Govt proposes scrapping Sadharan Bima’s exclusive reinsurance right

• Government plans reinsurance law clause removal
• SBC lacks credit rating, blocks foreign funds
• Private insurers frustrated by delayed claim settlements
• Proposed change aims to boost market competition

Your next insurance premium, or the speed at which your claim is paid, could soon change as the government plans to change the country's reinsurance system.

The Financial Institutions Division (FID) has proposed removing a clause in the Insurance Corporation Act 2019 that requires non-life insurers to hand over half their reinsurance business to the lone state-owned insurer and reinsurer Sadharan Bima Corporation (SBC).

Officials say this rule has become a barrier for foreign funds for development projects, as SBC does not have an internationally recognised credit rating -- a condition often required by donor agencies.

"Funding agencies frequently demand that insurance be obtained from companies with specific credit ratings. Since SBC does not meet that standard, project financing is often affected," said Saifunnahar Sumi, spokesperson at the Insurance Development and Regulatory Authority (Idra).

Reinsurance, often described as insurance for insurers, allows companies to share risks so they can pay large claims such as factory fires or cargo losses.

For instance, a garment manufacturer may insure her factory with a private insurer. If that insurer believes the factory faces high fire risk and the insurer would struggle to cover potential losses, it can transfer part of that risk through reinsurance.

Under the current law, at least half of such reinsurance must go to SBC, with the rest handled by local or foreign companies. The proposed amendment would remove this 50 percent requirement.

Private insurers have long been frustrated by SBC's backlog of unsettled reinsurance claims, some dating back to 2020, which has delayed compensation for clients.

Sumi said the proposed change is meant to solve this problem.

Industry insiders believe the change would make the market more competitive and improve claim settlements, ultimately benefiting policyholders.

However, SBC Managing Director Md Harun-Or-Rashid said that the move could weaken the state insurer and unsettle the market. "If SBC's role is reduced, its income will fall, and disorder in the insurance sector will increase," he said.

Rashid added that if SBC fails to pay reinsurance claims, the government now covers it. "But if a private company fails, who will pay that money?" he asked.

'A MORE OPEN MARKET'

If reinsurance with SBC is no longer mandatory, the market is expected to evolve into a more mature and competitive space, according to the chief executive officer of a renowned non-life insurance company.

The change would prompt local insurers to revisit their reinsurance strategies and explore alternative options.

"Eventually, it will enable them to retain and attract both local and international reinsurance business," said the CEO.

On condition of anonymity, he said optional reinsurance with SBC would push the lone state insurer and non-insurer to raise its standards to international levels in both service and business approach.

However, he said that not all local insurers have the global connections needed to access competitive reinsurance on favourable terms.

"Companies with established international networks may view the removal of mandatory reinsurance with SBC as an opportunity to strengthen partnerships with foreign reinsurers," he added.

Ahmed Saifuddin Chowdhury, managing director of Bangladesh General Insurance Company PLC, welcomed the move.

He said that since 2014, reinsurance through SBC has failed to produce any claim recoveries.

"Despite repeated efforts, we have not received any payments, nor has SBC taken any meaningful steps to resolve these issues," he said.

"In contrast, I have actively engaged with foreign reinsurers, secured recoveries, and ensured that our clients are properly compensated," he added.

Chowdhury said such inefficiencies discourage foreign investment. "If international investors encounter these obstacles, why would they choose to invest in Bangladesh? This situation tarnishes our reputation," he said.

Hasina Sheykh, professor of Banking and Insurance at Dhaka University, also backed the proposal, saying SBC's capacity is "limited".

"It is not enough for us to simply depend on them to take on a major portion of the risks," she said.

"Some companies in the market perform well, and if they have the capacity, they should be able to do reinsurance on their own. We would welcome that," she added.

She believes the private sector should be given the opportunity. Though not every company has the capacity, those that do should be allowed to participate.

Md Main Uddin, another professor from the same department, recommended a balanced approach.

"Completely removing the mandatory provision is not advisable," he said, suggesting that there should be at least some compulsory element.