Introduction

Insurance business is not new in Bangladesh. Almost a century back, during the British rule in India some companies started insurance business, both life and general, in this region. This business gained momentum in East Pakistan during 1947-1971, when 49 insurance companies were in operation with both life and general insurance schemes. The insurance sector was originally regulated by the Insurance Act, 1938 and after the Independence by the Insurance Act 1973.

Since then the industry is growing steadily despite many odds. Several amendments were made in the insurance law since 1984. In order to facilitate the overall insurance business in Bangladesh, the concerned authority had always been alert. Considering the expansion of trade and commerce in the country and the aim to reduce risks in lives, the Insurance Act 2010 has been enacted by updating the provisions in the Insurance Act, 1938. The Insurance Development and Regulatory Authority Act 2010 has also been framed with a view to synchronising functions of the existing Insurance Department in the spirit of the newly-enacted Insurance Act, 2010 to maintain proper control and supervision of the sector and protect the interests of policy holders and beneficiaries.

There are 77 insurance companies in the country, including the state-owned JibanBima Corporation (JBC) for life insurance and the SadharanBima Corporation (SBC) for general insurance. Nevertheless, Bangladesh remains behind its neighbours, both in terms of premium income and penetration. Only 1.5 per cent of the population has life insurance coverage in Bangladesh, as compared to 4.5 per cent in Pakistan and 7.5 per cent in India.

Insurance

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate the insured in the case of a financial loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.

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Insurance market

The insurance market is an integral part of the market economy. The concept of the insurance market is considered in two aspects. First, the insurance market is a special economic area of monetary relations, where the object of sale is a special commodity - insurance protection (insurance services) and which formed the supply and demand for it. The market provides an organic relationship between the insurer and the insured. Secondly, the insurance market is a complex integrated system of insurance and reinsurance companies (insurers), to carry out insurance activities.

Thus, the insurance market - a set of economic relations, which are formed in the process of supply and demand for insurance services and are the act of buying and selling. The functioning of the insurance market is subject to the law of value and the law of supply and demand. The objective basis for the formation and development of the insurance market is the presence of the public and the need for insurance protection, capable of providing continuity of the reproduction process through compensation and cash assistance to victims of unforeseen extraordinary events. The second condition for the development of the insurance market is the availability of a sufficient number of independent insurance companies that can meet all the needs of society in a variety of insurance protection.

Thus, participants in the insurance relations in the insurance market are the insurers (insurance companies) that sell insurance, and insurers (natural and legal persons) who need insurance protection. In a market increases the interest of potential policyholders in insurance risks associated with the expansion of available property rights with increasing responsibilities of employers and employees to employers, as well as the risks associated with providing financial guarantees for the job losses, bankruptcies, banks, etc.

As intermediaries between sellers of insurance services are the insurance agents and insurance brokers, whose activities contribute to the expansion and development of the insurance relationship.

Specific product in the insurance market is the insurance services, composition and structure to market conditions significantly expanded. Insurance market, depending on the size of the supply and demand for insurance services can be divided into internal, external and international. Internal insurance market develops in a particular region, where the need for insurance services to meet specified insurers carrying out their activities in the area. External insurance market - a market that is outside of the domestic market, interconnected with policyholders and insurers of the area. International insurance market reflects the insurance and reinsurance in the global economy.

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Importance of Insurance

Insurance is there to provide protection for yourself, your investment and your business. Disaster could take any form; car breaks down, roof leaks, a major home fire, an automobile accident that leads to a legal action and someone in the family becomes ill.Insurance gives you peace of mind and you know that if anything happens to you, your family or your business that you will be financially secure.

Insurance is a way of managing risks. When you buy insurance, you transfer the cost of a potential loss to the insurance company in exchange for a fee, known as the premium. Insurance companies invest the funds securely, so it can grow, and pay out when there’s a claim.

