Current Scenario of the Insurance Industry

Farzana Chowdhury
MD and CEO of GDIC :
Farzana Chowdhury ACII (UK) and Chartered Insurer, Managing Director and CEO of Green Delta Insurance Company Ltd. (GDIC) is seen as a trailblazer in the insurance sector of Bangladesh. Through her dynamic leadership, she has guided her team at GDIC to scale new heights. Our Reporter Kamruzzaman Bablu recently caught up with her to discuss on some of the most talked about issues on the insurance sector.
NN: What is the current scenario of Insurance Bangladesh?
Farzana : The insurance sector in Bangladesh is still relatively untapped with less than 1 percent penetration. The sector contributes less than 1 percent of the GDP. This means there is immense growth potential for the sector. The Industry has been growing consistently over the past decade. Recent trends show that now people are more aware on insurance and informed on the importance of having various insurance coverage.
NN : It has recently been said that the insurance companies are spending more than the allowable amount as management expenses. What is your take on it?
Farzana : Yes it is true that the companies have been spending more than the allocated amount mentioned in the 1958 Insurance Act. Even our expenses have been on the higher side. But what we have to consider is that the amount mentioned in the Act 58 years ago do not give a proper guideline as the circumstances has changed over the past six decades and based on these, the Insurance Act 1958 should be amended.
NN: Why do you think the management expenses are higher?
Farzana : As I have mentioned earlier, the prevailing market conditions have seen drastic changes since 1958 resulting in an increase in the amount spending by the insurance companies. Some of the major reasons are:
Inflation has increased significantly since 1958. As a result of this all the utilities expenses, various costs like advertisement, transportation, and salary have also seen significant increase. For some of these areas, the expenses have increased up to 3000 times compared to 1958. Even the insurance registration fee in 2005 has been increased by 133 percent by the regulatory body.
The government in 1991 has imposed Value Added Tax (VAT) on almost all the expenses. This VAT was added to our expense. It may be noted that when the Act was imposed in 1958, there was no provision of VAT in it. If we did not have to pay VAT, then we would have been able to stay within the prescribed limit.
Even though the costs have soared, the Central Rating Committee (CRC) has reduced the premium rate for various industries. This was added to the insurance companies as a burden.
There are 45 non-life insurance companies competing in the market and the competition is very stiff since the size of the market is so small. In order to sustain in the competition, the companies have to spend a considerable amount in acquiring and retaining the skilled work force.
We, at Green Delta have always been emphasizing on skilled insurance professionals. For this reason we continuously send our employees to various training programs in both home and abroad. Even though this has increased our expenses, but we have been able to create a pool of qualified and skilled professionals.
Besides, the all the companies are taking numerous initiatives to raise insurance awareness among the general public. This has significantly increased the expenses of the individual companies.
NN : Can you give some points justifying this increase in expenditure?
Farzana : Look, it has been said that the higher expenses adversely impact on a company’s ability to pay the shareholders’ dividend and claims to the clients.
Green Delta, since its inception has been able to give significant amount of dividends to its shareholders. On an average we have paid 37 percent dividend in the last 20 years. This was possible for the proper management and expense control by the management. We expect the trend to continue in the coming days.
Green Delta has always been known for its prompt claim settlement. Our clients are satisfied for our claims settlement procedures and we have been appraised from different quarters for our reputation. We have settled few of the largest claims in the insurance sector of Bangladesh.
Despite paying significant dividends to the shareholders, settling claims of our valued customers and paying the government all the relevant taxes, our total assets have been increasing. This illustrates the financial strength of the company.
We, being the industry leader are in a strong position in terms of all the financial indicators e.g. Earnings Per Share (EPS), P/E Ratio, Book Value Per Share, Market Value Per Share etc.
Our available solvency margin is a lot higher than the required solvency margin. This confirms our ability to pay for the insurance claims for our valued customers.
GDIC has the top credit rating among all the insurance companies in the country. We are the only insurance company in Bangladesh to have been awarded the AAA credit ratings for two consecutive years.
Our company is audited every year by the top audit farms in the country.
In light of the aforementioned, even though our expenses were higher than the 1958 guideline, but we have been able to fulfil all the commitments of our valued stakeholders. This reiterates our financial strength and good governance,
NN : What role do you think the regulator (IDRA) can play to address this issue?
Farzana : Insurance Development and Regulatory Authority (IDRA) has done a tremendous job in bringing transparency to the insurance industry in Bangladesh. In spite of having so much limitations, they are relentlessly trying to ensure good practices by the company.
We think, now is a high time, they do something about the Insurance Act 1958. As already discussed earlier, all the relevant factors have changed so much over the past 58 years, the guideline on management expenses make little sense in present. In addition, the management expenses of insurance companies are much lower compared with that of the banks, which are also financial institutions. Moreover, the ceiling of management expenses for the insurance companies should be based on solvency margin of the respective companies as we believe it is unfair for leading companies to have the same ceiling compared with the smaller ones.
So, we, on behalf of the entire industry, humbly request IDRA to look into it and bring the necessary changes. The insurance sector will be benefited from it and the reputation of our industry will also be enhanced.