Express (August 20, 2011)
In a bold move, the insurance regulator has suspended the provision for giving 'discounts' to big corporate bodies.
The measure is expected to help strengthen the financial position of the non-life insurance companies, some insiders observed.
Many general insurance companies have been struggling to survive in the face of fast rising rates of discounts on premiums under pressure from big insurance clients, sources said.
Industry insiders said the new decision by the regulator on its proper implementation, will ensure additional premium earnings to the tune of around Tk 15 billion annually for the non-life insurance companies.
The 'discount' system has also largely been abused by some powerful quarters, depriving the insurance companies of their legitimate earnings, the sources added.
The country's 43-general insurance companies will conduct discount-free business from September 4, said Insurance Development and Regulatory Authority (IDRA).
For those insurance companies which have made earlier agreements with the companies about discounts on their premium payments, the new rules will be effective soon after end of the tenure of the existing contracts about discount facility.
However, a 10 per cent discount on existing tariff rates will prevail for the time being, IDRA added.
"We are not scrapping discount on tariff rates right at this moment. We will stop it later," said an IDRA official.
The IDRA took this bold decision after its formation in March this year following two meetings held last week.
The IDRA has issued letters to all the general insurance companies to this effect. They are expected to get the IDRA's letters within Sunday.
The central rating committee (CRC), an organ of the IDRA, used to take decisions regarding discounts on insurance premium payments which were pressed by Bangladesh Garments Manufacturers & Exporters Association (BGMEA), Bangladesh Knitwear Manufacturers & Exporters Association (BKMEA), Bangladesh Textile Mills Association (BTMA) and big corporate bodies.
According to the IRDA's decision, all companies will have to strictly abide by the existing fire and marine tariff rates, which will include 10 per cent tariff discount until further instruction.
Special tariff rates, presently in force for the BGMEA/BKMEA and small & medium enterprises (SMEs) and other alike businesses will become illegal and be similar to those of regular fire and marine rates, including 10 per cent tariff discounts, the official letter of the IRDA said.
However, any policies or cover notes issued on or before September 03, 2011 will remain valid until their next renewal and expiry date, except open covers that will be subjected to tariff rates including 10 per cent discount, effective from September 4 in 2011, it stated.
Documents issued on or before September 03, 2011, using special discounts given to various clients by the CRC prior to April 28, 2002 including risk courage to clients operating within all export processing zones, will remain valid until their next renewal and expiry date, the letter said.
M Shefaque Ahmed, chairman of the IDRA told the FE: "The decision on discounts will ensure a uniformed rate for all general insurance companies."
He also said: "Many non-life insurance companies are getting sick because of the 'discount' facility. We think the new arrangement, to be enforced on a uniform basis by all insurance companies, will help improve their financial position."
Industry insiders said big corporate houses, influential trade bodies and other vested interest groups used to press hard to raise discount rates and the CRC had no option but to bow down to such pressures.
The new measure will strengthen the ability of the non-life insurance companies to settle the claims properly and in time, sources added.
In many cases, claims for fire insurance increased four times of the insured amount of values for reasons of "discount" facility at high rates, they pointed out.
The annual turnover of premium earnings by the country's 43 general insurance companies is about Tk 40 billion now.
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