Bangladesh insurance reform in 2025: Modernisation or market shock?

Staff Correspondent: Bangladesh’s insurance sector ended 2025 navigating a difficult balance between reform momentum and unresolved instability, as regulators pushed major policy changes while insurers struggled with weakened confidence, operational disruption and continuing structural weaknesses. The year was defined by several incidents, contested regulatory intervention and debate over how far modernisation should go- and how fast.

A major stress event came late in the year when a fire broke out at Hazrat Shahjalal International Airport on October 18, causing substantial damage and triggering what industry observers describe as one of the largest claim exposures in recent years. The incident placed insurers under pressure to settle large claims, while also raising questions regarding underwriting discipline, claim readiness and the adequacy of reinsurance protection in a market that has long faced criticism for slow and disputed claim settlement.

Earlier, the Insurance Development and Regulatory Authority (IDRA) sparked one of the year’s most controversial discussions when it publicly indicated that 15 life insurers were in ‘high-risk’ economic condition and 17 non-life insurers were ‘risky.’ The remark was made on July 2 during a press briefing. Although the regulator’s message was widely interpreted as a warning aimed at consumers’ protection, affected companies argued that the announcement lacked a transparent methodology or defined guideline. Insurers cautioned that labeling firms without clear criteria could trigger a confidence shock among policyholders, further flagging an industry where public trust remains fragile.

Reinsurance stability- often overlooked outside industry circles- also became a critical pressure point. Under existing rules and practice, private non-life insurers must renew reinsurance treaty arrangements with the state-owned Sadharan Bima Corporation (SBC) every year around the end of March. This year, however, disputes over outstanding payment led to substantial delays, affecting 36 private non-life insurers. SBC claimed that outstanding receivables from insurers had reached Tk 1,084.06 crore and the interruption raised concern over risk-transfer capacity and consumers’ safeguard. Industry stakeholders warned that when reinsurance arrangements face uncertainty, the entire system becomes more vulnerable to large-loss events, causing instability for insurers and policyholders.

Motor insurance reform further exposed the challenge of designing policy that delivers results. After the legal requirement that previously made third-party motor insurance mandatory was removed, IDRA introduced a revised structure through Circular Non-Life 105-2025 on August 7, launching the ‘Motor Liability Insurance Policy.’ However, because the new approach did not impose strict enforcement mechanisms, market participation seemingly remained limited. Analysts say weak commitment contributed to a decline in premium income for many non-life insurers, particularly those generally dependent on motor insurance as a major source of recurring revenue.

Distribution policy changes made additional concern across the non-life sector. IDRA issued a circular announcing that individual agent licensing would be suspended and that a 15 percent agent commission in the non-life sector would be abolished from January 1, 2026. At the same time, insurers were instructed to provide appointment letters and regular salary payment for development officials according to company pay scales, except for contract-based hires. Regulators framed the move as a step toward professionalisation and stronger answerability. But insurers and market insiders warned that the transition could disrupt premium collection and customer servicing, especially in areas where agents remain the primary channel for outreach. Stakeholders also expressed concern that thousands of field-level workers could face employment insecurity if alternative distribution systems are not developed quickly.

The debate over domestic versus foreign reinsurance capacity intensified as proposals emerged to relax the rule requiring private insurers to cede 50 percent of reinsurance to SBC. Supporters argue easing the requirement could increase competition, improve pricing and strengthen risk diversification. SBC officials and employees strongly opposed the proposal, staging protests and warning that reducing mandatory domestic reinsurance could shift national resources abroad and weaken the state reinsurer. The dispute reflected a wider strategic challenge: how to liberalise the market while maintaining strong domestic institutions and ensuring national economic interests are protected.

Alongside operational and policy disputes, the management and IDRA continued a push to revise the Insurance Act 2010. Several consultations were held throughout the year with industry bodies and experts. The proposed amendment is broad in scope, keeping many core sections intact while proposing substantial changes to sub-sections, revisions to dozens of provisions and introducing new clauses. Experts repeatedly emphasised that legal amendment alone will not fix the sector unless enforcement becomes consistent, impartial and strict. Without credible execution, they warned, Bangladesh risks reproducing old problems under new legal language.

Another contentious initiative focused on leadership. The government pursued a plan to allow bank officials to be appointed as chief executives of insurance companies, arguing it would address leadership shortage and strengthen governance. Industry professionals countered that insurance is a specialised technical field needing deep sector knowledge in underwriting, claims, actuarial oversight and risk governance. IDRA published a draft revision of CEO appointment and removal regulation on June 26 and invited stakeholders’ feedback, signaling that the proposal remains under review.

Despite the turbulence, 2025 also saw initiatives viewed as constructive. IDRA began the process of forming a CEO pool and an actuary pool, inviting qualified professionals to apply as part of a longer-term strategy to strengthen leadership capacity and address technical skill shortage. The regulator also issued 11 new circulars and directives and introduced an Insurer Resolution Ordinance and research guidelines intended to support long-term stability and stronger oversight tools.

As Bangladesh’s insurance sector moves into 2026, stakeholders say the direction set in 2025 will shape the market’s credibility and growth prospect. The coming year will assess whether reform can be executed with transparency and predictability, whether reinsurance and claim systems can become more resilient and whether distribution reform can be managed without undermining access. For consumers, the expectation remains straightforward: reliable protection and timely claim. For regulators and insurers, the challenge is ensuring that reform delivers trust-not fresh uncertainty.