Many insurers breach spending limits, IDRA flags risk

Several life and non-life insurance companies in Bangladesh have exceeded the legally permitted limits on management expenses, violating the Insurance Act and regulatory guidelines.

The Insurance Development and Regulatory Authority (IDRA) has expressed serious concern, warning that such overspending undermines policyholder claim settlements and reduces shareholder returns.

In 2024 alone, the insurance sector spent Tk5,167 crore on management expenses – of which life insurers accounted for Tk3,849 crore and non-life companies Tk1,318 crore.

IDRA data shows that 20 of the 36 active life insurance firms and eight of the 46 non-life insurers breached their approved expense limits.

In response, IDRA has convened several meetings with insurance companies and is imposing fines on violators. Companies have been formally warned and instructed to align their expenses with regulatory ceilings.

Management expenses include agent commissions, salaries, office rent, and utilities.

According to current rules, life insurers operating for over 10 years may spend up to 90% of their first-year premium income. Non-life insurers are capped at 35% of premium income for most policies, with marine insurance treated separately.

IDRA officials emphasised that these limits are meant to ensure that premiums are primarily used for settling claims—not excessive overhead.

Insurance executives argue that fixed costs such as salaries and rent persist regardless of premium income.

“Even if we earn less in a year, we still have to cover basic expenses,” said SM Nuruzzaman, CEO of Zenith Islami Life Insurance.

“That makes the percentage appear higher during low-income periods.” He added that restoring public trust is crucial to increasing policy sales and improving financial health.

Muhammad Mamun Khan, Managing Director and CEO of Baira Life Insurance, acknowledged overspending Tk1.15 crore in 2024 while the company owes policyholders nearly Tk45 crore.

“We are trying to stabilise operations by selling company-owned land to settle dues,” he said.

Noor-E-Alam Siddique, CEO of Bangladesh Co-operative Insurance, said operational costs have risen sharply.

“New types of business development costs are unavoidable, and our commission structure differs from that of life insurers,” he added.

According to IDRA, Bangladesh’s 46 non-life insurance companies owed policyholders Tk3,871 crore in 2024, of which only Tk1,237 crore has been paid, leaving Tk2,635 crore in outstanding claims.

Life insurance firms collectively owe Tk4,375 crore in unsettled claims.

Some companies spent more on management than what they owe policyholders. Delta Life Insurance, for instance, owes Tk158 crore but spent Tk258 crore on management.

Jiban Bima Corporation has unpaid claims of Tk651.17 crore and overspent Tk20 crore. Meghna Life Insurance owes Tk362.17 crore and exceeded its management budget by over Tk3 crore. National Life Insurance has unsettled claims totaling Tk97.02 crore.

IDRA is now closely monitoring insurers and reviewing their expense reports.

According to Saifunnahar Sumi, Consultant (Media and Communication) at IDRA, the regulator is preparing a revised enforcement framework, which may include stricter audits, mandatory disclosure of expense breakdowns, and steeper penalties for repeat violations.