IDRA steps in as Fareast Islami Life Insurance falls behind on payout

The Insurance Development and Regulatory Authority (IDRA) has ordered Fareast Islami Life Insurance Company Limited not to spend anything from its premium income, income from investment and life fund if it fails to settle claims of policyholders by this month.

"Despite repeated instructions to pay insurance claims, there has been no improvement in the settlement of insurance claims of the company," the IDRA said in a letter sent to the company yesterday.

Until the third quarter of 2023, Fareast settled only 4 percent of insurance claims.

In other words, it paid Tk 96.58 crore against claims amounting to Tk 2,351 crore, according to the letter, which termed the settlement ratio "very unsatisfactory" and "very disappointing".

Fareast can't pay more than 20 percent of first-year premiums as commission to its agents, said the letter. The law stipulates that over 35 percent cannot be paid.

Payment of the remaining 15 percent will have to be deferred and adjusted with the commission on the premiums of the second year, the letter added.

If documents are required for settlement of an insurance claim, the claimant should be contacted by telephone quickly and the necessary papers collected to ensure quick settlement, it said.

If the documents are already available, the claim settlement should not be delayed by up to 90 days, the letter said. The insurance law stipulates that insurance claims must be settled within 90 days.

Due to an ongoing liquidity crisis, the company is unable to settle insurance claims of policyholders, an IDRA official told The Daily Star.

Yesterday, Sheikh Kabir Hossain, chairman of Fareast, said the claims would be settled in consultation with the IDRA.

Last month, he said the company was "sick" as it owed a lot of money while its owners were in jail.

The government had set up a new board of directors to restore Fareast to its previous position, but they have not made much progress so far, he said.

"Due to the weak financial strength, it is not possible to pay back debts at the required rate."

Another reason is that new clients are not coming to open policies anymore as the company has gained a bad reputation, meaning that there is a lack of incoming funds to clear the debt, he added.

Earlier, the company's land ‍and premises were advertised for sale. At that time, the prices quoted by buyers were lower than the purchase price. That is why the land could not be sold, he had said.

Zahangir Alam, spokesperson of the IDRA, told The Daily Star that settlement of many claims of policyholders was suspended even after the expiry of their policies, which was why the regulator passed the instructions to solve the problems.

In April 2021, the regulator appointed Shiraz Khan Basak and Company, a chartered accountant firm, to conduct a special audit on Fareast. The auditor submitted a report to the IDRA in May 2022.

As per the report, Tk 2,367 crore has been embezzled from the company. Apart from this, accounting irregularities amounting to Tk 432 crore were detected.

Nazrul Islam and MA Khaleque, former chairmen of Fareast, Hemayet Ullah, a former chief executive officer, and some former directors and senior officials were found involved in the embezzlement.

The money was embezzled in mainly two ways -- the purchase of land at prices higher than the market value and bank loans availed by mortgaging the company's Mudaraba Term Deposit Receipt (MTDR).

The MTDR is a profit-bearing account based on the Mudaraba concept that offers returns on money deposited for a fixed period of time.

In September 2021, the Bangladesh Securities and Exchange Commission dissolved the company's board and sacked CEO Hemayet Ullah.

At present, a group of independent directors run Fareast.