Supervision and Control Legislation Insurance Legislation The Insurance Act 2010 and the Insurance Development and Regulatory Authority Act 2010, were passed in March 2010. The Insurance Act 2010 replaced the Insurance Act 1938. The Insurance Development and Regulatory Authority Act 2010 provided for a new regulatory body which was set up 10 months later and is known as the Insurance Development and Regulatory Authority (IDRA). The IDRA operates in accordance with the provisions of the insurance laws of March 2010 which were introduced with a view to reforming the poorly regulated market. The authority's main task thus far has been to frame rules which determine how the insurance laws will work in practice, although progress in this regard has been slow, with little discernible development in the last three years, much to the consternation of the local insurance companies which work in the absence of new rules to the previous ones. The following are the most notable rules and regulations which have been introduced, out of the 50 which the IDRA has identified as being necessary under the provisions of the Insurance Act 2010. • A director of an insurance company is prohibited from also being a director of a bank or financial institution. • The commission payable to registered non-life agents is limited to a maximum of 15%. • A restriction on insurance companies buying land, buildings or motorised vehicles was imposed by the IDRA, which must approve any such items. • Insurers are required to register, and pay an initial fee of BDT 100,000 (USD 1,275), for each class and sub-class of business transacted. In addition, non-life insurers are required to pay a fee of BDT 50,000 (USD 638) for each new branch they open. • The maximum shareholding allowed by a foreign person or entity in an insurance company is 60%. • In accordance with Section 6 of the legislation, every insurer is obliged to provide a minimum percentage of business in the rural or social sector. In 2013, the IDRA issued a circular which required non-life insurers to write policies in this sector for a minimum of 0.1% of their gross written premium. • Since 2015 all agents have been required to complete 72 hours of training from authorised institutions in order to obtain an agent's licence, in accordance with Section 124 of the Insurance Act 2010. The IDRA has developed guidelines for floating new insurance companies, although these have not yet been issued as rules.
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 1
Supervision and Control The two state-owned insurers, Sadharan Bima Corporation (SBC) (non-life) and Jiban Bima (life), were established in accordance with the provisions of the Insurance Corporation Act 1973. The 1984 ordinances provided for the formation of private insurers, established levels of capital and deposits and dealt with a number of general administrative matters for the regulation of the private companies.
Amendments to the 1973 act in 1990 included the following provisions. • Private sector insurance companies must place of 50% of their reinsurance with the SBC. The remainder may be placed with other reinsurers, either in Bangladesh or overseas. • The SBC's monopoly on public business was changed from automatic receipt of 100% of these risks to 50%, with the balance open to competition from the rest of the market. For practical purposes this was modified by agreement within the market. As a result, SBC writes the risk on its own behalf and that of other companies in the market, ceding 50% to them in equal shares on a coinsurance basis. Following consideration of a draft submitted by the IDRA, the government approved the launch of a National Insurance Policy in June 2014. The aim of this initiative is to improve the awareness of insurance and its benefits, enhance the skills base of the industry, reduce problems related to insurance and encourage the development of new products. Insurance of public assets with state-owned insurers will be mandatory to ensure that compensation is available to potential claimants. Little progress in achieving the stated objectives had, however, been made at the time this report was in preparation. The Bangladesh Labour (Amendment) Act 2013 introduced various amendments to the Bangladesh Labour Act 2006, including the requirement that employers must provide group insurance for employees where 100 or more people are employed. The legislation does not specify the type of insurance which is to be provided, but it seems that employers have interpreted it to relate to life insurance, rather than work accident cover
Legislative Process Legislation is introduced to the legislature, the Jatiyo Sangshad, in the form of a bill by the government of the day. Once it has passed through the legislature, the bill, and any amendments, becomes law after it is signed by the president of the republic and is published in the government gazette.
Statutory Tariffs Insurers are obliged to follow the rates set by the Central Rating Committee, which apply to the principal classes of business: fire, motor, workers' compensation, marine hull and marine cargo. Other classes are not subject to tariff rating. The committee operates under the auspices of the IDRA and is headed by its chairman.
Bangladesh - Non-Life (P&C)
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Supervision and Control Originally the tariffs set minimum rates, but in a highly competitive market some insurers are said to be offering discounts, either out of the overriding commission received from SBC on the reinsurance cession, or by reducing the rate on the net retained portion of the risk. It is understood that SBC carries out checks to ensure that the correct rates are applied to the cessions it receives, but the volume of documentation means that rating discrepancies may not be detected easily.
In cases of breaches of the tariff, the IDRA is permitted to impose fines. This seems to be a fairly regular occurrence, as instances of tariff violation are reported by local sources to be commonplace. In extreme cases, an insurer can have its licence withdrawn, but this has never happened.
Discounts may be allowed on premiums for larger risks, subject to rating committee approval.
The rating for risks which require substantial reinsurance or specialist underwriting from international markets are likely to be priced by the reinsurers, with the proposed rating then referred to the IDRA for approval.
