First News
Volume:7, Number:26
First News ad
First News completed 350 issues and seven years of publication on July 2. We thank our readers, contributors, patrons and well-wishers for their continued support
Business & Finance 1
THIS WEEK

The Commission Crisis

| Rezaul Karim |

Business is suffering when the companies are trying to outshine each other by offering the most lucrative commission to the clients in order to draw in more business

Despite having a massive potential, the country’s insurance sector is struggling due to the unhealthy commission competition among the insurance companies. While the sector has created a lot of new jobs, the number of companies are far greater than the insurance market can accommodate, especially non-life insurances. As a result, the companies are always trying to outshine each other by offering the most lucrative commission to the clients in order to draw in more business. The commission competition has reached such a level that the companies are setting themselves up for sabotaging themselves. The lack of communication and mutual understanding between the insurance companies is further aggravating the situation. Customers’ lack of understanding of insurance terms and policies is instigating the unhealthy competition even further.

Imam Shahin, CEO of Asia Insurance Ltd, said, “Nowhere in the world will you find the amount of discount higher than the price of the product. In our country, the discount rate often gets much higher than the price of the original premium. This kind of marketing, service or product can be found nowhere else in the world. If this trend continues, the insurance agencies will meet an inevitable doom and fail to keep up the progress.” He continued, “Many clients ask us how much commission we are going to offer them. But they never think about how the claim will be paid with such a high commission rate. They have to understand that if they take 60 to 70 percent commission, the insurance company will not be able to pay up the claim. Had they focused a little less on the immediate profit and more on the bigger picture, they would have realized that the insurance company will not be able to give the security they originally sought with such a high interest rate.”

He also blamed the shortsightedness of his predecessors in this sector. “With all due respect to those who were in charge of this sector in the past- they did not really work with a clear vision for the future. They just focused on their own days. Had they thought about the future challenges and worked to propel this industry a little more, many of the crisis we are facing today would not have existed,” he said. The insurance companies have been accused of exceeding their expenditure limit for years. There is a lot of conflicting opinions about this issue. Many people believe that the insurance companies are pocketing money by breaching their limits on expenses. There have been a number of media reports in this regard as well. To clear up the confusion and explain the insurance companies’ side, Imam Shahin said, “The entire thing has been explained in a wrong way.”

“For example, the regulations and costs that were relevant in 1958 are not applicable today. In some cases the costs have risen up to 133 percent or more. Yet, the management expenditure limit remained the same. With this limit, I will not be able to adjust the management cost. The executive costs increased so much that there is no other way but to exceed the expenditure limit. The gazette about expenditure limit should be slightly amended so that we can accept it as well.” To turn things around, the insurance companies are in dire need of skilled, powerful leadership. Many insurance companies are conducting intensive screening before appointing a new CEO. However, there is a shortage of qualified people to take control of the situation.

Due to this commission chaos, most insurance companies are failing to make a profit. In the end, this trend is even hurting the clients too. So, everyone involved in this sector are trying to figure a way out of this practice without losing the clients. There are a number of organizations for these companies which are trying to build up a more cohesive, trusting relationship. If the associated organizations, banks and government policies line up, this sector will eventually find a proper solution to this problem.

Share With:

House No. 10/22 (2nd floor), Iqbal Road, Mohammadpur, Dhaka-1207 Telephone: 88-02-9185124, 01712193344 E-mail: firstnews2010@gmail.com

© 2015 First News. All rights reserved