Life insurers spent Tk 115 cr illegally

In name of business procurement

Zarif Mahmud: A number of life insurance companies have pledged in 2016 to recoup excessive spending (adjusting past expenses by reducing costs) in violation of the law in the management sector. However, far from being recharged, half of the companies doing business in the country have not yet been able to curb illegal spending. In 2021, 18 life insurance companies have spent more than Tk 115 crore in violation of the law.
Life insurers say that due to the inefficiency of the management boards of the companies and the failure of the board of directors, it is not possible to curb these illegal expenses.
They say that the expenditure will come within the legal limits only if the rules of management expenditure are followed. But the management board of some companies is not bringing the management expenditure within the limits on purpose. In this case, the board of directors is not able to supervise properly. As a result, more money is being spent in the management sector.
On the other hand, the regulatory body Insurance Development and Regulatory Authority (IDRA) says that various steps have been taken to keep the management costs of life insurance companies within limits. Insurance companies that spend extra money on management are being fined. At the same time bonds have been taken from them, in no way can the extra money of the limit be spent in the management sector in future.
Both the policyholders and the shareholders are being deprived of their fair share as the life insurance companies are illegally spending extra money in the management sector in violation of the law, the sources said. Because the policyholders of the organization deserve 90 percent of the extra money that is being spent. The remaining 10 percent are shareholders.
In 2016, for the first time, the IDRA summoned all the companies to a hearing as the policyholders and shareholders suffered due to the excessive expenses of the life insurance companies. At the hearing, the companies were warned that strict action would be taken in accordance with the law if any additional expenditure was made in the management sector in future. At the same time, they are instructed to adjust the amount of money that has been spent in the past.
According to a report prepared by IDRA at the time, 16 life insurance companies had spent Tk 1,096 crore in the management sector from 2009 to 2015 in violation of the law. In view of this, the Anti-Corruption Commission (ACC) has taken initiative to find out what kind of corruption has taken place behind the extra expenditure incurred through violation of law.
However, if it is still not possible to control the management expenses, then in 2016, IDRA sat down with the life insurance companies again. At that time, the life insurance companies promised to recoup the extra money spent on the management sector. Last year, the IDRA restructured the field-level organizational structure of life insurance companies, as additional costs did not stop.
It instructed companies to keep three grades instead of five at the supervisory level. For these three grades, a maximum of 18 per cent of the cost is incurred, including salaries, commissions, bonuses and travel. However, this illegal spending of life insurance companies has not stopped.
In the last 2021, 17 life insurance companies have spent additional money of Tk 115.10 crore in the management sector. In the previous year (2020) the additional expenditure in this sector was Tk 114 crore 32 lakh. In other words, the illegal expenditure of life insurance companies in the management sector has increased over the years.
The state-owned Life Insurance Corporation has spent the most money in the management sector in 2021 in violation of the law. The company has spent an additional Tk 44.19 crore on management. Next to this is Golden Life Insurance. The company has spent an additional Tk 12 crore 26 lakh. Sunflower Life Insurance is in the third place with an additional expenditure of Tk 11 crore 5 lakh.
The remaining 14 companies alone have spent less than Tk 10 crore. Of these, Progressive Life Insurance Tk 8 crore 82 lakh, Trust Islami Life Insurance Tk 8 crore 36 lakh, Mercantile Islamic Life Tk 5 crore 53 lakh, Padma Islami Life Tk 4 crore 60 lakh, Bengal Islamic Life Tk 4 crore 43 lakh, Jamuna Life Tk 3 crore 30 lakh and Chartered Life has spent an additional Tk 3 crore 24 lakh.
Besides, LIC Bangladesh Tk 2 crore 8 lakh, Best Life Tk 2 crore 20 lakh, Diamond Life Tk 1 crore 99 lakh, Zenith Islamic Life Tk 1 crore 80 lakh, Protective Islamic Life Tk 1 crore 26 lakh, NRB Islamic Life Insurance Tk 1 crore 22 lakh and Akij Takaful Life Insurance has spent an additional Tk 1 crore 5 lakh.
Expenditure within limit is 15 insurance
In the management sector, 18 insurance companies spent excessively in 2021, but 15 companies are within the spending limits. These companies have spent Tk 348 crore less than they could have spent within the limits. Of this, foreign-owned MetLife has spent less than Tk 109.55 crore. National Life, which is in the second place, has spent less Tk 106 crore 3 lakh. Sonali Life is in the third place with less expenditure of Tk 69.21 crore.
Besides, Delta Life Tk 20 crore 13 lakh, Guardian Life Tk 10 crore 98 lakh, Pragati Life Tk 5 crore 53 lakh, Meghna Life Tk 5 crore 45 lakh, Popular Life Tk 4 crore 8 lakh, Prime Islami Life Tk 4 crore 8 lakh, Rupali Life Tk 4 crore 57. Lakh, Sandhani Life Tk 2 crore 4 lakh, FareestIslami Life Tk 1 crore 69 lakh, Astha Life Tk 73 lakh and Alpha Life Tk 42 lakh less.
The chief executive officer (CEO) of several insurance companies, speaking on condition of anonymity, said companies could bring management costs within limits if they wanted to. At one time large organizations like Fareast Islamic Life, Popular Life, National Life, Pragati Life, Meghna Life, Sandhani Life, Delta Life used to spend extra money on management. Now these companies have gone far below the spending limit.
They also say that companies that are spending extra money have many other problems. Some companies are spending extra money on office rent and staff salaries. Besides, the renewal premium income of the companies is less. Due to the failure of the board of directors and the board of directors, these companies are not able to control the cost.
Pragati Life CEO Md. Jalalul Azim told, “I think extra money is being spent in the management sector due to the board and management of the company concerned.” Mainly management does not want, management can do it (spending within limits) if it wants.
He said that if the rules laid down by the IDRA are adhered to, the expenditure will come within the limits. We (Pragati Life) came in the first range in 2016, 2015 has cost more. After taking charge in 2013, I have brought it within the spending limit in 2016 by making various efforts. Every year since then we have been recharging the expenses. In 2021, we have recharged over five crore rupees.
“Following the instructions of the IDRA, we have reduced one layer of the organizational structure,” he said. Not many companies do that. In order to increase the renewal premium, some companies including us have made arrangements to deduct 10 percent from the agent commission of the first-year premier income and return it when the renewal premium arrives. But many companies did not. As a result, their agents are not paying much attention to the renewal premium. The company’s income is declining. This is also one of the reasons for the extra cost.
When asked, IDRA spokesperson SM Shakil Akhtar told, “We have fined the companies which have spent extra money in the management sector.” At the same time, bonds have been taken from the companies so that they do not have to spend extra money in future. This year we have given some discounts to the companies due to Corona. I will not accept it in the future.