Insurance needs for:

Own a home, because mortgage lenders need to know your home is protected Drive vehicles, because few people could afford the repairs, health care costs and

legal expenses associated with collisions and injuries without coverage Maintain your current standard of living if you become disabled or have a critical

illness Cover health care costs like prescription drugs, dental care, vision care and other

health-related items Provide for your family in the event of a death Run a small business or family farm by managing the risks of ownership Take vacations without worrying about flight cancellations or other potential issues

Insurance in Bangladesh

Bangladesh insurance market is still small with a combined life and non life insurance market premium of US $814 million in 2009. The industry ranked 68th in the world with a paltry 0.02% share in the global insurance industry. Per capita insurance spending is only US$ 5.2. Insurance penetration (premium as a % of GDP) remains low at 0.9% (0.7% for life insurance and 0.2% for non-life). The growth of non-life insurance companies in 2009 was 10.4%, and life sector grew at an impressive rate of 26.7%.

However, though the global insurance market declined but Bangladesh has seen a significant growth over last year. Growth in the industrialised countries was -- 2.8% for life and -- 0.6% for non life insurance, however, emerging markets grew at a rate of 4.2% for life and 2.9% for non-life insurance.

Total premium income of private sector life insurance companies in Bangladesh in year 2010 was Tk. 54.7 billion, which represented a growth of 19.02% over that of 2009 (Tk. 45.96 billion). Rise in premium income of private sector life insurance business both in the 1st year

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and the renewals was due to expansion of life business in the country through introduction of micro insurance like SujhanBima, GreehoSanchayaBima, GanaGrameenBima, LokoBima, Jana Bima, PalliBima, IslamiKhudraBima, Group Bima, and Wage Earners' Group Insurance scheme etc. The life fund of private insurance companies increased to Tk. 134.93 billion as at 31st December 2010, registering an increase of 28.32%.

The total investment made by the private sector life insurance companies in year 2010 was Tk. 113.14 billion, an increase of 29.97%. The total assets of the private sector life insurance companies stood at Tk. 152. 93 billion as at 31st December 2010, an increase of 29.58%.

The gross premium income of non-life private sector insurance companies increased from Tk. 12.28 billion in 2009 to Tk. 14.88 billion in 2010, a growth of 21.16%. The total investment made by the private sector general insurance companies in year 2010 was Tk. 17.11 billion. The total assets of non-life insurance companies stood at Tk. 33.37 billion and that of ShadharanBima Corporation at Tk. 11.21 billion in 2010.

List of Insurance Companies in Bangladesh

LIST OF NON-LIFE INSURANCE COMPANIES

Agrani Insurance Company Ltd.

Asia Insurance Ltd.

Asia Pacific Gen Insurance Co. Ltd.

Bangladesh Co-operatives Ins. Ltd.

Bangladesh General Insurance Co. Ltd.

Bangladesh National Insurance Co.Ltd.

Central Insurance Company Ltd.

City Gen. Insurance Company Ltd.

Continental Insurance Ltd.

Crystal Insurance Company Ltd.

Desh Gen. Insurance Company Ltd.

Eastern Insurance Company Ltd.

Eastland Insurance Company Ltd.

Express Insurance Ltd.

Federal Insurance Company Ltd.

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Global Insurance Ltd.

Green Delta Insurance Co. Ltd.

Islami Commercial Insurance Co. Ltd.

Islami Insurance Bangladesh Ltd.

Janata Insurance Company Ltd.

Karnaphuli Insurance Company Ltd.

Meghna Insurance Company Ltd.

Mercantile Insurance Company Ltd.

Nitol Insurance Company Ltd.

Northern Gen.Insurance Company Ltd.

Peoples Insurance Company Ltd.

Phonix Insurance Company Ltd.

Pioneer Insurance Company Ltd.

Pragati Insurance Ltd.

Pramount Insurance Company Ltd.

Prime Insurance Company Ltd.

Provati Insurance Company Ltd.

Purabi Gen Insurance Company Ltd.

Reliance Insurance Ltd.

Republic Insurance Company Ltd.

Rupali Insurance Company Ltd.

Sonar Bangla Insurance Company Ltd.

South Asia Insurance Company Ltd.

Standard Insurance Ltd.

Takaful Islami Insurance Ltd.

Dhaka Insurance Ltd.

Union Insurance Company Ltd.

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United Insurance Company Ltd.

SenaKalyan Insurance Company Ltd.

Sikder Insurance Company Ltd.

