he Insurance Development and Regulatory Authority (IDRA) of Bangladesh has proposed stricter limits on management costs for life insurers and is seeking stakeholder feedback on amendments to the “Life Insurance Business Management Expense Maximum Limit Rules, 2020,” within the next 15 days.
However, the proposed guidelines have generated mixed reactions within the sector. While the regulator claims that the move will enhance discipline and efficiency, many industry stakeholders believe that the new cost structure could impose additional burdens on most companies.
A senior insurance analyst, speaking to TBS on condition of anonymity, criticised the proposed guideline for lacking research or consultation with stakeholders. He warned that approving it could strain healthy companies and worsen conditions for those already in crisis.
Proposed management cost structure
In the draft proposal, IDRA has suggested significant changes to management costs for different types of insurance policies. New rates have been proposed based on policy tenure and premium collection methods.
For annual premium policies, the first-year management cost has been reduced from 5% to 4%, while for installment-based policies, it has been cut from 10% to 7%.
For group insurance, the management cost on annual collected premiums has been reduced from 15% to 10%. Policies with 1–5-year tenure will see first-year costs fall from 95% to 85%, and renewal costs from 25% to 20%. For 6–10-year policies, the first-year cost will be reduced from 94% to 84%, with renewal costs dropping from 22% to 17%.
For policies with a tenure of 10 years or more, first-year management costs will vary by premium amount: for premiums under Tk100 crore, costs will reduce from 95% to 82%; for premiums between Tk100–500 crore, from 92% to 81%; and for premiums above Tk500 crore, from 91% to 76%. Renewal costs for all tenures will be reduced from 15% to 10%.
IDRA’s rationale behind the changes
According to IDRA, under the existing rules, insurance companies are spending a significant portion of collected premiums on management expenses. As a result, a large part of policyholders’ premiums is being consumed by costs, weakening companies’ capacity to pay future insurance claims.
Management expense ratios in neighbouring countries, including India, are considerably lower than in Bangladesh. Therefore, aligning domestic rates with regional and international benchmarks is necessary.
The insurance regulator believes that reducing management expenses is essential to strengthening insurers’ financial capacity and ensuring timely claim settlements.
IDRA also emphasises that a strict yet effective expense framework is needed to maintain the long-term financial sustainability of life insurance companies, prioritising customer interests and timely claim payments over profit.
Concerns from Industry Stakeholders
Industry insiders argue that life insurance companies are already struggling. Nearly half of the companies are unable to fully comply with existing rules. The proposed amendment, which further reduces management cost limits, is likely to make compliance even more difficult.
SM Nuruzzaman, CEO of Zenith Islami Life Insurance, said, “Currently, nearly 19 life insurance companies are failing to comply with the existing expense framework. If costs are further curtailed under the new rules, it will become difficult for companies to follow the law, which will have negative consequences for the entire sector.”
Insiders noted that life insurance companies are already facing multiple challenges, including declining public confidence, limited product coverage, and rising operational costs.
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