Some 33 percent life insurance claims in Bangladesh remain unsettled thanks to weak financial health and lack of governance, and in the process erode people’s trust in insurers.
Of the total insurance claims of Tk 2,760 crore of the 32 life insurance companies as of March, 67 percent were settled, according to an evaluation report of the Insurance Development and Regulatory Authority (IDRA).
The remaining claims of Tk 914 crore have remained unsettled.
Some 11 companies were blamed for the low settlement rate: BAIRA Life, Golden, Homeland, Meghna, MetLife, Progressive, Rupali, Padma Islami, Sunlife, Sunflower and Fareast Islami Life Insurance.
American MetLife, which dominates the insurance sector with a 39.27 percent market share, has the highest rate of unsettled claims: 46 percent. As of March, the company has unsettled claims amounting to Tk 310.6 crore.
A huge amount of unsettled claims pushed owners of Padma Islami Life Insurance to sell their shares to S Alam Group, which recently bought 45 percent stake into the company. Its claim settlement rate was 82 percent, with Tk 28.12 crore in unsettled claims.
Among the claims, the settlement of death claims was the lowest at 55 percent.
As of March, there were death claims of Tk 133.68 crore, 44.89 percent of which remain unsettled, the report said.
There were maturity claims worth Tk 1,626 crore until March, 68.36 percent of which was settled.
In a life insurance policy with maturity benefits, the insured will be entitled to claim maturity benefits if he/she outlives the term of the policy.
The success rate of surrender claims, ones where the policyholder decides to exit the policy before maturity, was the highest at 96.47 percent among all types of claims.
The settlement rate for survival benefit, which is paid to policyholders at regular intervals during the tenure of the policy, was 54.31 percent and group health 78 percent.
The poor return from investment is one of the major reasons for the high unsettlement rate, said Gokul Chand Das, a member of the IDRA.
Insurance companies have a tendency to invest in fixed assets like building, floor and land, from which the return is minimal, he added.
Life insurance companies have Tk 29,118 crore of funds invested in different sectors, from which the average return in the first quarter of 2018 was only 2 percent.
During the quarter, life insurers invested Tk 2,470 crore, or 8.48 percent of their total fund, in fixed assets and the return was only Tk 10 crore, which is 0.40 percent of the investment.
The IDRA has asked the companies to diversify investment to increase returns, Das said, adding that clients’ lack of awareness about insurance rules also accounted for the high unsettlement rate.