NEWS reports said on Wednesday that Bangladesh Insurance Development and Regulatory Authority (IDRA) has given Life Insurance Company of India (LIC) the letter of consent upon certain conditions and that they would be able to start business in Bangladesh once the conditions were fulfilled. The news comes as a big shock to many small insurers in Bangladesh who fear that their business would be seriously marginalized and to almost all others who see the Indian mighty presence in the country’s financial sector as highly critical factor to national interest.
As per the IDRA letter, the Indian state-owned insurance giant will start operations as a joint venture entity as LIC-Bangladesh Ltd with a paid-up capital of Tk 100 to be equally shared by both. LIC will hold half of the stake in the new company. The rest will belong to Bangladeshi partners, who will pay for their share and also raise money from the capital market. The only other foreign insurer operating in Bangladesh is US-based MetLife-ALICO, but it operates as a branch office, not as a registered company. The LIC will be a registered joint venture company and invest its share of capital of Tk 50 crore in Bangladesh. Currently a total of 77 insurers are operating in Bangladesh after the regulators cleared 14 new companies in the 2013-14 fiscal.
Bangladesh has a fast growing economy and rising income and life expectancy are some of the very positive factors that might boost growth in the country’s insurance sector in near future. LIC can use this opportunity to do brisk business, but many also believe it may benefit Bangladesh by providing training and research expertise giving consumers access to a wider pool of insurance products and forcing small insurers to be more competitive. The government probably hopes that this will ultimately help Bangladesh’s insurance market, although it is not clearly divulging reasons why it is opening the country’s insurance sector to the biggest Indian insurance company. Meanwhile, many may fear rightly that problems to be caused due to this move might outweigh the benefits of LIC presence in Bangladesh. It may use its huge resources to drive local competitors out of business at the end.
The LIC, just like any other multinational company, can take full advantage of the globalized situation and outsource, use uneven exchange rates and even manipulate low-margin high-volume sales models. It may be almost impossible for local companies to survive. There is a growing fear that most local companies may face the risk of annihilation in our own market. It is advisable that the government must rethink the decision in the first place. Otherwise it must put in place legal safeguards so that LIC (or any potential foreign insurance company) helps develop the local market but refrain from policies prejudicial to the interest of local insurance companies.
