Home ›› 03 Apr 2023 ›› Front
A recent investigation by the Insurance Development and Regulatory Authority (IDRA) in Swadesh Islami Life Insurance Company Ltd has unearthed severe corruption, irregularities and mismanagement that took place since its inception.
The company has been operating in violation of insurance laws, including using the chief executive officer’s (CEO) personal bank account for business transactions, abnormal management expenses beyond the sanctioned limit and paying extravagant agent commissions.
The rampant corruption and irregularities have plagued the company to the point that it failed to settle a vast number of its insurance claims. Currently, it has more lapsed insurance policies than active ones.
“The company is operating in violation of insurance laws. The company’s former and present Board of Directors have completely failed to keep its excess management expenses within the allowed limits,” an IDRA official told The Business Post, requesting anonymity.
“The overall management of the company has been flawed since its inception. This has culminated in excess spending in management, conducting business illegally, and paying excessive commissions by company authorities.
“The Board of Directors and the management authority are jointly responsible for this mismanagement in the company,” the official said.
All for the CEO
The IDRA investigation found proof that Swadesh Islami has made business transactions using the personal bank account of the company’s CEO Ekhtiar Uddin Shahin.
Reviewing the CEO’s bank account statements, IDRA found that the company has completed at least 59 transactions of clients’ premiums through Ekhtiar’s account at a private bank’s Nabinbag branch in Dhaka’s Khilgaon.
Moreover, between January 2019 and August 2022, Swadesh Islami Life’s managing authority illegally paid target incentives to Ekhtiar against the annual premium collection, said the IDRA report.
During the period, he received a total of Tk 80.56 lakh from the company in honorarium and incentives.
The investigation team has recommended taking necessary actions against him as per the Insurance Act 2010 for the irregularities. Ekhtiar was unavailable for comments.
Tk 15.15cr excess spending
On average, Swadesh Islami Life has exceeded the allowable management expenses by 67.49 per cent every year since its inception.
IDRA investigation found that the company’s management expenses increased abnormally during 2019-2022. In violation of the Insurance Act, the company saw additional management expenses of Tk 15.15 crore in the four years — Tk 3.79 crore a year on average.
Management cost consists of direct and indirect expenses of insurance companies, according to the Insurance Act. The act already has fixed a specific limit on management costs, which should be followed by the insurers and indicates affirmative financial conditions of insurers.
On the other hand, excessive management costs cut short assets, reduce investment return, and notify the fragile financial conditions of insurers.
An IDRA official said that the management costs of insurance companies in Bangladesh are comparatively higher than in many countries. In the past few years, however, excessive costs have been reduced to some extent due to different steps and fines imposed by IDRA.
According to the law, 5-95 per cent management cost for insurance companies is acceptable in line with the policy and tenure.
In cases of one to five years of insurance policies, 95 per cent of the premium money of the first-year management costs is acceptable and in cases of the second to fifth year, this cost will not be beyond 25 per cent.
Similarly, in cases of six to 10 years of insurance policies, 94 and 22 per cent of first-year and later-year premiums will be acceptable for management costs.
The IDRA probe report said that in 2018, Swadesh Islami Life’s excess management cost was about 115.41 per cent over the sanctioned limit.
From 2019 to 2021, the expenditure decreased by 41.88 per cent, 45.54 per cent and 72.20 per cent, respectively. But the excess spending increased again to 110.35 per cent in 2022.
Spending Tk116 to collect premium of Tk100
According to the investigation report, Swadesh Islami Life earned a gross premium of Tk 35.26 crore in the last four years or about Tk 8.81 crore on average annually. It spent Tk 116 in a year to collect a premium of Tk 100 on average during the period.
At the same time, the company spent about Tk 7.84 crore on agent commission against an average gross premium of Tk 8.81 crore per annum.
The IDRA report identified the extravagant agent commissions as the main reason for Swadesh Islami Life’s overall excessive spending.
On top of it, the company paid Tk 9.47 crore during 2021-2022 in salaries and allowances to the development officers, ignoring IDRA instructions.
Lapsed policies outnumber active policies
Meanwhile, Swadesh Islami Life Insurance Company has failed to renew about 75 per cent of its policies.
At least 27,910 of its policies lapsed during 2019-2022 while it had only 18,292 active policies, according to IDRA. The growth of new policy issuance during that period was 42.96 per cent, while the growth of lapsed policy stood at 43.63 per cent.
According to the report, Swadesh Islami Life has completely failed to renew insurance policies. Hence, it will not be able to settle its customers’ insurance claim settlements at the end of policy maturity.
State of the company
In 2015, Swadesh Islami Life withdrew Tk 5 crore from paid-up capital on the condition of recapitalising the money, which it never did. Currently, the company’s paid-up capital stands at Tk 18 crore.
Besides, the insurer’s life fund has been in the negative as of August 31, 2022, since its launch.
At present, the company has liabilities of around Tk 8.84 crore. According to a 2020 audit, its assets are worth around Tk 21.18 crore.
The company is yet to submit a liability assessment report even though it has to begin paying the overdue insurance claims from 2024.
Since it started operating, the company has invested a total of Tk 14.82 crore earning an average return of Tk 1.21 crore or 8.11 per cent per annum. However, it has been spending more than the sanctioned limit by about 107.55 per cent per annum.
No information about the company’s financial report was found on its website.
