Non-life listed insurance companies posted abnormally high profits in the third quarter (July-September) of 2020 when most businesses in the country were dealing with the Covid-19 pandemic blows.
In this quarter, 72.22% of general insurance companies posted positive growth out of the 36 listed on the Dhaka Stock Exchange (DSE). Of them, profits of 12 companies soared by over 100%.
According to industry insiders, the companies are trying to follow the 15% commission circular strictly. They are paying only 15% commission to their insurance agents for selling products now. Earlier, insurance companies would provide 50-65% commission to their agents to increase business.
Previously, in March this year, the Insurance Development and Regulatory Authority (IDRA) directed non-life insurance companies to stop giving illegal commissions to their agents.
As a result, the companies are making more profits by following the rules.
United Insurance Company Ltd posted an 1,160% increase in its net profit during the period, amid the Covid-19 pandemic. The company's net profit was Tk4.74 crore, but it was in a loss of Tk0.42 crore in the same period of the previous year.
Khawja Manzer Nadeem, managing director and CEO of United Insurance, said, "Net profit surged because the company gave commissions to its insurance agents as per the regulatory requirements."
"The import of raw materials in the pharmaceuticals sector increased during the pandemic. As a result, the marine insurance business of the company increased," he said.
"Besides, the management expenses and claims of the company reduced during the period, resulting in the increase in net profit," he added.
Bangladesh General Insurance Company (BGIC) Ltd posted 2,700% net profit during the period. Its net profit was Tk1.51 crore, which was Tk0.05 crore in the same period of the previous year.
Saifuddin Ahmed, general manager and company secretary of BGIC, said, "We could not do good business amid the pandemic. But we tried to follow the agent commission rate as per the regulatory requirements."
"As per law, we provided 15% commission to our insurance agents. For this reason, our income increased," he said.
Saifuddin went on, "Earlier, non-life insurance companies could give 50-65% commission to their agents illegally. As a result, their business could increase, but net income could not."
Professor Abu Ahmed, a capital market analyst, said insurance companies had shown abnormally high profits amid the pandemic even though all businesses were slow at the time.
He said, "I do not know how they made so much profit. They are not able to give maximum dividends to their investors."
Expressing concern, he said it would be a big challenge to retain this growth.
Paramount Insurance posted 1,719% profit, which increased to Tk10.88 crore from Tk0.60 crore during the period. Besides, Prime Insurance posted 805% growth, and Mercantile Insurance 477%.
Data by Swiss Re Institute, a leading global reinsurer, shows overall insurance penetration in Bangladesh stood at a meagre 0.57% in 2018 – the lowest among emerging Asian countries. The penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.
Insurance penetration was 5.27% in Thailand in 2018, followed by 4.77% in Malaysia, 4.22% in China, 3.70% in India, 2.42% in Vietnam, 1.95% in Indonesia, 1.82% in the Philippines and 1.15% in Sri Lanka. Taiwan has the highest penetration rate of 18%.
There are 78 companies in the insurance sector of Bangladesh. Of them, 32 are life insurance and 46 are non-life insurance companies.