The insurance sector in Bangladesh is governed by the Insurance Act of 1938, which was amended in 1993. The Controller of Insurance in the Department of Insurance, housed within the Ministry of Commerce, regulates and oversees the insurance sector. However, the Bangladesh Bank website states that a separate Insurance Regulatory Authority is being created in Bangladesh. The Asian Development Bank (ADB), in its several observations since 1998, finds that the insurance sector in Bangladesh is underdeveloped and poorly regulated. As mentioned in a 2003 report published by the Bangladesh Enterprise Institute, the insurance industry also suffers from undue political interference, fraudulent claims, inadequate risk assessments, and limited and poor quality private sector participation. The legal framework has also been found to be weak, with even weaker enforcement. The regulatory staff lacks formal training or industry experience, as well as infrastructure or incentives to enforce compliance with laws. The ADB expresses discontent that despite substantial support given by the ADB to strengthen Bangladesh's securities and insurance regulatory frameworks, Bangladesh has shown scant commitment to reform. Nevertheless, a new loan has been sanctioned by the ADB in 2007 to overhaul the insurance legislation and create a new regulatory authority in line with international best practices, with an expected completion date of December 2007.

General Overview

The insurance sector in Bangladesh is governed by the Insurance Act of 1938, which was amended in 1993. The Chief Controller of Insurance under the Ministry of Commerce (MoC) provides regulatory oversight. According to the 2001 Asian Development Bank (ADB) report, "insurance regulation and supervision... are extremely weak, putting participants at risk and retarding the mobilization of long-term savings" (p. 2). Further, the senior regulatory staff at the Department of Insurance (DoI) has neither industry experience nor formal training, and the organizational structure, policies, and procedures of the DoI are also too deficient to enable effective enforcement of insurance laws . A 2006 news release by the ADB echoes a similar sentiment, stating that the insurance sector is "underdeveloped" and "characterized by a very limited range of products and services, poorly trained insurance staff, and few investment opportunities." It also finds the legal framework weak, which adversely impacts the reputation of the industry. In light of the situation, the ADB announces a loan to Bangladesh to buttress the government-led reforms in the securities and insurance sectors. In the insurance sector, the loan aims to overhaul the insurance legislation and create a new regulatory authority in line with international best practices. The ADB has pledged to bear three-fourths of the estimated cost of the project, with the government of Bangladesh shouldering the remaining $1 million. The expected completion date of the project, which will be executed by the Finance Division of the Ministry of Finance (MoF), is December 2007. The semi-annual publication of the Bangladesh Bank, titled "Financial Sector Review" and published in June 2007, also brings attention to the undeveloped regulatory framework governing the rapidly growing insurance sector in Bangladesh, which has the potential of destabilizing the larger financial sector. The publication finds the trend of micro insurance schemes to bring the rural poor into the insurance sector encouraging, but again calls for better regulatory mechanisms to protect the rights of small consumers. The publication further recommends greater supervisory-level coordination to make regulation in the financial system as a whole more effective .

A 2005 ADB report mentions that, since 1993, the ADB has consistently attempted to provide substantial support to the Government of Bangladesh to make its insurance regulatory and institutional framework effective and robust. However, it has found that recommended reforms are not yet in place, evidently due to the government's weak commitment to reform. The report therefore declares that "ADB's future assistance in these areas should be conditional upon major progress in reforms rather than an ex ante agreement" (ADB 2005, p. vii ).

A 2003 analytical report edited by Sobhan and Werner lists the following drawbacks in the insurance industry in Bangladesh: (1) undue political interference; (2) absence of or insufficient assessments for insurable risks; (3) policy issuance without premium payment; (4) false insurance claims; (5) difficulties in realization of genuine claims; and (6) corrupt practices like accepting bribes for document processing or tax evasion on underwriting, etc. Further, private sector products are limited and service is poor, with high defaults on claims and inadequate avenues for investment of funds . By way of recommendation, Sobhan and Werner note that the World Bank and the ADB have suggested strengthening the legal and regulatory framework of the insurance industry. In particular, they call for amendment of the company law to facilitate the merger of unprofitable insurance companies; establishment of internationally aligned corporate governance principles; vesting greater enforcement authority with the chief regulator of the industry - the Chief Controller of Insurance within the MoC; and bringing the industry under the regulation of the MoF so as to enable bringing banking, securities, insurance, and tax sectors under one unified regulator .