The basic tariff rates have remained largely unchanged in recent years. This situation is challenged regularly by insurers, as they feel that current rating levels do not take account of developments in manufacturing, storage, shipping and general business practices and provide little incentive for risk management or improvement. They also argue that the current high rates encourage illicit discounting and rebating of commission.
Compulsory Insurances List of Compulsory Insurances ================================================================================= Update May 2018 • Insurance for employees of the ship-breaking industry. ================================================================================= • Motor third party personal injury and property damage. • Imports backed by a letter of credit from a bank in Bangladesh. • Aviation liability.
Supplementary Information on Compulsory Insurances
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Supervision and Control ================================================================================= Update May 2018
The Bangladesh Ship Recycling Bill 2018, which was passed by parliament in January 2018, includes a requirement for employers in the ship-breaking industry to provide insurance for their employees. It is not clear whether this relates to work accident cover or life assurance, nor has any implementation date yet been announced. ================================================================================= The Road Traffic Act 1960, with amendments in 1964 and 1984, together with the provisions of the Motor Vehicle Amendment Act 1991, oblige motor vehicle owners to insure for third party liability. The "act only" policy provides cover to comply with the legislation. Statutory limits are detailed in the Motor section of this report. All imports backed by a letter of credit issued by a bank in Bangladesh must be insured in Bangladesh with either the SBC or with any local private insurance company, unless an exemption is obtained from the regulator. Government business must be insured with the SBC. Exports may be insured in any market. Bangladesh is a signatory to the Warsaw Convention and aviation liability insurance is compulsory. Further details can be found in the Aviation section of this report within Marine, Aviation and Transit. In April 2014, the prime minister announced that the government was discussing the introduction of mandatory insurance for workers in the garment manufacturing sector, following the Rana Plaza factory building collapse in April 2013 and the spate of fatal fires in 2012 and 2013. In October 2015 a letter of intent was signed between the International Labour Organisation and the governments of Bangladesh and Germany to develop and implement a low-cost no-fault work accident insurance scheme for the garment industry. At the time this report was in preparation, however, local sources reported that there had been no progress with this initiative. It was reported in October 2016 that the government was preparing to introduce a mandatory insurance scheme for Bangladeshi migrant workers, but no details were available at the time this report was in preparation.
Changes in Legislation Legislative Update There has been no recent legislation of significant relevance to non-life insurance.
Projected Legislation
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Supervision and Control ================================================================================= Update May 2018
In April 2018, the government signed an agreement with the World Bank for a loan of USD 65mn in conjunction with the new Bangladesh Insurance Sector Development Project. This envisages a total amount of USD 76mn to be spent over a period to 2023, with almost all of this allocated to improve the capacity of the Insurance Development and Regulatory Authority (IDRA) and Bangladesh Insurance Academy and to modernise and strengthen the state-owned Sadharan Bima Corporation (SBC) and its life counterpart Jiban Bima Corporation (JBC) and improve their efficiency. In the World Bank report of February 2017 relating to the development project, it was revealed that the government intends to make amendments to the Insurance Corporation Act 1973, which governs SBC and JBC, so that the reinsurance business of SBC would be organised into a new, discrete, reinsurance division which, at some point in the future, could be spun off as a separate company. In November 2017, the Finance Minister intimated that the government would reduce the fees payable by insurance companies to the Insurance Development and Regulatory Authority (IDRA) for the renewal of their annual licences. He also suggested that the government would introduce incentives to encourage insurers to develop new products, although no details were provided. ================================================================================= Progress in introducing other new rules and regulations needed to implement the terms of are the Insurance Act 2010 has been slow, with little discernible development in the last three years, much to the consternation of the local insurance companies. As a consequence, there has been no progress with issues such as solvency margins, reserving and expenses, where the situation which pertained under the previous legislation still prevails. The World Bank is planning to invest up to USD 80mn over the next 30 years in the Bangladesh insurance sector to improve regulation and supervision. In particular, this is expected to include: • finalising and implementing the remaining rules and regulations envisaged in the legislation • enhancing the resources and role of the Insurance Development and Regulatory Authority (IDRA), so that it may fulfil its obligation to implement and apply the legislation. In December 2015, the government announced that it would be making proposals to ease the conditions required for foreign insurance companies wishing to invest in the local market. These are likely to include a reduction in the minimum shareholding which must be taken by a Bangladeshi investor. At the time this report was in preparation there had been no apparent progress in this regard.
Bangladesh - Non-Life (P&C)
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Supervision and Control In April 2014, the prime minister announced that the government was discussing the introduction of mandatory insurance for workers in the garment manufacturing sector, following the Rana Plaza factory building collapse in April 2013 and the spate of fatal fires in 2012 and 2013. In October 2015 a letter of intent was signed between the International Labour Organisation and the governments of Bangladesh and Germany to develop and implement a low-cost no-fault work accident insurance scheme for the garment industry. At the time this report was in preparation, however, local sources reported that there had been no progress with this initiative.