LIST OF LIFE INSURANCE COMPANIES

American Life Insurance Company (Foreign Company)

Baira Life Insurance Company Ltd.

Delta Life Insurance Company Ltd.

FarestIslami Life Insurance Co. Ltd.

Golden Life Insurance Ltd.

Homeland Life Insurance Company Ltd.

Meghna Life Insurance Company Ltd.

National Life Insurance Company Ltd.

Padma Islami Life Insurance Company Ltd.

Popular Life Insurance Company Ltd.

Pragati Life Insurance Ltd.

Prime Islami Life Insurance Company Ltd.

Progressive Life Insurance Company Ltd.

Rupali Life Insurance Company Ltd.

Sandhani Life Insurance Company Ltd.

Sunflower Life Insurance Company Ltd.

Sunlife Insurance Company Ltd.

Zenith Islami Life Insurance Ltd.

Mercantile Islami Life Insurance Ltd.

NRB Global Life Insurance Company Ltd.

Guardian Life Insurance Ltd.

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Chartered Life Insurance Company Ltd.

Best Life Insurance Company Ltd.

Protective Islami Life Insurance Co. Ltd.

Sonali Life Insurance Co. Ltd.

Sawdesh Life Insurance Co. Ltd.

Diamond Life Insurance Co. Ltd.

Alpha Islami Life Insurance Ltd.

Trust Islami Life Insurance Co. Ltd.

Jamuna Life Insurance Ltd.

LIST OF THE INSURANCE COMPANIES IN PUBLIC SECTOR

SadharanBimaCorporation(Gen. Ins)

JibanBima Corporation (Life Ins.)

History of Insurance Business in Bangladesh:

The origin of insurance is lost in antiquity. However, there is no evidence that insurance in its present form was practice prior to the twelfth century. A brief chronological historical development of the various branches of insurance is given below:

Marine Insurance:

Marine is the oldest form of insurance and came first in the list. This type of insurance probably began in northern Italy sometime during the 12th& 13thcentury and gradually the concept was rather transferred to or taken over by the United Kingdom. During the 13th/ 14thcentury the Italian merchants went to UK and along with the merchandise carried with them the trading customs including the concept of marine insurance. Marine insurance as such was not being practiced as a separate specialized entity during that time since it were the merchants who used to transact marine insurance business side by side with their general trading activities

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Fire insurance:

After marine insurance fire insurance developed in present form. It had been observed in Anglo-section Guild form for the first time where the victims of the fire hazards were given personal assistance by providing necessaries of life. It15 had been originated in Germany in the beginning of sixteenth century. The fire insurance got momentum in England after the great fire in 1666 when the fire losses were tremendous.

Life insurance:

The third in the list of development is the life insurance business. The earliest policy of which there is a record dates back to 1583. During this period only short term polices were used be issued meaning that only at the death of the life assured during the term period the money was to be paid. On survival nothing was payable. In 1693 Halley introduced the mortality table giving a definite value to risk of death. In 1974, the life Assurance Act was passed in the British parliament requiring the presence of insurable interest before one could effect a life policy on the life of another. All these gradually gave life assurance a sound, systematic and scientific basis as we see in the present day.2.3 Development of Insurance in Bangladesh Insurance is not a new idea or proposition to the people of Bangladesh

Current pattern of Insurance in Bangladesh:

After the emergence of the People’s Republic of Bangladesh in 1971, the government nationalized the insurance industry along with the banks in 1972 by Presidential Order No. 95.By virtue of this order, all companies and organization transacting all types of insurance business in Bangladesh came under this nationalization order. This was followed by creation of five insurance companies in the life and non-life sector. Further changes were brought on 14th May, 1973. Through the enactment of Insurance Corporation Act VI, 1973 which led to creation of two corporations namely SadharanBima Corporation for general insurance and, JibanBimaCorporation for life insurance in Bangladesh. In other words SadharanBimaCorporation (SBC) emerged on 14th May, 1973 under the Insurance Corporation Act (Act No. VI) Of 1973 as theonly state owned organization to deal with all classes of general insurance & re-insurance business emanating in Bangladesh. Thereafter SBC was acting as the sole insurer of general Insurance till 1984. Bangladesh Government allowed the private sector to conduct business in all areas of insurance for the first time in 1984. The private sector availed the opportunity promptly and came forward to establish private insurance companies through promulgation of the Insurance Corporations (Amendment) Ordinance (LI of 1984) 1984.The Insurance Market in Bangladesh now consists of two state-owned corporations, forty three and seventeen private sector general & life insurance companies respectively, a total of 62insurance companies.

