Lapsed policy rate of the company abnormally high
Shahin Howlader
Published on 03 May 2023 00:00:00 | Update: 02 May 2023 23:09:50
An investigation team of Insurance Development and Regulatory Authority (IDRA) has recommended taking necessary action as per the Insurance Act against various irregularities of Mercantile Islami Life Insurance Ltd.
The investigation team made the recommendation due to the company’s low premium renewal rate, high lapsed policy rate and failure to be listed in the stock market.
According to the investigation report, most of the policies sold by Mercantile Life Insurance do not get matured. Most of the insurance policies purchased by customers every year lapse even before the completion of a year. The company may face challenges in the future due to the gradually increasing lapsed policies.
According to industry insiders, if a life insurance policy lapses before the completion of two years, it benefits the company as the customer cannot claim any money as per the law in this case. If the policy lapses after more than two years but less than six years, the customer gets some money back, but it is less than the amount deposited by the customer. The customer has to regularly pay the premium against the policy for up to six years to get the full refund.
According to the IDRA investigation report, Mercantile Insurance has not been able to come out of the circle of lapsed policy in the last seven years. In 2017, the number of newly issued and renewed policies of the company was 3,736, out of which 99 per cent or 3,708 were lapsed policies. In 2018 and 2020, lapsed policies decreased to 75 per cent and 35 per cent respectively. But in 2021, the rate increased again to 67 per cent.
The company was established in 2013 under the condition of being listed in the stock market within five years. But even after 10 years, the company could not be listed in the stock market, said the report.
Mentionable, two enquiry committees were formed under the overall supervision of IDRA Executive Director (Life) Md Harun-or-Rashid for investigating the financial capacity of 13 life insurance companies, including Mercantile Islami Life Insurance Company, to investigate administrative expenses and financial irregularities of those companies.
A two-member investigation committee headed by the director (non-life) of IDRA prepared a report after scrutinizing the documents of six life insurance companies including Mercantile Islami Life Insurance Company. The report has been submitted to the IDRA Chairman for taking necessary action.
The investigation team also recommended to identify the real problem through special audit as the financial condition of the institution is not sound even though the gross premium income rate, asset and investment growth, management expenses are within the allowed limits. At the same time, the investigation team recommended full compliance with the provisions of the Insurance Act and IDRA circulars.
On anonymity, an IDRA official told The Business Post that if the company wants to survive in the insurance business, it has to increase 2nd year premium renewal rate above 60 per cent and reduce the commission expenses. If the premium renewal rate is increased, the financial position will be consolidated. Otherwise the company will be at financial risk.
The chief executive officer of Mercantile Insurance could not be reached despite several attempts.
Mercantile Islami Life Insurance a 4th generation Islamic life insurance (Takaful) company of the country. It was registered on September 2013 as a public limited company under the Companies Act and Insurance Act.
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