The Sadharan Bima Corporation (SBC) website describes the developments in the Bangladeshi insurance industry over time. The private-sector driven insurance industry that operated during British control and after independence, in the former East Pakistan was nationalized by the Bangladesh government that came into existence in 1971. The 1972 Presidential Order No. 95 nationalized all types of insurance business, except postal and foreign life insurance, and created five government insurance corporations in the life and non-life sectors. Later, Insurance Corporation Act VI of 1973 abolished the five corporations to give way to two nationalized corporations: the SBC for general insurance and the Jiban Bima Corporation (JBC) for life insurance. In 1984, with the promulgation of the Insurance Corporations (Amendment) Ordinance 1984, the insurance business was reopened to private sector participation. The SBC website discloses that, as of 2007, the insurance sector in Bangladesh has two state-owned corporations, SBC and JBC, as well as 43 private sector general insurance and 17 private sector life insurance companies. However, the legal framework favors public sector domination of the insurance industry. The Insurance Corporation (Amendment) Act of 1990 provides that "50% of all insurance business relating to any public property or to any risk or liability appertaining to any public property shall be placed with the SBC and the remaining 50% of such business may be placed with this corporation or with any other insurers in Bangladesh." The SBC website adds that "for practical reason and in agreement with the Insurance Association of Bangladesh, SBC underwrites all the public sector business and 50% of that business is distributed among the existing 43 private general insurance companies equally under National Co-insurance Scheme." Regarding reinsurance, the same act requires companies to place 50% of their reinsurance business with the SBC. The remainder may be placed with any insurer, whether in Bangladesh or abroad, or may be placed with the SBC. In practice, nearly every company places 100% of its reinsurance business with the SBC. The SBC website adds that, in 2005, the SBC's direct business amounted to Bangladeshi currency BDT 886 million, and its reinsurance premium income was BDT 2627 million. The Bangladesh Bank's 2007 publication, titled "Financial Sector Review," provides statistics on the performance and growth of life and non-life insurance sectors in Bangladesh in recent years. The SBC as well as the private-sector non-life insurance companies saw significant growth in gross premium income in 2005; the latter also in underwriting profit and income from investment. Further, premium income of the JBC and private-sector life insurance companies also showed remarkable growth in 2005, with first year premium income for the private companies increasing by an impressive 51%. The Bangladesh Bank believes that the spectacular growth is mainly due to the introduction of micro-insurance schemes, which bring the rural population into the insurance fold, since renewal premium income showed a decline in the same period .

The Banglapedia website mentions two of the many institutions, associations, and professional organizations that cooperate to promote a more profitable and reputable insurance industry in Bangladesh. These include the Bangladesh Insurance Association and Bangladesh Insurance Academy. The former was created in 1988 to protect and promote the interests of the member insurance companies. The Bangladesh Insurance Academy, per its website, was set up in 1973 by a government resolution under the administrative control of the MoC to provide insurance education and training to professionals in this sector.

The Principles

ICP 1 Conditions for effective insurance supervision

II

According to the 2001 ADB report, "insurance regulation and supervision... are extremely weak, putting participants at risk and retarding the mobilization of long-term savings" (p. 2). A 2006 news release by the ADB finds the legal framework weak, which adversely impacts the reputation of the industry. The 2003 Sobhan and Werner edited report also finds that the DoI provides "no leadership or incentive to take a more active role in monitoring and intervention in its supervisory capacity" (p. 48). However, the information cited does not specifically address Bangladesh's compliance with ICP 1 Conditions for effective insurance supervision.

ICP 2 Supervisory objectives

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 2 Supervisory objectives.

ICP 3 Supervisory authority

II

The Chief Controller of Insurance of the DoI under the MoC provides regulatory oversight. According to the 2001 ADB report, the senior regulatory staff at the DoI has neither industry experience nor formal training, and the organizational structure, policies, and procedures of the DoI are too deficient to enable effective enforcement of insurance laws. Also, the DoI has not yet been computerized, which further hampers enforcement and reach. An undated article on the Bangladesh Bank website titled "Financial Sector in Bangladesh" states that a distinct Insurance Regulatory Authority is in the process of being created in Bangladesh. However, the information cited does not specifically address Bangladesh's compliance with ICP 3 Supervisory authority.

ICP 4 Supervisory process

II

There is insufficient publicly-available information as to Bangladesh's compliance with ICP 4 Supervisory process.

