Govt may force life insurers to sell assets to settle claims: Khosru

Life insurance companies that fail to settle policyholders’ claims may be forced to sell their land and other assets to meet their obligations, Finance and Planning Minister Amir Khosru Mahmud Chowdhury said today.

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.

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Both measures are expected to be placed before Parliament in the coming days, Khosru told journalists after visiting the head office of the Insurance Development and Regulatory Authority (IDRA) in Motijheel, Dhaka.

“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.”

The minister said 57 percent of life insurance claims remain unpaid, adding that the BNP-led government had uncovered widespread irregularities in the sector since taking charge.

The insurance sector has fallen into the same mire of corruption, mismanagement and regulatory neglect that once crippled the banking industry, he said.

Khosru said many insurers had funnelled policyholders’ money into land, real estate and government securities instead of maintaining sufficient liquidity to settle claims.

“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.”

Drawing a parallel with the 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.

The minister said IDRA had been empowered to take a firmer line, with every company that had failed to settle claims now given a strict deadline.

He said companies that continued to withhold policyholders’ dues would face regulatory action, including the forced sale of properties and land if they lacked sufficient cash.

Khosru also said 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.

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 said. “Whatever actions are required for insurance companies will be taken.”

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.

Seven to eight insurance companies have persistently defied regulatory directives and now face serious scrutiny over their continued operation, the minister said. They must resolve their outstanding issues shortly or face severe action, he added.

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 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.