Audits of insurance companies to check on compliance and any irregularities are envisaged by the legislation and the IDRA has developed terms of reference for such auditors to ensure that the work is performed by suitably qualified firms. At the time this report was in preparation, however, there had been little progress.
Supervision Insurance Supervisory Authority ================================================================================= Update May 2018
In April 2018, the government signed an agreement with the World Bank for a loan of USD 65mn in conjunction with the new Bangladesh Insurance Sector Development Project. This envisages a total amount of USD 76mn to be spent over a period to 2023, with almost all of this allocated to improve the capacity of the Insurance Development and Regulatory Authority (IDRA) and Bangladesh Insurance Academy and to modernise and strengthen the state-owned Sadharan Bima Corporation (SBC) and its life counterpart Jiban Bima Corporation (JBC) and improve their efficiency. The IDRA announced in March 2018 that it intended to crack down on the payment of excessive commissions and other incentives by insurance companies. Most non-life commissions are limited to a maximum of 15%, but it is said that some insurers may be paying amounts as high as 60%. In November 2017, the Finance Minister intimated that the government would reduce the fees payable by insurance companies to the IDRA for the renewal of their annual licences. He also suggested that the government would introduce incentives to encourage insurers to develop new products, although no details were provided. Following the expiry of the term of office of the former chairman of the IDRA in April 2017, the organisation did not have enough members to form a quorum for several months, which resulted in a significant slowdown in its activities. The new chairman, Md. Shafiqur Rahman Patwary, took office in August 2017.
Bangladesh - Non-Life (P&C)
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Supervision and Control In March 2017, the Ministry of Finance imposed a moratorium on the IDRA undertaking one of the audits it had proposed to perform on various non-life insurers which, it claims, have incurred excessive management expenses. Across the sector the IDRA estimated that some BDT 15bn (USD 191.25mn) in accumulated excessive expenses had been incurred as at the end of 2016. The insurance companies concerned had objected to the audits, but the IDRA rejected those requests and, as a consequence, Green Delta Insurance had appealed to the ministry. The intervention of the ministry appears to be in conflict with the Insurance Act 2010, which authorises the IRDA to undertake audits at its discretion and the matter is the subject of ongoing discussion. ================================================================================= An insurance regulatory office, known as the Insurance Development and Regulatory Authority (IDRA), was set up by the government, in accordance with the Insurance Development and Regulatory Act 2010. The IDRA is chaired by M Shefaque Ahmed, who was re-appointed as the chairman of the IDRA in March 2014 for a three-year term. He had previously been chairman for the period up to January 2014. The IDRA's main function is to implement the Insurance Act 2010 and the Insurance Development and Regulatory Authority Act 2010. The IDRA's mission is to protect the interests of policyholders and other stakeholders, supervise and regulate the insurance industry effectively and ensure orderly and systematic growth of the insurance industry. The IDRA is funded by all the life and non-life companies through a levy of 0.35% of the amount of gross premium written. This levy is due by the end of November each year. The authority's main task has been to frame rules which determine how the insurance laws will work in practice, although progress in this regard has been slow, much to the consternation of the local insurance companies. Any proposed new rules and regulations still require the approval of the Ministry of Finance, leading to a delay in implementing many of the basic conditions of the legislation. Following consideration of a draft submitted by the IDRA, the government approved the launch of a National Insurance Policy in June 2014. The aim of this initiative is to improve the awareness of insurance and its benefits, enhance the skills base of the industry, reduce problems related to insurance and encourage the development of new products. Insurance of public assets with state-owned insurers will be mandatory to ensure that compensation is available to potential claimants. Little progress in achieving the stated objectives had, however, been made at the time this report was in preparation. The World Bank is planning to invest up to USD 80mn over the next 30 years in the Bangladesh insurance sector to improve regulation and supervision. In particular, this is expected to include:
• finalising and implementing the remaining rules and regulations envisaged in the legislation
Bangladesh - Non-Life (P&C)
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Supervision and Control • enhancing the resources and role of the Insurance Development and Regulatory Authority (IDRA), so that it may fulfil its obligation to implement and apply the legislation. As a result of this support, the IDRA, which has been operating without qualified full-time staff, will be able to employ the estimated 200 people it needs to be able to function properly. The government has approved the recruitment of 150 technical staff and, at the time this report was in preparation in December 2016, the IDRA was starting this process. It is intended that there will be four executive directors to take responsibility for insurance, IT and human resources issues. In addition to building its team, the IDRA will invest in appropriate technology and then give priority to developing and implementing the remaining rules and regulations envisaged by the insurance legislation. In this regard, it plans to consult with other regulators in the region and local stakeholders before submitting proposals to the Ministry of Finance. The IDRA seems to be active in investigating and fining insurers for transgressions such as ignoring tariff rates, awarding high commissions and allowing credit terms.