ICP 5 Supervisory cooperation and information sharing

II

There is no publicly available information as to Bangladesh's compliance with ICP 5 Supervisory cooperation and information sharing.

ICP 6 Licensing

II

The Banglapedia website spells out the government guidelines for the creation of an insurance company under the Insurance Act 1938. Company sponsors must submit an application form to the Chief Controller of Insurance for prior permission. The application passes through three levels of scrutiny, comments, and recommendations starting with the Chief Controller, going to the MoC, and ending with the Cabinet Committee specially constituted for this purpose. If the Committee approves the application, the affirmation gets back to the sponsors of the company via the MoC and the Chief Controller. Once approved, the sponsors are required to register as a public liability company with the Registrar of Joint Stock Companies under the Companies Act, obtain permission from the SEC to issue shares, and make reinsurance arrangements. The Chief Controller grants license to conduct business after these steps. There is little further information publicly available as to Bangladesh's compliance with ICP 6 Licensing.

ICP 7 Suitability of persons

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 7 Suitability of persons.

ICP 8 Changes in control and portfolio transfers

II

The 2003 report edited by Sobhan and Werner observes that major stakeholders in private insurance companies control at least 40% of the shares, making independent shareholder intervention difficult. However, there is little further relevant information in relation to Bangladesh's compliance with ICP 8 Changes in control and portfolio transfers.

ICP 9 Corporate governance

II

The 2003 analytical report edited by Sobhan and Werner mentions that the World Bank and ADB studies have suggested that formulating corporate governance principles that are internationally aligned would favorably impact the insurance sector in Bangladesh. A 2006 news release on the ADB website announces a $3 million ADB loan to Bangladesh to "improve good governance practices in the capital market and the insurance sector." The project will be executed by the Finance Division of the MoF and reach completion expectedly by December 2007. There is little further information publicly available as to Bangladesh's compliance with ICP 9 Corporate governance.

ICP 10 Internal control

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 10 Internal control.

ICP 11 Market analysis

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 11 Market analysis.

ICP 12 Reporting to supervisors and off-site monitoring

NC

Per the 2003 World Bank ROSC on Accounting and Auditing, the national accounting and auditing practices are not in line with internationally acceptable standards and suffer from "institutional weaknesses in regulation, compliance, and enforcement of standards and rules" (cover page). The World Bank therefore recommended improving the accounting and auditing framework by adopting International Financial Reporting Standards (IFRSs) without any modifications and setting up an independent oversight body for enforcing international standards. The financial reporting of insurance companies is regulated by the Chief Controller of Insurance under the 1938 Insurance Act. The World Bank observes that though the Chief Controller of Insurance has been vested with adequate regulatory powers, it seldom exercises them to enforce compliance. The external auditors appointed by the Controller to conduct special audits of insurance companies' compliance with reporting and prudential requirements are also not well-versed in the insurance sector rules and regulations. According to a comparative analysis of national standards with IFRSs conducted by the South Asian Federation of Accountants (SAFA) for five South Asian countries including Bangladesh, the Institute of Chartered Accountants of Bangladesh (ICAB) has adopted most IFRSs as Bangladesh Accounting Standards; however, the national standards are modified to reflect local legal requirements. These national standards are mandatory for all listed companies and recommended for other entities. The SAFA analysis added that the ICAB is making efforts to eliminate the differences with the international equivalents. As of 2007, Bangladesh had adopted 31 IFRSs and 5 were under review.

The IAS Plus website maintained by Deloitte & Touche Tohmatsu also provides information on Bangladesh's alignment with international accounting standards. According to this source, the Bangladesh Accounting Standards (BASs) are based on the older International Accounting Standards (IASs) that were developed by the International Accounting Standards Committee (IASC) rather than the improved IASs and the new IFRSs developed by the International Accounting Standards Board (IASB). Further, "adopted BASs are legally enforceable for listed companies under the SEC Rules. They are not mandatory or enforceable through the ICAB by-laws." In relation to the insurance sector, the IAS Plus website finds that neither are the insurance companies in Bangladesh mandated to comply with the BASs by the 1938 Insurance Act, nor do they comply with them in practice.

ICP 13 On-site inspection

II

The 2003 analytical report edited by Sobhan and Werner mentions that the DoI has neither well-trained staff nor the institutional infrastructure to take an active monitoring role as part of its supervisory capacity. However, this information is not sufficient to assess Bangladesh's compliance with ICP 13 On-site inspection.