Thus the insurance sector in Bangladesh has grown up substantially and deepened remarkably with number of companies in both life and general segments. With the expansion of size of the insurance market, the volume of assets of the industry has also increased substantially. SBC is entitled to 50% of public sector business. Insurance Corporation (Amendment) Act 1990 provides that fifty percent of all insurance business relating to any public property or to

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any risk or liability appertaining to any public property shall be placed with the SBC and the remaining fifty percent of such business may be placed with this corporation or with any other insurers in Bangladesh. But for practical reason and in agreement with the Insurance Association of Bangladesh SBC underwrites all the public sector business and 50% of that business is distributed among the existing 43 private general insurance companies equally under National Co-insurance Scheme. In respect of reinsurance, the same act provides that fifty percent of a company’s reinsurance business must be placed with the SadharanBima Corporation and remaining fifty percent may beer insured either with this Corporation or with any insurer in Bangladesh or abroad. At present, nearly all the company’s place 100% of their reinsurance business with the SBC.

Role of private insurance companies in the economic development of Bangladesh:

— Formation of capital & increase of investment: Insurance companies receive premiums from insured persons. These premiums increase national capitals. By investing these capitals, national productions increase.

— Reduce of hindrance of risk: every sorts of business consists of risks. These risks are more hazardous in Bangladesh. Insurance companies minimize these risks by giving privileges on loss.

— Maintenance of national wealth: insurance companies not only secure financial facts, but also influence people to take necessary steps to avoid risks.

— Distribution of risks: insurance companies deal with lots of insured people. So risks are being distributed among them.

— Extension of business: By taking all uncertain business risk insurance companies extended the field of business in our country. Insurance gives the assurance of indemnity and help to collect the capital to lunch a new business and expand the existing business.

— Increase of awareness: As the maximum people of our country are illiterate so they have not much knowledge about the future life and what will do to enhance the living standard. Different types of advertisement, publicity and others awareness activities of insurance company which helps to increase the awareness of general people.

Insurance laws and regulations: Challenges of modernization

Insurance business is not new in Bangladesh. Almost a century back, during the British rule

in India some companies started insurance business, both life and general, in this region. This

business gained momentum in East Pakistan during 1947-1971, when 49 insurance

companies were in operation with both life and general insurance schemes. The insurance

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sector was originally regulated by the Insurance Act, 1938 and after the Independence by the

Insurance Act 1973.

Since then the industry is growing steadily despite many odds. Several amendments were

made in the insurance law since 1984. In order to facilitate the overall insurance business in

Bangladesh, the concerned authority had always been alert. Considering the expansion of

trade and commerce in the country and the aim to reduce risks in lives, the Insurance Act

2010 has been enacted by updating the provisions in the Insurance Act, 1938. The Insurance

Development and Regulatory Authority Act 2010 has also been framed with a view to

synchronising functions of the existing Insurance Department in the spirit of the newly-

enacted Insurance Act, 2010 to maintain proper control and supervision of the sector and

protect the interests of policy holders and beneficiaries.

Problems of Insurance Business in Bangladesh

For the development of economic infrastructure of a developing country like Bangladesh,

there is a great role of insurance. But the insurance business in our country is not satisfactory.

Though insurance industry has very prospect in the economy but for some reasons it’s totally

failed to achieve its goal. If we want to know the reasons behind this hen we should look

forward the following according to Bangladesh General Insurance Company Ltd. In this

report the major problems in performing insurance business has been classified into some

major criteria which are social, economic, political, legal and other reasons. The actual

problems are discussed in detail within these criterions. Mainly these reasons are:

Social Problems:

A vast majority of people especially in rural areas are left outside the insurance coverage. This mainly

results from the unawareness among the people. Even a large portion of people don’t have the

minimum idea of insurance. People are not aware of the benefits from the insurance policy and a great

number of people believe that insurance business is nothing but cheating and assume that insurance

policy is quite unnecessary. This negative attitude from the people is lessening the importance

of absorbing insurance policy in a large extent.