Statutory Returns The Insurance Act 2010 requires all insurers to present audited revenue accounts, profit and loss accounts and balance sheets to the IDRA within six months (nine months for some documents) from the end of the annual period to which they refer. The financial year runs from January to December. In the absence of any rules or regulations issued under the new act, it is presumed that the penalties for default in complying with the requirements concerning returns would be in accordance with the old Insurance Act 1938, ie punishable with a fine of up to BDT 1,000 (USD 13), and in the case of a continuing default, with an additional fine which may be up to BDT 1,000 (USD 13) for every day during which the default continues. If false statements are made wilfully in the returns, the responsible employee of the insurer may be punishable with imprisonment for a term which may extend to three years, or a fine, which may extend to BDT 10,000 (USD 128), or both. There have not been any moves to introduce IFRS into Bangladesh.
Insolvency Regulation The Insurance Act 2010 makes provision for the regulator to appoint an administrator to an insurance company if this is believed to be necessary, although specific rules relating to this requirement had not been introduced at the time this report was in preparation. The main duties of the administrator are to recommend: • the transfer of the business to some other insurer • the carrying on of its business by the insurer • winding up the company • any other course.
Bangladesh - Non-Life (P&C)
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Supervision and Control There is no special legislation to protect policyholders and no central fund for this purpose.
It is understood that there have been no insolvencies amongst Bangladeshi insurers since private companies were reintroduced in 1984.
Consumer Dispute Resolution Insurance policies contain standard arbitration clauses, which specify how arbitrators and umpires are to be appointed in the event of a dispute. If the arbitration process brings no resolution, then aggrieved parties must go to a civil court if they wish to pursue the matter further. In October 2016, the largest non-life insurer, Green Delta, announced a partnership with the Bangladesh International Arbitration Center (BIAC) under which its insurance and commercial disputes will be referred to the BIAC for resolution. The Insurance Act 2010 stated that the IDRA should establish a committee for settlement of disputes in relation to the settlement of claims. This was set up in 2014, with its members drawn from the IDRA, and its decisions are binding on the parties to the dispute. There is no insurance or financial services ombudsman in Bangladesh.
Non-Admitted Insurance Regulatory Position Definition
Non-admitted insurance refers to the placing of insurance outside the regulatory system of the country in which the risk is located. A non-admitted insurance policy may be one that is issued abroad or one in which the risk(s) may be included in a global master policy by an insurer that is unauthorised in the country in which the risk is located. An authorised insurer is one that has been granted permission to do business in a country (or region) by the local supervisory authority. The text below describes the regulations that apply to non-admitted insurance for this country.
Summary Non-admitted insurance is not permitted in Bangladesh because the law provides that insurance must be purchased from local authorised insurers unless a certificate (known locally as a "no objection certificate" or "NOC") has been obtained from the IDRA to the effect that the risk cannot be insured locally.
Legislation
The legal provisions setting out the requirement for insurers to be authorised are contained in Section 8 of the Insurance Act 2010.
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Supervision and Control The legal provisions setting out the requirement for risks to be insured with locally authorised companies are contained in Section 19 of the Insurance Act 2010.
According to the English translation provided to Axco, the law states that "No person shall insure outside Bangladesh any risk in respect of any property or interests in Bangladesh unless a certificate has been obtained from the Authority to the effect that the risk in question cannot be insured in Bangladesh:
Provided that the Authority may grant an exemption to any person from the provisions of this section in respect of such property or interests and for such period as he may deem fit:
Further provided that the authority shall, if it refuses to grant a certificate under this section, communicate its decision in writing to the applicant for the certificate within 15 days from the date of receipt of such application".
Freedom of Services - outside the EEA
Bangladesh is a signatory to the General Agreement on Trade in Services (GATS), part of the trade liberalisation agenda of the World Trade Organization (WTO), which includes insurance. No specific provisions which would amend the general position on non-admitted insurance, however, appear to have been implemented in Bangladesh as a result of GATS, nor are any such provisions anticipated.
Insurers The following insurances are exceptions to the general prohibition on non-admitted placements: • marine export business • the business of companies which operate in Export Processing Zones • risks which cannot be insured in Bangladesh (with special permission from the regulator). Local Risk Definition
The Insurance Act 2010 does not define a "local risk", but refers to "any property or interest in Bangladesh" as requiring to be insured within the country, unless an exemption is granted.
Exchange Controls
Currency exchange control is not an issue for non-admitted placements because special permission is unnecessary before the remittance of premiums abroad.
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If cover were placed overseas following the granting of an exemption from the IDRA it would have the same status as a local placement and thus be eligible for tax deductibility.
Insurer Responsibilities
As far as is known, insurers involved in non-admitted placements do not have to warn buyers that they are not subject to local supervision but it would be prudent for them to do so.
Multinationals
There does not appear to be any legislation relating specifically to multinational insurance programmes or multinational insurers and such insurances and insurers are subject to the same rules as all other insurances and insurers.
DIC/DIL
The legislation does not address the use of global difference in conditions/difference in limits covers or excess layers above a primary local policy.
Premium Taxes
If cover were placed overseas either because it is allowed under the law, or because the IDRA has granted an exemption permitting such a placement, it would have the same status as a local placement and the premium taxes and stamp duty set out in the Taxation section of this report would thus be due.
