M. Hossain Ahmed: Bangladesh’s non-life insurance sector has been experiencing a prolonged and deep-rooted crisis of confidence. At the core of this crisis are unregulated commission practices, weak supervisory enforcement, erosion of financial discipline, and, as a direct consequence, persistent irregularities in claim settlement. In this backdrop, the recent notification issued by the Insurance Development and Regulatory Authority (IDRA), fixing the personal agent commission in non-life insurance at zero percent, represents a significant and long-awaited policy intervention. However, a critical question remains unanswered: will this decision be effectively implemented in practice, or will it, like many previous directives, remain largely symbolic?

The challenges facing the non-life insurance sector are neither sudden nor isolated. Rather, they are the cumulative outcome of a deeply entrenched and distorted business culture that has evolved over decades—one in which commission has become the primary instrument for securing business. Core principles such as product quality, sound underwriting, risk management, service delivery, and protection of policyholder interests have gradually been overshadowed. Instead, market competition has been reduced to a single determining factor: the ability to offer higher commissions.

For years, IDRA has maintained a regulatory ceiling of 15 percent on commissions in the non-life insurance sector. The rationale for this limit is well-founded and unequivocal—to preserve financial stability, ensure adequate technical reserves, and ultimately safeguard the timely and fair settlement of policyholders’ claims. In practice, however, this regulation has suffered from chronic enforcement failure. Market realities indicate that a significant number of non-life insurance companies routinely pay commissions ranging from 40 percent to as high as 80 percent, in blatant violation of the prescribed limit.

These excessive commission practices are not hidden anomalies; they have effectively become an accepted, albeit unofficial, norm. The belief that business acquisition is impossible without inflated commissions has become so institutionalized that even companies inclined toward regulatory compliance feel compelled to deviate, fearing commercial exclusion. As a result, the sector as a whole has descended into a destructive “commission race,” the inevitable outcome of which has been mounting financial stress and systemic failure in claim settlement.

In 2024, the estimated total gross premium of Bangladesh’s non-life insurance sector stood at approximately BDT 12,000 to 13,000 crore. Under the IDRA-mandated 15 percent commission cap, total commission expenditure should not have exceeded BDT 1,800 to 1,900 crore. However, if the actual average commission level is conservatively estimated at 45 percent, total commission payouts rise sharply to around BDT 5,500 to 6,000 crore. This implies that each year, an excess amount of nearly BDT 3,500 to 4,000 crore is siphoned out of the sector beyond the legally permissible limit.

An examination of this financial leakage clearly exposes the root cause of the sector’s persistent distress. Funds that should have been allocated toward claim payments, reserve accumulation, and risk mitigation are instead exhausted upfront through excessive commissions. Consequently, when claims fall due, insurers cite liquidity constraints and fail to honor their contractual obligations in a timely manner.

The ultimate victims of this dysfunction are policyholders. Long-pending claims, partial settlements, procedural delays, and unjustified harassment have become routine experiences in the non-life insurance market. In such an environment, erosion of public trust is inevitable. Insurance, by its very nature, is designed to provide certainty and security; when compensation becomes uncertain and delayed, confidence in the entire system collapses.

It is within this context that IDRA’s decision to fix personal agent commission at zero percent must be viewed. The notification states that, following the introduction of personal agent licensing in the non-life insurance sector, commission has been set at zero percent, with enhanced monitoring mechanisms to ensure compliance. It further indicates that, if required, joint monitoring arrangements may be undertaken in collaboration with the Bangladesh Insurance Association.

The potential implications of this decision are substantial. If the commission ban is implemented in both letter and spirit, it could trigger a fundamental restructuring of the sector’s financial dynamics. Business acquisition would no longer be driven by commission incentives but would instead depend on underwriting quality, actuarial discipline, risk assessment, and service efficiency. Equally important, funds necessary for claim settlement would remain within insurers’ balance sheets, strengthening solvency and restoring operational stability.

However, the decisive issue remains implementation. Past regulatory experience offers limited grounds for optimism. Previous directives on commission control, expense management, and financial discipline have repeatedly failed to translate into effective field-level enforcement. As a result, regulatory intent has often been undermined by weak supervision and regulatory arbitrage.

If the commission ban fails in practice, the consequences could be even more damaging. An environment where commissions are officially prohibited yet informally paid—through indirect channels or disguised expenditures—would further entrench malpractice and opacity. Therefore, IDRA must move beyond issuing circulars. Effective enforcement will require rigorous supervision, forensic audits, transparent disclosures, and, crucially, exemplary punitive actions.

Equally important is the issue of governance accountability. Excessive commission practices are not the product of isolated employee misconduct; they are the outcome of deliberate institutional decisions. Accordingly, responsibility must be assigned at the level of boards of directors and senior management, ensuring that governance failures carry tangible consequences.

Industry experts widely agree that dismantling the commission-driven business model is essential for restoring discipline in the non-life insurance sector. As long as commission remains the primary driver of competition, sustainable reform will remain elusive. IDRA’s recent intervention has the potential to mark the beginning of a long-overdue structural reform—provided it is enforced decisively and consistently.

The non-life insurance sector occupies a critical position within Bangladesh’s financial architecture, supporting risk management across industry, commerce, infrastructure, and personal assets. However, a sector burdened by systemic irregularities poses risks not only to policyholders but also to broader financial stability.

The moment has arrived to convert regulatory intent into tangible outcomes. The declaration of a commission ban must not degenerate into a symbolic gesture. If effectively implemented, it can help restore confidence and credibility in the non-life insurance sector. If it fails, the crisis will deepen further—ultimately imposing its heaviest cost on the general public.

Author’s Profile
Journalist and Insurance Analyst
Publicity Secretary, Central Executive Council
National Journalists Association