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Centralization:

Most of the insurance companies in our country are located in urban areas and there are few

branches in rural areas. They think that they might have better scope for performing their

business as the economic condition of the urban is better than the rural areas. They don’t

think that the large number of our population reside in rural areas and if branches are

expanded in rural areas then the business can thrive if proper motivation policy is taken to

aware the mass people of the rural areas. Thus this centralization policy acts as an obstruction

for the growth of insurance business in our country.

Economic Problems:

Weak Economy:

The development of insurance business depends to the development of economy of deferent

sectors. But in Bangladesh there are many lacking to the development of economy. Our

export income in limited and 78%income come from cloths and nightwear sector. So the

types of economy are not suitable for insurance business.Bangladesh is one of the poorest

countries in the world and most of the people in this country live under extreme poverty

level. All of these people fight hard to earn their livelihood and are marginal in relation to the

expenditure with the income. It is quite impossible for them to save some money for future

need. Therefore they are quite unable to give the amount to the insurer which is called as

premium and regarded as safety or precautionary measures against any accident. The number

of people who can bear the premium to the insurance company is very few in regard to those

mentioned above. Therefore the overall poor economic condition is creating obstacle to

flourish the insurance business in Bangladesh.

Weakness in Industrial Sector:

Bangladesh is an agricultural country; the industrial sector of their country is poor. In our

country 9.71% are industrial labour from the total labour force. In 2004-2005 industrial

productivity was only 28.88%of the total national productivity. This focuses the weakness of

our industrial sector. So these types of weakness are one of the main barriers of insurance

business.

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Higher cost of business:

Growing cost of business is another problem that insurance companies are facing now a day.

They urge that government tax, house rent, utility, commission fee, stationeries are growing

day by day. But their businesses are not growing so fast with that rate. Besides this the policy

holders are not willing to pay too much premium with growing cost that is hampering the

strategies of insurance companies. So they are facing difficulties in running their business

efficiently.

Problems of economic bases and effective principle:

Before independence insurance business was control by private company. But after

independence maximum insurance company take over by the government. For that reason

government changed the company management, policy and applies new rules and regulations

which system was very tricky and uncomfortable for the mass people.

Prospects of Insurance Business in Bangladesh

As well as the problems mentioned above, there are many good signs for the insurance

business in Bangladesh. The factors that can facilitate the insurance business in our country

are discussed below. These facts can be measured as the prospective fields for insurance

business in Bangladesh.

Increased population:

There is a big opportunity lies ahead for the insurance companies as the population of our

country are increasing day by day. Although most of people of our country live under

extreme poverty level and want to avoid insurance policy number of potential policy holders

in Bangladesh is growing with growth of the population. There is somewhat relationship

between growing populations with the number of public vehicle. As we know all public

vehicle must have an insurance policy. So growing population also increase the motor

insurance too. That is growth in population opens greater scope for every kind of insurance

business that results in growing prospect for insurance companies.

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Higher GDP:

The GDP of our country is increasing than the previous years which results in increase of per

capita income. So this growing GDP and income holds bright prospects for insurance

companies. The major problem is the incapability of our people to pay the premium charged

by the insurance companies. . With the growth in the income more and more people are now

willing to take an insurance policy for safeguarding themselves from any danger.

New business’s individual insurance:

There are so many new businesses starting every day and manufacturing sector is booming

with global demand. Every business is insured under an insurance company to protect its

company from any kind of accident. Therefore growing industry, mill, factories are creating

better scope for the insurance companies to flourish their business

Developing mass awareness about insurance:

People are now much more conscious about their safety. So they are encouraged to take an

insurance policy for making their life free from any unexpected occurrence. Increase in

literacy rate is helping predominantly to create awareness among the people regarding taking

insurance policy. Besides these insurance companies are also trying to eradicate the negative

attitude of people towards the insurance company by organizing various programs such as

seminars, programs including social responsibilities etc.

Micro insurance:

Micro insurance can be a great prospective area for the insurance business in our country.

