Federal Insurance Company Limited. Photo: Collected
Federal Insurance Company Limited, a company listed on the stock exchange, is alleged to show utter disrespect for the law by violating premium rates, conducting insurance business on credit, and operating without reinsurance. The deplorable state of the company has been revealed through a special inspection by the Insurance Development and Regulatory Authority (IDRA).
According to Section 49 of the Insurance Act 2010, a representative team from IDRA inspected the head office of Federal Insurance on August 9 last year. During the inspection, the team examined the issuance of e-Money Receipts along with premium deposits in light of Non-Life Circular No. 29/2011. They also checked whether the company was violating premium rates.
As per the rules, general insurance companies are required to reinsure 50 percent of the main premium with the Sadharan Bima Corporation (SBC) and the remaining 50 percent with domestic or foreign reinsurance companies. The inspection team checked whether Federal Insurance Company was properly conducting reinsurance for the relevant policies following the agreement with SBC.
Additionally, the team checked if the company had opened any additional bank accounts besides the three permitted as per Non-Life Circular No. 64/2019. They also verified whether the insurance claim files were included in the company's register and whether the insurance premiums were being paid from the designated bank account.
The inspection team reviewed the shareholding of the directors as per the Insurance Companies Registration Regulations 2013 and the Insurance Companies Capital and Share Holding Rules 2016. Through this scrutiny, the inspection team found evidence that Federal Insurance Company was violating premium rates, conducting business without reinsurance, and engaging in illegal insurance business in violation of the rules.
Regarding this, Mohammad Jahangir Alam, Director and Spokesperson of IDRA, told The Daily Messenger, “The IDRA inspection team has submitted a report to IDRA after inspecting the company. As per the rules, a hearing will be held with the company. If evidence of rule violations is found during the hearing, action will be taken against the company.”
In this regard, AMM Mohiuddin Chowdhury, Managing Director and Chief Executive Officer of Federal Insurance, told The Daily Messenger, “An inspection team from IDRA came. However, I am not aware of the report they have submitted. I do not know what the report says. We will respond if IDRA calls us.”
According to IDRA rules, conducting insurance business on credit is a complete violation. The IDRA inspection team examined five cover notes from the Khantunganj branch of the insurance company in Chattogram and found that e-money receipts were issued in all five cases. They verified the authenticity of issuing e-money receipts through the internet by scanning the QR codes with a mobile camera. In other words, the company was conducting insurance business on credit in all five cover notes. Additionally, during the inspection of the Chapainawabganj branch, it was found that three out of five cover notes involved conducting insurance business on credit, which is a direct violation of IDRA's instructions. The investigation committee recommended taking action against the company and the individuals involved under Section 130 of the Insurance Act 2010.
The report states that Federal Insurance Company's maximum retention for the marine cargo category was Tk 40 lakh. The inspection team examined 10 randomly selected cover notes from the marine cargo category with an insured amount of over Tk 50 lakh at the Khantunganj branch of Federal Insurance Company. They found that, except for two cases, the company did not provide sessions to Sadharan Bima Corporation in the remaining eight cases, with the insured amount totalling around Tk 22 crore.
The committee reported to IDRA that Federal Insurance Company did not conduct reinsurance as per the agreement with SBC. As a result, Sadharan Bima Corporation was deprived of the reinsurance premium, and the insurance policyholders were exposed to significant risk. The company's activities were a clear violation of the Insurance Act 2010 and the Corporation Act 2019, for which action could be taken against them under Section 130 of the Insurance Act 2010.
The inspection team examined whether there was any violation of premium rates. According to the team's report, after examining three cover notes issued by the Khantunganj branch of the company, the authenticity of the tariff rate violation was found in the documents from the head office.
The recommendation states that the cover notes issued by the company clearly demonstrate that they imposed lower premium rates than the prescribed rates, which violates Section 17 and Section 60 of the Insurance Act 2010, as well as the circular issued by IDRA on January 18, 2011, instructing all non-life insurance companies not to violate premium rates.
Federal Insurance's Khantunganj branch undercharged Tk 615,765 as premium, Tk 84,422 as VAT, and Tk 660 as stamp duty through the aforementioned three cover notes. As a result, the company lost its premium revenue, and the government lost revenue from VAT and stamp duty.
There is a strong possibility of further premium rate violations at the Khantunganj branch of Federal Insurance, and such activities could not have occurred without the knowledge of their head office, as they have a Branch Control and Underwriting department responsible for monitoring such premium rate violations.
Therefore, the inspection team believes that a comprehensive investigation into the premium rate issue at the Khantunganj branch of Federal Insurance is warranted. They suggest recovering the undercharged amount and depositing it into the company's bank account. Additionally, action could be taken against Federal Insurance and the individuals involved under Section 134 of the Insurance Act.
Messenger/Disha
