Insurers can’t use life funds as collateral

Insurers cannot use life funds as collateral to help any individual or organisation take out loans from banks or non-bank financial institutions, says the Insurance Development and Regulatory Authority (IDRA).

It has warned that any insurer not complying with this directive will face punitive measures as per the insurance act 2010.

A circular signed by IDRA Chairman Mohammad Jainul Bari on Sunday said some insurers recently used fixed deposit receipts (FDRs) created with life funds as collateral to help organisations or individuals get loans from banks or non-bank financial institutions.

This is harming the interests of insurance policyholders and also creating risks of transfer or embezzlement of their funds, it said.

The entire amount of investable funds, including life funds, should be invested as per the insurance regulations 2019 considering the interests of policyholders, the circular also said.

It further said it is a punishable offence to use life funds as collateral.

The IDRA said this directive should be strictly complied with to ensure transparency in the insurance sector and safeguard the interests of policyholders.