Buyers Insurance buyers cannot place their business with non-admitted insurers abroad except for the following: • marine export business • the business of companies which operate in Export Processing Zones. Market sources advise that the payment of claims under such policies is not considered as income and hence there would be no tax implications.
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Supervision and Control Insurance for other risks cannot be placed overseas unless a certificate has been obtained from the IDRA to the effect that the risk cannot be insured in Bangladesh.
Intermediaries Intermediaries (agents) have to be authorised to do insurance business. Brokers are not currently a feature of the Bangladeshi intermediary market, although this is expected to change at some point in the future as a result of the introduction of the Insurance Act 2010. It is unlikely that agents would be involved in non-admitted insurance. If, however, the risk were located in an Export Processing Zone, or the appropriate certificate were obtained from the authorities, so that a non-admitted risk were permitted to be placed, then in theory an agent could be party to such a transaction.
Market Practice The rules governing non-admitted business appear to be followed by market participants. Although, in some markets, fronting is an effective way of avoiding difficulties with non-admitted business, this is not practical in Bangladesh as it is compulsory for private insurers to place at least 50% of their reinsurance requirements with the state-owned SBC. In an attempt to encourage more interest in investment in public-private partnership (PPP) projects the government decided, in March 2016, that future PPPs would be allowed to place up to 50% of their insurance cover in overseas markets, rather than the 100% placement with SBC and other local insurers. As this contravenes the terms of the insurance legislation, SBC has protested against this decision and the proposal was being discussed at the time this report was in preparation in December 2016.
Fines/Penalties Chapter V of the Insurance Act 2010 prescribes penalties for default in complying with, or acting in contravention of, the act. Under Section 132 the fine for transacting insurance business in contravention of the registration requirements in Section 8 is set at BDT 500,000 (USD 6,375). Anyone who is knowingly a party to a default shall be punishable with a maximum fine of BDT 500,000 (USD 6,375) and, in the case of a continuing default, with an additional fine of up to BDT 5,000 (USD 64) which may extend BDT 1,000 (USD 13) for every day the default continues. At the time this report was in preparation, however, no specific rules had been introduced in this regard.
Fronting
Conventional fronting cannot be arranged because, under the terms of the 1990 amendments to the Insurance Corporation Act 1973, it is compulsory for private insurers to place 50% of their reinsurance with the government-owned Sadharan Bima Corporation (SBC).
Bangladesh - Non-Life (P&C)
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Supervision and Control Nevertheless, with appropriate agreement between the parties, it may be possible for a private insurance company and SBC each to retain only a part of the risk, up to their retention limits, and cede the balance to the global insurer.
If this were acceptable to the global insurer, wordings would have to be approved by the IDRA and an application for a special rate would have to be referred to the Central Rating Committee.
The fronting commission for such an arrangement would be subject to agreement between the parties, but local sources suggest that 5.0% to 7.5% would be typical.
Company Registration and Operating Requirements Establishing A Local Company Under the Insurance Act 2010, Section 14 (Licensing for establishing branch and office of insurer), a new insurer must obtain registration from the Insurance Development and Regulatory Authority (IDRA) and pay a licence fee of BDT 100,000 (USD 1,275), for each class and sub-class of business transacted. Non-life insurers are also required to pay a fee of BDT 50,000 (USD 638) for each new branch office they open. The 2010 law requires that: • the applicant is incorporated or registered in Bangladesh or outside Bangladesh under the law of Bangladesh or any other country • the applicant must comply with the requirements for minimum paid-up share capital • the applicant must put up the minimum statutory deposits • the general characters of the management of the applicant must be good and the financial condition must be sound • the applicant must comply with the provisions of the law relating to the effecting of reinsurance arrangements • the projected volume of business of the applicant must be such as to ensure that it is able to meet its liabilities • if the applicant proposes to carry on life insurance business, it must have a suitably qualified actuary. In recent years, there had been a problem whereby a number of insurers had been operating without a chief executive officer, in contravention of the requirements of the insurance legislation, which allow for a maximum three-month period for this role to be vacant. In a similar vein, several appointees to CEO positions either failed to submit the necessary documents to the IDRA, or were found not to have the qualifications which they had claimed. Several companies failed to follow the correct procedures when nominating new CEOs and, as a consequence, the IDRA rejected the nominations or cancelled the appointments.
Bangladesh - Non-Life (P&C)
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Supervision and Control At the time this report was in preparation, the IDRA advised that all companies now have CEOs in place, but that some are not necessarily ideal in terms of their technical knowledge or management experience. Other local sources comment that the main problem lies in the lack of individuals within Bangladesh who are appropriately qualified to assume the role of CEO of an insurance company and that many of the smaller, or newer, insurers have struggled to attract the required level of senior staff.
Types of Insurance Organisation With the exception of the state-owned SBC, all non-life insurers are essentially joint stock companies, although there is provision in the law for mutuals and co-operatives. One of the private non-life companies is described as a co-operative whilst some others are described as "Islami", or takaful, companies and run in accordance with Islamic principles. Composite offices are not permitted. Banks are not allowed to own shares in insurance companies.
