Biman reinsurance system up for major overhaul as it costs too high

Rezaul Karim

 

The reinsurance system for Biman Bangladesh Airlines (BBA) is set to undergo a massive overhaul for ensuring transparency and accountability in the process which is presently done on the London market.

Under the move, the government has formed a five-member subcommittee to   recommend a transparent and accountable mechanism instead of the exiting reinsurance process.

The committee has been formed with a joint sectary of the bank and financial institutions division (BFID) of the ministry of finance (MoF) as its convener. The other members are a deputy sectary of the ministry of commerce (MoC), a director from the BBA, a member from the central procurement and technical unit and the managing director (additional charge) of Sadharan Bima Corporation (SBC).

“We will submit recommendations about the reinsurance method on the national flag- carrier Biman. We will hold a meeting next week in this connection,” Md. Fazlul Haque, Joint secretary of the BFID, told the FE Tuesday.

A MoF source said the decision came from an inter-ministerial meeting held at the MoF with Dr. M Aslam Ala, Secretary, BFID, presiding.

During the meeting, the secretary said the reinsurance process for Biman should be competitive and also transparent and accountable. And the meeting decided to form a committee to upgrade the reinsurance system through replacing the existing one for Biman, sources concerned said.

Presently, Biman has to complete reinsurance of its running planes to cover their different risk factors under the Public Procurement Act-2006 and the Public Procurement Act-2008 with the state-owned SBC.

The national carrier is exempt from the public-procurement system. For this, the authorities concerned will submit a recommendation to the Executive Committee of the National Economic Council (ECNEC) seeking exemption from existing process, said a Biman official.

The Biman Bangladesh Airlines is a state-owned organization and so public property. According to the Insurance Corporations (amendment) Ordinance-1984, the state entity has to complete insurance policy with SBC since its inception. But the reinsurance process has to be performed in favour of the airline on annual basis.

Generally, the reinsurance process has to be done on the insurance market in London through brokers.

There is a massive amount of funds involving the reinsurance practice.

A large amount of premium is charged by the international reinsurance firms against various risks of the planes. On the other hand, the firms ensure coverage of the risks of a plane from 98 to 99 per cent against its value. Different premium rates are charged by re-insurers according to various risks of an airplane, an SBC high official said

He said, “We offer the job to different reinsurance firms on the insurance market of London for completing our reinsurance deal. The firms provide us their quotations and we choose after scrutinizing.”

Under the international lease conditions, the Biman Bangladesh Airlines has to complete reinsurance with an international re-insurer during collecting lease plane. Otherwise, the Biman has to pay excess money to purchase or take lease of a plane from the international market if it has no re-insurance coverage.

The government is likely to complete reinsurance method for the national flag-carrier through international tender for stopping monopoly. So, the system should be competitive on the international market, a deputy secretary of the ministry of commerce said.

The domestic air service is facing continued challenges due to poor performance of domestic airlines. On the contrary, foreign carriers have been driving the expansion of the international market to and from Bangladesh, industry-insiders said.

Biman earned revenue worth Tk 40.02 billion against the huge expenditures of over Tk 42.12 billion in the fiscal year 2013-14, according to statistics provided by a senior officer of Biman.

During the fiscal year 2012-13, Biman had to adjust a depreciation of over Tk 1.89 billion, which was Tk1.91 billion in the fiscal 2011-12.

Source: The Financial Express

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