Most of the people of our country are unable to have costly and long term insurance policies.

Micro insurance can be provided to individual personnel or to small business owners against

little insurance premiums and with easy terms and conditions. When they will afford to

minimize their risks at a lower price, they will take that opportunity and they will become to

get used to it. This can cover a huge portion of the society who can be a prospective target

market for this business.

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Health Insurance:

The insurance companies of Bangladesh can be developed health insurance policy as large

scale like other developed and developing countries. That increases the scope of insurance

business in Bangladesh. Though there are some insurance companies created this at small

range but that not enough to meet the crying need of health insurance in nearby decades.

Marriage Insurance:

Bangladesh is Muslim country. So marriage plays a vital role in our social life. Now a day’s

it become costly. Guardians of daughters as well as sons face this problem that is why they

want to overcome this problem. This situation creates a vast opportunity for insurance

business in Bangladesh.

Scope of investment:

Insurance companies can usually make more profit from investment activities than from their

regular insurance business. The private insurance companies are realizing this fact and

playing role in the financial market. Insurance companies are making large investment in

government bonds, ICB projects and in private sector business. There are opportunities to

enhance profit through effective and efficient money management by employing capable and

experienced personnel. Scope of investment expansion persists in the areas leasing, housing,

health and money market.

Service diversification:

Insurance is not just a tool of risk coverage. It is also an attractive instrument of savings. The

mixture of risk coverage with savings gives the opportunity for innovative product designing

which means service diversification. In a dynamic insurance market one can expect to see

new products being promoted at regular intervals. So far very little efforts have been taken to

innovative and introduce need oriented insurance services in response to existing threats. The

prospect of the insurance business in various sectors that affect our economy can be

differentiated in the following way.

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Agriculture sector:

The economy of Bangladesh is predominantly an agrarian one, with most people engage in

farming and fishing. The uncertainty of agriculture due to crop failure caused by climate

variation, drought, cyclone, flood and pests affects farmer income as well as government

revenue. Furthermore, in the last few years commercialization has occurred in some sections

of the agricultural sector. Increase in investment in the agricultural sector is creating a new

opportunity for insurance industry. Various agricultural insurance services are becoming

common these days. Demand for insurance protection against crop loans, livestock loans,

fisheries loans and equipment loans are also increasing day by day.

Business sector:

Nowadays in Bangladesh the SME plays an important role in the economic development. But

they are deprived from taking loans from bank for large amount. If insurance business

focuses this section in Bangladesh they are able to contribute more in the economy .Thus

insurance business has a bright prospect in business sector in a developing country like

Bangladesh

Education sector:

Insurance companies can provide different types of scheme to expand education plan

insurance. In Bangladesh the higher educational facilities is not as rich as developed

countries. It is very costly except public sectors educational institutions. So, education sector

should create vast facilities for insurance business in future.

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Impact on Our Economy

Insurance business contributes to develop economic condition of Bangladesh. As a result,

Creating more savings,

Makes capital formation,

Develops trade and commerce,

Creates more employment,

Social security,

Provides security of asset and human life by taking risk

Collect money from society for investment,

Improve standard of living,

Generate employment facilities,

Increase export provides security by taking risk etc.

Conclusion:

At present insurance is too much important to the business and individual sector.A company cannot establish properly without developing information technology. People search their desiresrequirement through Internet so, insurance companies need to develop Web address to increaseboth foreign and local investors. The progress of insurance business depends on the progress ofeconomic condition .Insurance business also faces many problem. So if we develop economiccondition as well as overcome the problems, it will help a lot to flourish this business in ourcountry

Parliament on 03 March 2010 passed two insurance laws in a bid to further strengthen the regulatory framework and make the industry operationally vibrant. The new laws, came in to effect on 18 March 2010, are Insurance Act 2010 and IDRA 2010.

There are 77 insurance companies operating in the country and they need to be regulated under comprehensive laws and guidelines and supervised by a strong regulatory authority. The Insurance Act 2010 said the sector needs to be managed properly and he strengthened by reducing business risks, and local and international insurance laws need to be harmonized considering the socio-economic aspect of the country, and protect the interest of policy holders and other beneficiaries.

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