The claim settlement ratio of life insurance companies in Bangladesh hit its lowest in at least a decade in 2021.
According to Bangladesh Bank's latest financial stability report, the overall claim settlement ratio of life insurance companies decreased from 88.32% in 2020 to 68.79% in 2021, which is not very encouraging for life insurance policy owners.
In 2013, 2014, 2015, 2016, 2017, 2018 and 2019, this ratio was 78%, 80%, 85%, 85%, 81%, 82% and 83% respectively.
Industry insiders often refer to claim settlement as a life insurance company's moment of truth.
The claim settlement ratio, also considered by customers as an indicator of an insurer's reliability to pay out their claims, is the percentage of claims that insurers settle in a financial year out of the total claims filed by the policyholders.
It is one of the most critical services an insurance provider is obligated to fulfill for its customer.
“We are sitting with the companies that are at the top of the list (lower settlement) separately to know about their plans on how they would settle the claims. If needed, we are asking the insurers to sell assets as we consider timely claim settlement with utmost priority,” Mohammad Jainul Bari, chairman of the Insurance Development and Regulatory Authority (Idra) said about their activity.
“If companies do not settle claims timely and properly, the confidence of the people in the sector would go down. We have already taken some steps to reduce the cost of the companies and the misuse of funds,” he added.
He also informed that the claim settlement ratio has already improved in the ongoing year.
On the other hand, data analysis shows that the insurance rate has increased from Tk600 in 2013 to Tk885 in 2021.
According to Idra, life insurance premiums fell by more than 1% to Tk9,501 crore in 2020 compared to the previous year.
In 2021, it increased by 8% to Tk10,260 crore, and by the end of this year's June session, this amount was Tk4,606 crore.
Global scenario and insurance penetration
When the global standard for claim settlements ratio is 97-98%, the claim settlement ratio in Bangladesh was around 83% in 2019 and 78% in 2013.
According to media reports in India, the settlement-to-claim ratio in the country's most of life insurers was in the range of 98.3% to 99.3% in 2020-21 while only one company's ratio stood at less than 90%.
The measure of insurance penetration and density reflects the level of development of the insurance sector in a country.
While insurance penetration is measured as the percentage of insurance premiums to GDP, insurance density is calculated as the ratio of premium to population (per capita premium.)
Data analysis shows that life insurance coverage compared to economies in emerging countries averages 3.3%, which is far ahead of Bangladesh.
In India and China, this rate is 3.2% and 2.4% respectively.
In Bangladesh, it was measured as the ratio of gross written premium to GDP, which was 0.5% in 2021, down from 0.94% in 2010, according to Idra data.
In 2020, this ratio was 0.4%.
Lack of trust
All this means that most Bangladeshi people are not covered by insurance and the number of insurance premiums is not increasing with the growth of the economy.
The Bangladesh Bank said in a report last week that most people in Bangladesh remain uninsured due to low savings and lack of financial knowledge.
Ghulam Rahman, president of the Consumers Association of Bangladesh (CAB) said: “Many life insurance companies are deceiving people and the rural people are the main victims. Some influential people took control of the companies and they misused and embezzled life funds. In recent times, some cases have been detected too.”
However, there are 35 life insurance and 46 general insurance companies in Bangladesh.
