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In law and economics, insurance is a form of risk management primarily used to hedge against
the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of
a loss, from one entity to another, in exchange for payment. An insurer is a company selling the
insurance; an insured or policyholder is the person or entity buying the insurance policy. The
insurance rate is a factor used to determine the amount to be charged for a certain amount of
insurance coverage, 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
(indemnify) the insured in the case of a large, possibly devastating loss. The insured receives a
contract called the insurance policy which details the conditions and circumstances under which
the insured will be compensated.

Backdrop of insurance in Bangladesh:

Insurance is not a new idea or proposition to the people of Bangladesh. About half a century
back, during the British regime in the then India, some insurance companies started insurance
business, particularly life, in this part of the world. Since 1947 until 1971 insurance business
gained momentum in this part of what was then known as East Pakistan. There were about 49
companies transacting both life and general insurance business. These companies were operating
under a free competitive economy.

After the emergence of the People’s Republic of Bangladesh in 1971, the government, in order to
make available the fruit of liberation to the general mass, nationalized the insurance industry
along with the banks in 1972 by Presidential Order No. 95. By virtue of this order, save and
accept postal life insurance and foreign life insurance companies (other than the Pakistani
companies), all companies and organization transacting all types of insurance business in
Bangladesh came under this nationalization order. At the same time, five insurance corporations
were initially established by the Government, viz-

1) Jatiya Bima Corporation (National Insurance Corporation),

2) Teesta Bima Corporation (Teesta Insurance Corporation),
3) Karnaphuli Bima Corporation (Karnaphuli Insurance Corporation),
4) Rupsa Jiban Bima Corporation (Rupsa Life Insurance Corporation),
5) Surma Jiban Bima Corporation (Surma Life Insurance Corporation).

On 14th May, 1973 the Insurance Corporation Act VI, 1973 was enacted under which the
previous five corporations were abolished and the following two corporations emerged:

1) Sadharan Bima Corporation for General Insurance and,

2) Jiban Bima Corporation for Life Insurance in 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 Sadharan Bima Corporation for general insurance and, Jiban Bima
Corporation for life insurance in Bangladesh. In other words Sadharan Bima Corporation (SBC)
emerged on 14th May, 1973 under the Insurance Corporation Act (Act No. VI) Of 1973 as the
only 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 62
insurance 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

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 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 Sadharan Bima Corporation and remaining fifty percent may be
reinsured 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 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.

 Increase of employment facilities: Insurance companies help to expand the business by

providing capital and reducing risk. That’s why in this business organization there are lot
of employment opportunity are created.

 Increasing national income: Insurance companies directly help to increase national

income by developing business sector and create employment opportunities in our

Problems of Insurance in Bangladesh:

1. Low per capita income: Poor economic condition is considered to be the main reason for
poor life insurance penetration in Bangladesh. The country has a very low per capita income and
over 50% of our total population lives below the poverty line. Inability to save or negligible
savings by a vast majority of population kept them away from the horizon of life insurance.

2. Poor knowledge of agents: The marketing of insurance is greatly hampered in the remote
village of Bangladesh where the agents are appointed from respected locality. This is because;
educated young people are seemed to be reluctant to become insurance agents. Therefore,
persons finding no job or persons having lesser knowledge become insurance agents whom
cannot acquaint themselves fully with the whereabouts of insurance. Such agents cannot play
efficient role in convincing a prospective policyholder.
3. Illiteracy: Mass illiteracy is another factor that adversely affects the marketing of insurance.
About 70% of the population is floating in the sea of ignorance. Illiteracy leads one to think that
the insurance is deception; it is no value in life. They cannot think rationality because they do not
know what is insurance and what its importance as security for future.

4. Religious superstation: Religious attitude of the people also stands against efficient
insurance. The religious people believe that the future is uncertain, it is in the hand of Allah and
they do not think it necessary to buy life insurance policy for them.

5. Low awareness: Insurance awareness is poor. Agents are not skilled enough. These agents
cannot perform their job properly to make the people aware of life insurance.

6. Low savings: People of Bangladesh have a very small saving potentially and thus have less
or no disposable income. Almost the whole of the income is exhausted in the process of
maintaining the day-to-day life. Thus they are left with little amount, which may not deemed to
sufficient for the payment of premiums. This factor discourages many to buy life insurance

7. Lack of continuity: Discontinuation of insurance policy is found higher. This also adversely
affects the market efficiency of insurance business.