Foreign Ownership In March 2013 the government introduced new rules in respect of investments in insurance companies by foreign nationals, in accordance with the provisions of Section 22 of the Insurance Act 2010. Subsequently, in April 2013, it was announced that the maximum shareholding allowed by a foreign person or entity would be 60%. Prior to the new legislation, foreign investment in insurance companies had been prohibited. In December 2015, the government announced that it would be making proposals to ease the conditions required for foreign insurance companies wishing to invest in the local market. These are likely to include a reduction in the minimum shareholding which must be taken by a Bangladeshi investor. At the time this report was in preparation there had been no apparent progress in this regard.
Types of Licence Insurers are licensed separately to write life or non-life business. Composite licences are not available, in accordance with Section 13 of the Insurance Act 2010. Separate licences are not required for healthcare business. Both life and non-life offices write this class of insurance. As far as is known, no separate licence is required to write inwards reinsurance.
Capital Requirements The Insurance Act 2010 raised insurers' minimum paid-up capital with a view to strengthening the market's financial foundations. In the case of non-life companies the capital was increased from BDT 150mn (USD 1.91n) to BDT 400mn (USD 5.1mn).
The sponsors of private non-life insurers must pay up 40% of the minimum authorised capital of BDT 400mn (USD 5.1mn) at the outset. The balance of 60% is to be paid by public subscription within three years.
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Supervision and Control The authorised capital of the state insurer/reinsurer, Sadharan Bima Corporation (SBC), is BDT 2bn (USD 25.5mn), of which BDT 1bn (USD 12.75mn) is paid up.
Deposits of BDT 3mn (USD 38,251) must be made with the central bank, Bank of Bangladesh, for each class of business written such as fire, marine or miscellaneous. Deposits may form part of the paid-up capital.
Reinsurance companies are not referred to in the Insurance Act 2010 and, therefore, there is no reference to specific requirements for such operations. If the regulator were to receive an application from a professional reinsurer to establish a company in Bangladesh, it is likely that the requirements for direct insurers would provide the model.
There is, as yet, no move in the Bangladesh market towards a risk based capital regime.
Solvency Margins The Insurance Act 2010 states that rules will be published to determine how solvency margins will be calculated in the future. At the time this report was in preparation, no new rules had been published, much to the disappointment of local insurers, which regard a statutory solvency margin to be essential. Until the rules are finalised, Section No 27A of the Insurance Act 1938 continues to apply and specifies that non-life insurers must have assets invested in Bangladesh exceeding their liabilities by at least BDT 500,000 (USD 6,375), or 10% of the net premium income, whichever is the higher. Reinsurance companies are not referred to in the Insurance Act 2010 and, therefore, there is no reference to specific requirements for such operations. If the regulator were to receive an application from a professional reinsurer to establish a company in Bangladesh, it is likely that the requirements for direct insurers would provide the model. There is, as yet, no move in the Bangladesh market towards a risk-based capital regime.
Reserve Requirements Insurers are required to establish reserves for unexpired risks: 100% is to be reserved for marine and aviation hull business and 40% for all other classes. Some insurers carry a 50% reserve gross of reinsurance for the latter.
Companies are also required to establish an exceptional loss reserve, comprising 10% of net premiums in order to protect their net retained account in the event of catastrophic losses. This acts as a safety-net in case of under-reserving.
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Supervision and Control In addition to these reserves, insurers maintain provisions for outstanding claims and some offices set up reserves for IBNR (claims incurred but not reported) on a voluntary basis. Outstanding claims are reviewed and re-valued at the end of each financial year.
These provisions may be amended by the Insurance Act 2010, although, when this report was in preparation, local market sources confirmed that new rules had not yet been introduced.
Reinsurance companies are not referred to in the Insurance Act 2010 and, therefore, there is no reference to specific requirements for such operations. If the regulator were to receive an application from a professional reinsurer to establish a company in Bangladesh, it is likely that the requirements for direct insurers would provide the model.
Investment Regulations Section 41 of the Insurance Act 2010 states that assets must be invested according to the prescribed regulation. At the time this report was in preparation, however, no new regulations had been issued. Investments are not allowed, however, in the initial capital of any company in which a director of an insurance company, or a member of their family, has any significant interest. Insurance companies have been restricted in buying land, buildings or motorised vehicles by the IDRA, which must approve any such items. Reinsurance companies are not referred to in the Insurance Act 2010 and, therefore, there is no reference to specific requirements for such operations. If the regulator were to receive an application from a professional reinsurer to establish a company in Bangladesh, it is likely that the requirements for direct insurers would provide the model.
Retentions There are no statutory limitations on retention levels, such as levels not exceeding a specified percentage of shareholders' funds in respect of any one risk.
