The Insurance Development and Regulatory Authority (IDRA) has barred life insurers from deducting premiums for new policies from insurance claim proceeds or making the purchase of a new policy a condition for settling claims.

In a circular issued by IDRA’s actuarial division under its life insurance department on Thursday, the regulator said the instructions would take effect immediately.

The circular, signed by IDRA Director Rakibur Rahman Khan, said some life insurers had been imposing conditions requiring policyholders to purchase new policies when settling matured claims, death claims and survival benefits. In some cases, insurers were deducting or adjusting premiums for new policies from the amounts payable under existing policies before releasing the remaining money to policyholders or nominees.

According to IDRA, the existing legal framework requires insurers to pay the full amount of an insurance claim to the policyholder or nominee within 90 days. Requiring the purchase of a new policy or adjusting premiums for a new policy against claim proceeds is not permitted under the law.

The regulator warned that such practices violate legal requirements, undermine policyholders’ interests, create dissatisfaction and harm the insurance industry.

Under the new instructions, insurers must transfer the entire claim amount to the bank account of the policyholder or nominee in a single payment. No deductions or fees will be allowed apart from applicable government revenue.

IDRA has also introduced restrictions on issuing new policies to customers whose matured claims are settled late. If a matured claim is paid within 30 days after the statutory 90-day deadline, the insurer will be prohibited from issuing a new policy to the same customer for 30 days from the final date of payment.

If the claim is paid after 120 days or more, the insurer will be barred from issuing a new policy to the concerned policyholder for 180 days from the final payment date.

However, insurers will face no such restriction if they settle matured claims in full within the legally stipulated 90-day period.