8. Shortage of fund: Most of the policyholders cannot continue their policies owing to price
spiral and shortage of fund.

9. Lack of remainder: Increase in liability, lack of reminder notice from the insurance
company causes for discontinuation of policy.

10. Negligence of policyholder: Many of the policyholders have expressed that; their policies
lapsed for their own negligence to pay premium in time.

11. Restriction: Another important reason for discontinuation is restriction investment

allowance by the government relating to income tax.

12. Poor services to consumers: An important reason for the dismal performance of insurance
business in Bangladesh is poor client services provided by the insurance companies. The public
image of service from life insurance institutions is very poor.

13. Image: High lapses of life insurance policies do much to harm insurance image.

14. Red tapism to obtain compensation: When an accident takes place, a claimant faces many
difficulties to obtain money from the insurance company. This also discourages people for being
a policyholder.

15. Lack of new products: In a dynamic life insurance market, one can expect to see new
product coming out every now and then. But still today one can hardly see any new product in
the insurance market in Bangladesh.

16. Low return: partly for reasons of drastic fall in money value and partly for reason of nil or
low bonus addition resulting from a combination of high management expenses and low
investment return, life insurance has ceased to look as an attractive savings medium.

17. Traditional marketing: Both as a medium of savings and as a provider of financial security
in the event of premature death of a bread winner and in old age, life insurance has relatively
greater appeal among the mid-income people having steady income. For various reasons poor
monetary benefit, poor services, no tax incentive to government employees etc.-the traditional
marketer of insurance have drastically shrunk. So insurers force to sell policies among different
classes, such as business people, well-to-do farmers, traders etc. These peoples interest for life
insurance is rather lukewarm. Soliciting business from them is harder. Procurement costs, as a
result, have to be raised and at the same time quality of business falls.

18. Traditional Insurance act: The present insurance act was enacted more than half a century
back. Many amendments have been made though since then but the basic character of the act has
remained virtually unchanged. This act does not suit the needs of life insurance in the present
day in Bangladesh. The all pervasive stringent regulatory functions carried and exercised by the
office of the controller of Insurance (CI) is not consisted with the market liberalization policy of
the government. In its present form, the act is obstructing, rather than helping, healthy growth of
life insurance in the company.

19. Restrictive insurance act: One would find it difficult not to admit that the Insurance Act is
too restrictive in the matter of investment. The inflexible rigid rules put obstacles in the way of
earning high profits for the life fund.

20. Nature of intangibility: The current practice is that every company tries to promote its own
products, but the benefits of insurance as such are not highlighted. In other words, the publicity
is itemized, not general.

21. Inadequate training: In life insurance, for the sales personnel particularly, importance of
training cannot be overemphasized. But unfortunately the present facilities for training, despite
what the Insurance academy is doing, are meager.

22. Advantages of PSC: Whatever may be in theory, in reality a public sector corporation (PSC)
engaged in insurance business is not accountable to anyone. The controller of insurance (CI)
cannot enforce its authority over the PSC, since the latter can easily disregard the CI without fear
and any positive action. This gives the PSC, compared to private companies, many advantages.
Of course, these so-called advantages are truly of an illusory nature since in the long run they
will do much harm not only to the PSC itself but also to the life insurance industry as a whole.
23. Discriminatory attitudes: The private insurance companies are noticing that in any dispute
arising between the PSC and the private companies, the authority, for some reasons is always
found to take a position against the companies in favor of the PSC. This kind of discriminatory
attitude does not indicate a sincere belief in free market concept.

24. Lack of reliability: Peoples have lacking of reliability on the insurance company, because
many insurance companies do not make payment they agree to pay in time of selling policy to
the people.

25. Low attractiveness of offerings: the offerings of much of the insurance companies are not
so much attractive that they can allure people to buy a life policy.

26. Lack of advertisement: The lacking of proper advertisement and information about life
insurance package are also important factor for poor life insurance business.

27. Inability to solve problems: Many of the life insurance companies are unable to solve the
problems of the policyholders.

28. Ignorance about claim settlement procedure: Ignorance about claim settlement procedure
creates a drastic problem for the insurance companies. Insurers viewed that many policyholders
don’t know the way of making the claim. The only abuse the insurer for instant claim settlement.
They also don’t know the requirements to be submitted to the insurers. But the insurers have to
comply with the formalities before settling the claim. The process

29. Fabricated information: A large number of agents act for different insurance companies in
the remote areas of the country. The agents usually perform on a commission basis. The
commission depends on the number of clients they can secure. Therefore, a common belief is
that the agents always have the intention to increase their commission and sometimes furnish
favorable information to sell a policy. But this popular belief is not found in reality at the
extreme rate.

