Confidence Crisis Deepens in BD’s Insurance Sector as Unsettled Claims Near Tk 8,000 Crore

The deteriorating claims settlement performance has become one of the sector's most pressing challenges, undermining public confidence at a time when insurers are already grappling with weak premium growth, liquidity shortages and broader economic headwinds

Bangladesh's insurance sector is facing a deepening confidence crisis as claim settlement rates continue to decline. At the end of 2025, the total amount of unsettled insurance claims stood at nearly Tk 8,000 crore, raising serious concerns about the sector's financial health and public trust.

The deteriorating claims settlement performance has become one of the sector's most pressing challenges, undermining public confidence at a time when insurers are already grappling with weak premium growth, liquidity shortages and broader economic headwinds.

According to available data, 33 percent of life insurance claims and 71 percent of general insurance claims remained unsettled by the end of 2025. The deteriorating claim settlement performance has become a major concern for the country's financial system, further eroding public confidence in insurance services.

Although the insurance sector controls only a small share of Bangladesh's total financial assets, it plays a crucial role in long-term capital formation and mitigating macroeconomic risks. However, the prolonged trust deficit has pushed the industry into a more fragile position.

According to the Bangladesh Bank Financial Stability Report 2025, the claim settlement rate in the general insurance sector declined from 41.35 percent in 2023 to 28.51 percent in 2025. Similarly, the life insurance claim settlement rate fell from 72.43 percent in 2023 to 66.54 percent by the end of 2025.

Unsettled Claims Reach Tk 7,912 Crore

Unofficial statistics from the Insurance Development and Regulatory Authority (IDRA) show that unsettled claims in the life insurance sector reached Tk 4,403 crore at the end of 2025, while unsettled claims in the general insurance sector stood at Tk 3,509 crore. Combined, the industry's total unsettled claims amounted to Tk 7,912 crore.

Although life insurers maintain relatively higher settlement rates overall, the industry's performance varies significantly from one company to another. Regulatory data show that five financially distressed insurers account for nearly 90% of outstanding life insurance claim liabilities, leaving hundreds of thousands of policyholders waiting for payments.

The sector had 1.19 million unsettled life insurance policies at the end of the year.

General Insurance Faces Persistent Delays

General insurers continue to struggle with claim settlements because of lengthy legal procedures, delays in obtaining survey reports and fire service investigations, as well as extended reinsurance recovery processes.

In 2025, general insurers settled only Tk 1,169 crore of claims against total claims amounting to Tk 4,679 crore.

The state-owned Sadharan Bima Corporation, the country's largest reinsurer, settled approximately Tk 300 crore against claims worth Tk 2,486 crore, representing a settlement rate of about 12%.

Industry Explains Statistical Limitations

Industry representatives argue that the headline figures do not always reflect operational realities. Nasir Uddin Ahmed Pavel, Vice Chairman of Meghna Life Insurance and Karnaphuli Insurance PLC, argued that the statistics do not fully reflect the actual situation.

He said IDRA begins counting settlement time immediately after a claim is filed, although obtaining mandatory documents—particularly fire service reports and surveyor reports—often takes more than 90 days, a delay beyond insurers' control.

He also noted that general insurance settlement ratios are often calculated based on the number of claims rather than their monetary value. Furthermore, delays in recovering funds from the state-owned reinsurer contribute significantly to slower claim settlements.

Regarding life insurance, Pavel said the poor performance of a few large but financially weak insurers has pulled down the industry's average settlement rate, while several companies continue to maintain settlement rates exceeding 90–95 percent.

Macroeconomic Pressures Intensify Challenges

Bangladesh Bank's report also attributes the sector's difficulties to broader macroeconomic challenges.

Persistently high inflation and rising living costs have reduced household savings, slowing the growth of first-year premium income in life insurance. Policy renewals and maturity rates have also weakened, affecting the long-term growth of insurance funds.

General insurance has likewise suffered from sluggish industrial production, reduced import-export activities and slower infrastructure investment. Foreign exchange shortages and import restrictions have dampened premium growth in fire, marine and motor insurance.

Liquidity Crisis Adds to the Problem

A substantial portion of insurers' investment portfolios is allocated to government securities and fixed deposits with commercial banks. Although treasury bonds currently offer attractive returns due to high interest rates, they have not adequately addressed insurers' immediate liquidity needs.

More critically, liquidity shortages and financial irregularities in several commercial banks have trapped hundreds of crores of taka belonging to insurance companies in fixed deposits (FDRs). As a result, many insurers have been unable to withdraw funds to pay policyholders, creating systemic liquidity risks across the industry.

The prolonged downturn in the stock market has also caused significant capital losses on insurers' investment portfolios.

Experts Cite Weak Governance

Professor Dr Md Main Uddin of the Department of Banking and Insurance at the University of Dhaka believes several structural weaknesses are responsible for the declining claim settlement rate.

According to him, public confidence in insurance has been weak for many years, discouraging policyholders from maintaining long-term coverage.

He said insurers' financial strength depends heavily on how effectively collected premiums are invested. However, cases of fund misappropriation and poor investment management have undermined companies' ability to meet claim obligations.

He further alleged that some insurers deliberately delay claim settlements, while weak supervision by IDRA has allowed such practices to continue unchecked. The government's relatively low policy priority for the insurance sector has also contributed to inadequate accountability.

Dr Main Uddin acknowledged that delays in collecting supporting documents and reinsurance recoveries can legitimately prolong claim settlements in general insurance. However, he argued that such external factors are much less significant in life insurance, where declining settlement rates may indicate managerial negligence, weak governance or misuse of policyholders' funds.

Solvency Pressure and Heavy Reinsurance Dependence

The financial resilience of insurance companies is measured through their solvency margin. Due to rising operating costs and slower premium growth, many insurers now fall below the legally required solvency threshold.

Bangladesh's insurers also have limited capacity to retain large industrial and marine risks. Consequently, they rely heavily on the state-owned Sadharan Bima Corporation and international reinsurance companies, increasing foreign exchange outflows.

Insurance Penetration Continues to Decline

The confidence crisis has also reduced insurance penetration in Bangladesh. Insurance penetration declined steadily from 0.42 percent in 2021 to 0.34 percent by the end of 2025. Insurance density remains equally low, with gross premium per capita reaching only Tk 1,084 at the end of 2025.

Industry insiders note that settlement ratios based on claim values tend to appear lower because large commercial claims involve reinsurance recoveries. Since private insurers are legally required to reinsure with Sadharan Bima Corporation, delays in recovering funds—particularly where insurers have outstanding premium dues—often postpone final settlements to policyholders.