IMF Reforms Compel Restructuring of Bangladesh Insurance Sector

The insurance industry in Bangladesh is currently undergoing significant structural changes, driven by the International Monetary Fund (IMF) loan programmes and a comprehensive reform roadmap. Much like the banking sector, the insurance domain is under intense pressure to enhance governance, transparency, and customer service. Current priorities include the acceleration of claim settlement processes and the modernisation of investment policies to address systemic challenges such as weak regulatory oversight and a persistent lack of public trust.

IMF Assistance and Economic Context

As part of the Extended Fund Facility (EFF), Extended Credit Facility (ECF), and the Resilience and Sustainability Facility (RSF), financial reforms have become a central pillar of national policy. In June 2025, the IMF increased its total support for Bangladesh to approximately US$4.1 billion under the ECF/EFF and US$1.4 billion via the RSF.

A technical team from the IMF visited Bangladesh between 29 October and 13 November 2025 to discuss the Article IV Consultation and the fifth review of these programmes. The IMF’s January 2026 assessment noted that while Bangladesh’s GDP growth slowed to 3.7% in FY2025, successful implementation of financial reforms could see growth rebound to 4.7% by FY2027.

Market Penetration and Regional Comparison

The primary weakness of the sector remains its minimal contribution to the national economy. The insurance penetration rate—the ratio of total premiums to GDP—remains stagnant between 0.33% and 0.4%. For the 2024-25 fiscal year, total insurance premiums reached Tk 18,534 crore, with life insurance accounting for Tk 12,042 crore and general insurance contributing Tk 6,492 crore.

The Crisis of Claim Settlements

A major deterrent to sector growth is the declining claim settlement rate, which has fallen to 57%. In 2024, insurance companies settled claims worth Tk 9,476 crore against a total demand of Tk 16,484 crore.

• Life Insurance: Settlements dropped from 72% to 65%.

• General Insurance: Settlements decreased from 41% to 32%.

Globally, standard settlement rates range between 97% and 98%. The local deficit, exacerbated by high inflation, has led to a 4% increase in policy lapses during the final quarter of 2025. This trend threatens the long-term stability of life funds, which currently stand at approximately Tk 34,650 crore.

Institutional Reforms and Regulatory Strengthening

The “Bangladesh Insurance Sector Development Project,” launched in 2018 with an investment of Tk 925 crore, failed to meet its objectives. Instead of increasing the number of policyholders to 20 million, the count fell to 8.22 million by the end of 2024—a 40% decline in coverage during the project’s tenure.

In response, several reform measures are now being prioritised:

1. Legal Amendments: Proposed revisions to the Insurance Act 2010 and the IDRA Act 2010 aim to empower the Insurance Development and Regulatory Authority (IDRA) to dissolve boards of failing companies or mandate mergers.

2. Solvency Margins: Strict capital requirements are being introduced to ensure companies maintain sufficient liquidity to meet all policyholder claims.

3. Investment Modernisation: Current regulations require life insurers to invest at least 30% of their funds in government securities. Reforms seek to transition toward a risk-based, diversified investment framework.

4. Digitisation: Plans for a centralised online database and mandatory disclosure of settlement data are intended to restore transparency and public confidence by 2026.

5. Product Diversification: Emphasis is shifting toward climate-resilient products, including index-based crop insurance and expanded health insurance, to protect vulnerable populations against natural disasters and medical expenses.

By aligning with international standards and IMF-backed mandates, the sector aims to overcome its historical stagnation and become a robust contributor to the national financial landscape.