The Financial Express

Forex flies out as MNCs get insured abroad illicitly

SBC complains they ignore local insurers and thus also dodge paying govt revenue

| Updated: January 14, 2018 17:53:49

Internet Photo used only for representation Internet Photo used only for representation

Many of the multinational companies (MNCs) in Bangladesh allegedly get underwritten the risk coverage of their assets from abroad on double deception: revenue evasion and foreign-exchange siphoning.

Sources said such firms are bypassing local insurers to get insured abroad in a flagrant violation of the insurance law of Bangladesh.

This also implies that the local insurance firms and the tax authority fail to derive resources form the large companies who render services and the quality products to the local consumers, thus possessing major share of the market.

Such allegations came in a written statement to the insurance-regulatory authority in Bangladesh -- IDRA.

Some high-ups of the SBC (the non-life and only reinsurer in Bangladesh) also alleged that a number of local non-life firms are involved in "fronting insurance" for some of the MNCs, again by bending the law of the land.

Fronting insurance is a risk-management technique in which an insurer underwrites a policy to cover a specific risk but then cedes the risk to a reinsurer. Under such situation, local firms get a small amount of commission and the MNCs pay the rest of the amount abroad for reinsurance.

They also say that there are some MNCs who are involved fully in such type of fronting insurance.

Officials at the Sadharan Bima Corporation (SBC) argue that many of the renowned MNCs do not buy any insurance coverage locally-they fully go global.

However, there are some MNCs who comply with all set rules in terms of underwriting risk coverage.

The written statement reads: as per section 19 of the Insurance Act 2010, none can insure any property situated in Bangladesh outside the country without taking a certificate from the Insurance Development and Regulatory Authority (IDRA) that the risk coverage cannot be done locally for lack of capacity and facility.

Buying fire, marine, and miscellaneous insurance coverage is mandatory for companies having factories in Bangladesh.

SBC managing director Syed Shahriyar Ahsan in a recent letter to the IDRA said taking insurance coverage by MNCs for their assets and establishments abroad is "a total violation of the existing insurance act".

He also wrote that local insurance companies are being deprived of insurance premium due to buying risk coverage abroad by MNCs.

Besides, the government is also losing a significant amount of money as revenue from the sector.

Mr Ahsan said the MNCs taking the advantage of 'blanket policy' bought in the headquarters to cover insurance of their assets in Bangladesh.

"Moreover, hard-earned foreign currencies are being channeled abroad in the name of insurance abroad in addition to head-office cost and yearly dividend," he noted in the complaint.

The SBC managing director in the letter requested for issuing directives to ensure that MNCs buy insurance coverage from local insurers instead of foreign risk coverage.

Contacted over telephone, IDRA member Gokul Chandra Das told the FE the authority so far had not received any application from any MNC for permission to buy foreign insurance coverage of their assets.

"I have no idea whether the MNCs buy insurance coverage from outside the country," he said.

Acknowledging having received a letter from SBC managing director in this regard, Mr Das said the corporation did not specify the names of companies which buy insurance coverage locally or from abroad.

"The SBC has to provide specific information to get a solution in this regard," said the IDRA official.

In the meantime, there are only few non-life insurance firms involved with the MNCs, and the local Reliance Insurance is among the leading ones.

Chief Executive Officer (CEO) of Reliance Insurance Ltd Khaled Mamun, however, differed with the allegation raised by the SBC. He said MNCs are most compliant clients in insurance sector.

"Nearly 40 per cent business of my company comes from MNCs," he said, adding that the allegation of country's deprivation of insurance premium from the multinational companies is not true.

"The MNCs are insuring their full properties who are in operation in Bangladesh with local insurance companies. They definitely do it," said Mr Mamun, who had worked at the reinsurance department of SBC for 11 years before joining Reliance Insurance.

"And we do 50 per cent re-insurance compulsorily through the SBC," he noted.

He pointed out that MNCs cannot keep their assets uninsured according to their corporate standards.

According to him several other private-sector insurance companies are also providing insurance coverage to the MNCs.

Bangladesh has more than 200 MNCs in business from banking services to manufacturing different types of goods.

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