30. Limited operational areas: Another clear problem of insurance business is that insurance
companies operate only in big cities for their operational benefits. There was no single negative
answer about this question. Majority of the companies has their agencies in Dhaka, Chittagong
and in other few big cities.

31. Inadequate govt. support: A good number of respondents held the government responsible
for its little support for the enrichment of insurance industry. Since the majority of people is
uneducated and is unaware about the benefits of insurance, the government has to take the
responsibility for wide publicity. But the government hardly performs this responsibility.


From the presiding discussions, we can realize that the policy makers within the government and
the insurance company should adopt effective measures in order to make good use of the
opportunities and to tackle the threats for ensuring a healthy development of the insurance
industry. The following actions are suggested.

1. The insurance companies of Bangladesh should practice marketing through the use of
promotional tools such as advertising, sales promotion, public relation and publicity,
personal selling and direct marketing.

2. In order to create the growth of insurance business in our country, insurance companies
should expand their target market by providing responsive services and establish efficient
departments to perform such task.

3. Government must minimize the restrictions on premium so that insurance companies can
fix their premium according to their demand. This will increase the profitability of the
insurance companies.

4. One of the basic requirements for the insurance industry to have sustained growth is to
enhance training facilities. Bangladesh Insurance Academy is providing training facilities
and professional education to those engaged in insurance business in the country. The
syllabus, curriculum and training programs of the academy need to be modified to meet
the modern needs of the insurance industry.

5. To regain and maintain a positive public image the insurance companies should
overcome the dissatisfaction in regards to services and claim settlements and should
maintain a service standard.
6. The collected premium should be invested in large and beneficial sectors so that
insurance companies can return their clients expected return in timely.

7. Government should have a regulatory body for the surveillance on insurance companies
so that they must perform their business maintaining the ethical issues properly.

8. Insurance companies need to modify their recruitment strategies with increased focus on
the marketing and sales training because, insurance being a service marketing industry it
requires special attention.

9. In response to the opportunity of growing market the insurance companies can expand
their target market by identifying and providing responsive services. In order to do so
each company should established and effectively operate research and development

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.
Higher GDP

The GDP of our country is increasing than the previous year’s 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.
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.
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
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 this 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.
Development of new policy

SBC has long been the sole reinsures in Bangladesh and private insurance companies were
statutorily compelled to place 100% of their reinsurance business with SBC. In 1990 the
government amended the relevant provisions of the insurance Act allowing 50% of all
reinsurance of general insurance business to be placed compulsorily with SBC and the rest to
private reinsurance companies .About 70% of premium income from general insurance business
in Bangladesh is retained locally and the rest 30% goes to reinsures abroad.
Permissions to private insurance companies to act as reinsures will open up new
opportunities to them. This will initiate open competition between the SBC and the
private reinsures within the country and will reduce the reinsurance cost and increase
efficiency. This amendment of the existing rules can be another important policy
making that will facilitate the insurance business in Bangladesh. The private insurance
companies can argue in favors of their capability to act as reinsures on the basis of the fact that
the total capital belonging to the government owned general insurance companies is Tk. 550
million while the private sector insurance companies own
Tk.2500 million.
Scope in non-traditional sector

Nowadays, along with traditional insurance services, they can offer various non-
traditional insurance services to their customer. Target market of insurance company
may expand and they can offer different types of non-traditional insurance services
such as health insurance, personal accident insurance, travel insurance, burglary
insurance and pension scheme.
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.

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 a 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 present insurance is too much important to the business and individual sector. Most of the
companies provide more or less same services. For this reason the competition is increasing day
by day between the insurance companies. On the other hand some new insurance companies are
going to start businesses in the competent market. BGIC need to develop their some productive
sectors. In present, a company cannot establish properly without developing information
technology. People search their desires requirement through Internet so, insurance companies
need to develop Web address to increase both foreign and local investors. So we have discussed
about both the problem and prospects of insurance business in Bangladesh. The progress of
insurance business depends on the progress of economic condition .Insurance business also faces
many problem. So if we develop economic condition as well as overcome the problems, it will
help a lot to flourish this business in our country.