ICP 14 Preventive and corrective measures

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 14 Preventive and corrective measures.

ICP 15 Enforcement or sanctions

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 15 Enforcement or sanctions.

ICP 16 Winding-up & exit from the market

II

The 2003 analytical report edited by Sobhan and Werner notes that between 2001 and 2002, two petitions for winding up an insurance company came before the courts, reflecting a "significant and welcome shift in judicial approach to petitions for winding up of inability to pay debts of financial institutions on equal footing with other companies" (p. 41). However, there is little further information publicly available regarding Bangladesh's compliance with ICP 16 Winding-up & exit from the market.

ICP 17 Group-wide supervision

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 17 Group-wide supervision.

ICP 18 Risk assessment and management

II

The 2003 analytical report edited by Sobhan and Werner lists as major drawbacks in the insurance industry the absence of or insufficient assessments for insurable risks and policy issuance without premium payment, due mainly to political interference. It also observes that the private sector companies suffer from high defaults on claims and inadequate avenues for investment of funds. However, there is little further information publicly available regarding Bangladesh's compliance with ICP 18 Risk assessment and management.

ICP 19 Insurance activity

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 19 Insurance activity.

ICP 20 Liabilities

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 20 Liabilities.

ICP 21 Investments

II

According to the 2005 ADB report, an ADB-funded Capital Market Development Program (CMDP) in Bangladesh in effect since 1997 required the government of Bangladesh to relax the investment guidelines for insurance companies under the Insurance (Amendment) Act. However, an assessment of the program found that "the government did not actively pursue this condition" (p. 4). There is little further information publicly available that directly addresses Bangladesh's compliance with ICP 21 Investments.

ICP 22 Derivatives and similar commitments

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 22 Derivatives and similar commitments.

ICP 23 Capital adequacy and solvency

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 23 Capital adequacy and solvency.

ICP 24 Intermediaries

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 24 Intermediaries.

ICP 25 Consumer protection

II

There is insufficient information publicly available as to Bangladesh's compliance with ICP 25 Consumer protection.

ICP 26 Information, disclosure & transparency towards the market

II

There is insufficient information publicly available regarding Bangladesh's compliance with ICP 26 Information, disclosure & transparency towards the market.

ICP 27 Fraud

II

A 2003 analytical report edited by Sobhan and Werner lists the following drawbacks in the insurance industry in Bangladesh: false insurance claims and corrupt practices like accepting bribes for document processing or tax evasion on underwriting. There is little further information publicly available regarding Bangladesh's compliance with ICP 27 Fraud.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

II

The Bangladesh Bank's Guidance Notes on the Prevention of Money Laundering declares that the Money Laundering Prevention Act of 2002 specifically deals with money laundering, and its provisions "supersede whatever may contain in any other Act in force in Bangladesh" (undated p. 15). The Guidance Notes further spell out the scope of the Act. Section 2 Tha of the Act defines money laundering as an offense and sets out the applicable penalties. Section 19 Ka of the Act requires all entities engaged in financial activities to institute "know your customer" procedures. This Section also requires that such entities collect and maintain reliable and complete information on their customers, along with transaction records, for a minimum of five years after the relationship has been terminated. Section 19 Ga of the Act requires all institutions engaged in financial activities, as well as their staff, to report to the Bangladesh Bank any suspicions of money laundering. Section 19 Kha of the Act requires that these institutions provide the Bank with customer identification and transaction records on demand. The Guidance Notes add that non-compliance by banks and other financial institutions with respect to customer identification and record keeping stipulations of the Act will attract "proper action for such negligence and failure" (undated p. 17) by the licensing authority, including imposing fines in the range of Taka ten thousand and Taka one lac.

The 2005 U.S. DoS report observes that the Money Laundering Prevention Act of 2002 "has given a powerful boost to anti-money laundering vigilance in Bangladesh." However, the 2007 U.S. DoS report comments that "despite some advancement, the government of Bangladesh's anti-money laundering/terrorist financing regimes should be strengthened to comply with international standards." It also recommends that Bangladesh criminalize terrorist financing and create a "viable Financial Intelligence Unit" to analyze suspicious transactions intelligence. However, the cited information is insufficient to assess Bangladesh's compliance with ICP 28 Anti-money laundering/ Combating the Financing of Terrorism.