Country's insurance companies, especially life insurers, are facing a huge capital shortfall due to a drop in the rate of interest on their invested fund, officials said.
"Currently, the life insurance companies are facing a serious problem with fund management. They are going to suffer capital deficit ever year," a high official of the Insurance Development and Regulatory Authority (IDRA) told the FE.
Earlier, investments in the government fund by the life insurance companies were profitable. But it is not profitable now due to a decrease in the rate of interest on their invested fund, he added.
The government should introduce a treasury bond with high yield interest rate, considering the loss being incurred by the companies. The companies will be profitable if the government issues a treasury bond for the sector, he added.
"If anyone submits specific proposal for issuing T-bond, we will forward it to the government to take next course of action," he also said.
"Some 78 registered insurance companies, including 32 life insurers, are now running their business in the country, home to 160 million people. Even there are no so many insurance companies in a populous country like India."
A senior official concerned said, "The number of existing insurance companies is much higher than the country's market size. Besides, the government issued fresh licences to 14 life insurance companies in 2013 and 2014. Of them, only one or two companies are performing at expected level."
A committee has been formed to address existing problems. The committee will also see capital and other issues, IDRA chairman Md Shafiqur Rahman Patwary told the FE.
Currently, the interest rate is low. Besides, different banks are also having capital deficit. There is complexity in the country's overall insurance sector. There is also a crisis of confidence in the sector, he said.
He said, "We are organising insurance fair and cheque distribution programme etc to remove the crisis of confidence from the sector."
The main source of fund for life insurance is client's premium. They are collecting clients' premium but they don't meet client's claim properly, he also said.
On the other hand, negative fund of other insurance companies, non-payment of clients' premium and embezzlement of money by the agents indicate a volatile situation of the sector, he said, adding that operational activities of the existing insurance companies are being hampered seriously due to lack of skilled manpower.
There are 78 insurance companies in the country. Of them, 46 are non-life insurance companies and 32 life insurers. Of the total, only two are state-run insurers, according to IDRA.
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