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 16
Taxation Insurance Premium or Policy Taxes and Charges ================================================================================= Update January 2018 In November 2017, the Finance Minister intimated that the government would reduce the fee of 0.35% on GWP payable by insurance companies to the Insurance Development and Regulatory Authority (IDRA) for the renewal of their annual licences, although no details were provided. It was reported in September 2017 that the National Board of Revenue (NBR) had issued demands to nine non-life insurance companies, relating to alleged non-payment of VAT on agents' commissions and reinsurance commission. The NBR claimed that these insurers, collectively, owed BDT 1.1bn (USD 14.03mn) in unpaid taxes dating back to 2013. The companies concerned were said to be disputing their liability for such taxes and the Bangladesh Insurance Association stated that it was lobbying the government not to impose the VAT. At the time this update was in preparation, it was not clear whether any further insurers had received tax demands, or that there had been any resolution of the dispute. =================================================================================
The following insurance premium and policy taxes apply. Insurance class Marine cargo by sea
Description of tax or charge
% (unless otherwise stated)
To be paid by
Stamp duty
BDT 1 for every BDT 1,500 of the sum insured and part thereof
Insured
Stamp duty
BDT 1 per policy for any voyage where the premium rate does not exceed 0.125%
Insurer
Cargo by truck, rail or air
Stamp duty
BDT 50 per consignment
Insured
Marine hull and liability
Stamp duty
BDT 1 for every BDT 1,000 of the sum insured and part thereof
Insured
Property
Stamp duty
BDT 25 when the sum insured does not exceed BDT 10,000. Renewals charged at 50%
Insurer
BDT 50 when the sum insured exceeds BDT 10,000. Renewals charged at 50%
Insurer
BDT 50 per certificate
Insurer
Motor - comprehensive
Stamp duty
- third party
Stamp duty
BDT 2 per certificate
Insurer
Personal accident
Stamp duty
BDT 2 where the sum insured is BDT 10,000 or less
Insurer
Personal accident covering death, total, partial and temporary disablement
Stamp duty
BDT 1 for each BDT 2,500 (or part thereof) of sum insured in excess of BDT 10,000
Insured
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 17
Personal accident covering death only or death, total and partial disablement
Stamp duty
BDT 0.05 for each BDT 1,000 (or part thereof) of sum insured where the annual premium does not exceed BDT 2.5 per BDT 1,000 of sum insured
Insured
Workers' compensation
Stamp duty
BDT 2 for every BDT 100 of premium amount and part thereof
Insured
Healthcare
Stamp duty
BDT 50 per policy (charged by market agreement in the absence of any specific guidance in the relevant legislation)
Insurer
Any other policy not falling into the categories above
Stamp duty
BDT 25 where the sum insured does not exceed BDT 10,000. Renewals charged at 50%
Insurer
BDT 50 where the sum insured exceeds BDT 10,000. Renewals charged at 50% All non-life classes*
VAT
15%
Insured
All non-life classes
Supervisory levy
0.35% on gross written premium
Insurer
Note: * excluding insurance of companies which are 100% export orientated. Source: Market sources
A revenue stamp of BDT 4 is affixed to every receipt for a premium exceeding BDT 200 (USD 3) (paid by the insurer). The Insurance Development & Regulatory Authority (IDRA) is funded by a levy on insurers of 0.35% of the gross premium written. This is payable by the end of November each year. Various stamp duties are the responsibility of the policyholder to pay, as detailed in the table above. In practice, these are added to the premium and collected by insurers, who then remit to the tax authorities. Other stamp duties are the responsibility of the insurer, as listed in the table above, and are not collected from the policyholder. In October 2012, the National Board of Revenue (NBR) introduced a 10% advance income tax on insurance companies, applied in respect of premiums received. The NBR stated that, according to the Income Tax Ordinance 1984, an insurance premium is a service and thus subject to tax. This tax can be offset against the corporation tax due on profits at the end of each year.
Legislative Update There have been no recent changes in legislation which might affect taxation.
Withholding Taxes on Premiums Paid Overseas No taxes are withheld from premiums paid overseas for insurance and reinsurance.
VAT
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 18
Taxation ================================================================================= Update January 2018
It was reported in September 2017 that the National Board of Revenue (NBR) had issued demands to nine non-life insurance companies, relating to alleged non-payment of VAT on agents' commissions and reinsurance commission. The NBR claimed that these insurers, collectively, owed BDT 1.1bn (USD 14.03mn) in unpaid taxes dating back to 2013. The companies concerned were said to be disputing their liability for such taxes and the Bangladesh Insurance Association stated that it was lobbying the government not to impose the VAT. At the time this update was in preparation, it was not clear whether any further insurers had received tax demands, or that there had been any resolution of the dispute.
================================================================================= VAT of 15% applies to all insurance policies except life and the insurances of those companies which are 100% export orientated, as defined by the government. Such companies have to produce certificates from the authorities to prove their exempt status. Policyholders who pay their premiums by instalment must pay VAT on 100% of the premium at the beginning of the period of insurance.
