintaining dual servers is strictly banned. Following a grace period, inspections will begin, and strict legal action will be taken against violators," he added. The two-server system ban is structurally important — without unified record-keeping, regulators cannot effectively monitor insurer financial positions or detect unauthorised transactions in real time.

🏛 7-8 Companies Face Severe Scrutiny

Seven to eight insurance companies have persistently defied regulatory directives and now face serious scrutiny over their continued operation, the minister said, adding that they must resolve their outstanding issues shortly or face severe action. He also flagged deep structural weaknesses within IDRA, saying the regulator lacked a permanent, specialised workforce and instead relied on commissioners and officers on temporary deputation who leave after their tenures end.

"Our three-to-five-year plan is to reduce dependence on externally deputed staff and build IDRA's own trained, professional and permanent workforce, with a clear career path," he said. The 3-5 year IDRA capacity building timeline reflects the realistic horizon for transforming a regulator that has historically been staffed primarily by deputation officials. Building a permanent cadre of insurance professionals — actuaries, financial analysts, risk management specialists and compliance officers — requires both recruitment reform and sustained investment in training.

📜 82 Insurance Companies: Many Weak

The sector, comprising 82 insurance companies, "many of which are weak", remains a vital national issue that successive governments have failed to harness to its full economic potential, said Khosru. "Company restructuring provisions will be embedded in the updated insurance laws. Once IDRA's enforcement steps are implemented, a positive public image will naturally follow," he added.

The 82-company sector — including both life and general insurance — has long been considered too fragmented for sustainable profitability. The reference to company restructuring provisions being embedded in the updated insurance laws signals that the government is preparing the legal framework for potential mergers or consolidation, similar to the banking sector's ongoing consolidation under the Bank Company Act amendments.

🤝 Asked About Mergers: Premature To Comment

Asked whether mergers were being considered for the weakest firms, he declined to give a definitive answer. "Until the resolution framework is finalised, it would be premature to comment," he noted. "Whatever actions are required for insurance companies will be taken." The measured response on mergers reflects the political sensitivity of forced consolidation — but the framework being prepared will clearly include merger provisions that IDRA can apply to weak insurers that cannot meet regulatory requirements independently.

🌏 Strategic Context For Bangladesh's Insurance Sector

For Bangladesh's broader financial sector, the insurance sector reform agenda carries strategic significance. Insurance penetration in Bangladesh remains among the lowest in Asia — at less than 1% of GDP — despite the country's growing middle class and the expanding pool of insurable assets. The 57% unpaid claims ratio is a primary reason for the low penetration: when consumers observe insurers failing to pay legitimate claims, they rationally choose to avoid insurance products, perpetuating the sector's underperformance.

The IDRA initiative to settle Tk 37.54 crore in claims to 8,417 policyholders of seven troubled life insurers — reported separately — represents the kind of structural intervention needed to begin rebuilding consumer confidence. The finance minister's amendment plan, combined with the crisis-resolution framework, asset liquidation warning, two-server ban, IDRA capacity building, and company restructuring provisions, complements this intervention by establishing the structural framework needed to prevent future claim defaults.

📜 What Comes Next

The coming months will reveal whether the government can translate the announced reform agenda into specific legislative proposals, regulatory frameworks and enforcement actions. The credibility of the broader insurance sector reform will depend on sustained political commitment, operational follow-through by IDRA, and the willingness of the finance ministry to push through the structural changes needed to address the deep-rooted problems Khosru has identified.

For Bangladesh's broader economic resilience, a functioning insurance sector is strategically important. Without effective insurance, households and businesses absorb the full financial impact of risks including illness, death, property damage, business interruption and liability claims. This risk absorption function falls on the government when disasters strike — creating fiscal pressure that could be partially mitigated through a developed insurance market. The reform agenda announced by the finance minister represents the most credible effort yet to address this structural gap in Bangladesh's financial sector architecture.

The sector's ability to recover will ultimately determine whether Bangladesh can build a credible insurance market that supports household financial security, business risk management and broader economic resilience through and beyond LDC graduation in November 2026.