M Hossain Ahmad, Chief Editor:

Insurers barred from deducting premiums from claim proceeds; full payment mandated within 90 days

The Insurance Development and Regulatory Authority (IDRA) has issued a significant directive to life insurance companies, prohibiting them from deducting money from insurance claim proceeds for purposes other than applicable government revenue. The directive also bans insurers from compelling policyholders or nominees to purchase new policies as a condition for receiving claims.

The move aims to protect policyholders’ financial rights, ensure transparency in claim settlement and strengthen public confidence in the country’s life insurance sector.

Under the directive, life insurance companies must transfer the full amount payable against maturity claims, death claims and survival benefits to the bank accounts of the respective policyholders or nominees. No money may be deducted for any other purpose, except applicable government revenue.

The regulatory authority has taken the initiative in response to practices by some life insurers that reportedly require customers or nominees to purchase new policies from the same company before releasing payments against existing policies.

In some cases, premiums for new policies are deducted directly from the proceeds of old policies, with customers receiving only the remaining balance.

According to the directive, such practices undermine policyholders’ financial interests, expose customers to unnecessary pressure and contribute to negative perceptions of the insurance industry.

Full Claim Payment Within 90 Days

IDRA has emphasised that insurance claims must be settled in full within the stipulated 90-day period, in accordance with applicable rules and regulations.

Insurance companies cannot impose any condition requiring the purchase of a new policy when settling an existing claim. They are also prohibited from adjusting claim proceeds against premiums for a new policy.

The directive clarifies that when an insurer settles the entire claim within the stipulated 90 days, there is no restriction under this directive on issuing a new policy to the concerned customer by the same company.

However, additional restrictions will apply if the insurer fails to settle the claim within the prescribed timeframe.

If the claim is paid after the initial 90-day period but within the subsequent 30 days—that is, between the 91st and 120th days—the insurance company will be prohibited from issuing a new policy in the customer’s name for 30 days from the date of final payment.

In cases where the maturity claim is settled after 120 days, the company will not be permitted to issue a new policy in the customer’s name for 180 days from the date of final payment.

These time-based restrictions are intended to strengthen accountability among insurers and discourage delays in claim settlement.

IDRA’s Initiative to Protect Policyholders’ Rights

The directive represents an important regulatory step towards ensuring that insurance companies fulfil their contractual obligations to policyholders without imposing additional conditions.

Life insurance is designed to provide financial security, long-term savings and protection for individuals and their families. Delays in claim settlement, unauthorised deductions and pressure to purchase new policies can undermine these fundamental objectives.

By separating the obligation to settle existing claims from the business of selling new policies, IDRA has reinforced the principle that customers must receive their rightful payments without being compelled to enter into additional financial commitments.

The directive also sends a clear message to life insurers that claim settlement must be treated as a contractual obligation rather than an opportunity to generate new business.

Effective implementation, regular monitoring and appropriate action against violations will be essential to ensure that policyholders receive the full benefits of the regulatory measures.

Insurance Industry Leader Welcomes the Directive

Nasir Uddin Ahmed (Pavel), Vice-Chairman of Meghna Life Insurance PLC and former President of the Bangladesh Insurance Association (BIA), has described the IDRA circular as a landmark step for the life insurance sector.

He said that the practice of issuing new policies by adjusting existing insurance claims had caused many policies to lapse in the past.

“Due to the practice of issuing new policies by adjusting insurance claims, many policies used to become lapse. Customers frequently faced harassment, and a negative perception of the insurance sector was created among them,” he said.

He added that the circular would help resolve these problems and bring long-term benefits to the insurance industry.

His remarks reflect concerns within the sector about the consequences of linking the settlement of existing claims with the sale of new insurance products.

Stronger Accountability and Transparency in Claim Settlement

IDRA’s directive is significant not only because it prohibits unauthorised deductions but also because it establishes clearer boundaries between claim settlement and new policy sales.

Policyholders who have fulfilled their contractual obligations should be able to receive their legitimate benefits without facing pressure to purchase additional products. Similarly, nominees claiming death benefits should not be subjected to unnecessary conditions before receiving the money due to them.

The requirement to transfer the full claim amount, subject only to applicable government revenue, is expected to reinforce transparency in financial transactions between insurers and their customers.

The restrictions on issuing new policies following delayed claim payments also introduce an additional accountability mechanism. Insurance companies will have a stronger incentive to settle claims within the prescribed period rather than allowing payments to remain outstanding.

However, the effectiveness of the directive will depend on consistent enforcement, proper supervision and timely resolution of complaints from policyholders.

Regular monitoring of claim settlement records and verification of payments into customers’ bank accounts could help ensure compliance. Customers who face unauthorised deductions or pressure to purchase new policies should also have access to an effective complaint-handling mechanism.

A Step Towards Restoring Public Confidence

Public confidence is essential for the sustainable growth of the life insurance industry. Although insurance companies make long-term commitments to policyholders, delays, disputed deductions and complicated claim procedures can damage the sector’s reputation.

IDRA’s latest directive seeks to address these concerns by reinforcing the rights of policyholders and placing greater responsibility on insurers to fulfil their obligations.

If implemented effectively, the measures could help reduce customer harassment, improve claim settlement practices and encourage a stronger culture of accountability across the industry.

Insurance companies must now give priority to timely payment of legitimate claims, transparent service delivery and compliance with regulatory requirements. New policy sales should remain a separate commercial activity and must not be made a condition for releasing money owed to existing policyholders.

Overall, IDRA’s directive marks an important step towards strengthening consumer protection and improving governance in Bangladesh’s life insurance sector. Its long-term success will depend on how effectively insurance companies comply with the requirements and how consistently the regulatory authority monitors their implementation.

Ensuring that every eligible policyholder receives the full amount due within the prescribed timeframe will be crucial to rebuilding trust and establishing a more transparent, accountable and customer-oriented insurance industry.