Corporation Tax Corporate income tax is levied at a rate between 25% and 45% depending upon the business sector in which the taxpayer operates. The rate of tax for publicly quoted insurance companies is 40% and the rate for unlisted insurance companies is 42.5%. The National Board of Revenue (NBR) announced in October 2012 that a 10% advance income tax on insurance companies would be applied in respect of premiums received. The NBR stated that, according to the Income Tax Ordinance 1984, an insurance premium is a service and thus subject to tax. Although this tax can then be offset against the corporation tax due at the end of each year on profits, the insurance industry is opposed to this measure. Premium and claims reserves are not subject to taxation.
Captives There is no tax legislation affecting the use of offshore captives and no favourable tax regime to encourage the formation of onshore captives.
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 19
Legal System Summary and Trends Widespread ignorance of their legal rights, and an inability to pay legal fees, mean that most Bangladeshis are not litigious. Few civil cases are said to reach the courts and those that do are settled for awards which are very small in comparison with those of Western Europe or North America. Since the collapse of the Rana Plaza building in April 2013, in which 1,134 people died, and with fatal fires still a disturbing feature of local industry, attention has been drawn to employment conditions and the responsibility of factory owners for the welfare of their staff. This is likely to lead to a greater inclination by victims to bring claims, encouraged by the legal profession, although few can afford the cost of lawyers' fees.
Basis of Legal System The legal system in Bangladesh is based on English common law, the codified civil and criminal law inherited from British India and legislation passed both prior and subsequent to partition in 1947 and independence in 1971. In relation to insurance, Bangladeshi law recognises the admissibility of London and other foreign market wordings for local insurance policies. The duty of disclosure is applied and the principle of negligence acknowledged, although punitive damages are not a feature of the legal system. The Limitation Act 1908, inherited from British India, prescribes a limit of two years for tort and three years for contractual cases.
Litigiousness Widespread poverty, lack of education and ignorance of their legal rights combine to prevent Bangladeshis being litigious. Since the collapse of the Rana Plaza building in April 2013, in which 1,134 people died, and with fatal fires still a disturbing feature of local industry, attention has been drawn to employment conditions and the responsibility of factory owners for the welfare of their staff. This is likely to lead to a greater inclination by victims to bring claims, encouraged by the legal profession, although few can afford the cost of lawyers' fees.
Access to the Courts High court costs are far beyond the reach of most Bangladeshis in what is one of the most impoverished countries in the world. Those who can afford to must pay lawyers' fees, regardless of the outcome of the case. There is no provision for lawyers to act on a "no win no fee" basis. Lawyers are not allowed to advertise their services and the practice of "ambulance chasing" is unknown.
Court Procedure The supreme court sits at the apex of the judicial structure, which also comprises the appellate and high court divisions. The chief justice and the other judges who preside over the divisions are appointed by the president of the republic and hold office until they reach the age of 65.
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 20
Legal System The appellate division hears appeals on judgements, decrees, orders or sentences issued by the high court division, which in turn controls subordinate courts, for which it acts as the appellate court. District and sessions judges, assisted by various classes of magistrate, preside over the courts at local level.
Civil actions for negligence are rarely referred to the courts, as Bangladeshis generally are not litigious. Judicial procedures can be lengthy, which is likely to discourage those seeking redress from proceeding, even if they could afford it, and most claims are settled out of court.
When claims do come to court, judges, rather than juries, assess awards. Alternatively, some cases may be referred to arbitration. There is no ombudsman service and none was planned at the time this report was in preparation.
The judiciary is not fully independent, although it is seen as the least politicised of Bangladesh's institutions.
In September 2014 parliament passed an amendment to the constitution, which restored the authority of the parliament to impeach supreme court judges for misconduct or incapacity.
Assessment of Compensation The few civil cases which are heard in court are settled with awards that are very low in comparison with those made in Western Europe and North America. It is understood that, in calculating damages in civil cases, courts in Bangladesh do not follow any tariff, caps or thresholds. There are no structured settlements. On appeal, awards made by lower courts are upheld routinely. Interest can be paid on awards. Bangladeshi judges do not make awards for punitive and exemplary purposes as they are not a feature of the legal system. It is not known whether damages can be awarded for loss of office or for racial or sexual discrimination. Insurance policies contain standard arbitration clauses, which specify how arbitrators and umpires are to be appointed in the event of a dispute. The Insurance Act 2010 stated that the IDRA should establish a committee for the arbitration of disputes in relation to the settlement of claims. This was set up in 2014, with its members drawn from the IDRA, and its decisions are binding on the parties to the dispute. Although not the subject of civil action by victims or their families, the collapse of the Rana Plaza building in April 2013 led to the establishment of a compensation fund, under the auspices of the International Labor Organisation, by western retailers which purchased goods from the factories housed in the premises. The families of those who died received BDT 2.9mn (USD 36,975), while disabled victims received BDT 4.2mn (USD 53,551). There were over 2,800 claimants. The Bangladesh government did not contribute to the fund, having separately paid out a total of USD 2.25mn to victims.
Bangladesh - Non-Life (P&C)
Last Updated: May 2018 Country Visited: Apr 2017 21