Introduction:

The insurance companies of our country perform a wide range of activities such as service designing, preparing contract and policy, marketing and selling, underwriting, rating, reinsurance and other services and claim settlement. The insurance companies of Bangladesh practice marketing to a different extent. Their level and depth of marketing orientation varies. A broad distinction can easily be made between the public and private sector insurance companies. This is because of the fact that the government owned two insurance companies i.e. the Saharans Bima Corporation and Jiban Bima Corporation get all the government insurance business by virtue of the Insurance Act of Bangladesh. According to the rule, all insurance in the government sector is done through these two nationalized insurance companies, so they enjoy a monopoly. None of the private insurance companies is allowed to offer insurance services to government organizations. Furthermore, these two corporations are also allowed to underwrite private businesses and people feel confident about their reliability. So they have not yet felt any strong need to practice marketing properly. It seems that they, for the time being at least, are quite contended with their existing market share. Although in the present situation they do not need to practice marketing aggressively, however, if they are to retain their existing private sector business and to grow at a pace as the overall market expands, they need to become fully market oriented. Both the public and private sector insurance companies in Bangladesh are not practically marketing oriented. They dont follow the marketing concepts. The insurance services can be described as a product in the form of a written legal contract (the insurance document) plus a bundle of services associated with it. Services are activities and/or benefits that one party offers to the other and that services are necessarily intangible and do not result in the ownership of anything. The insurance companies have to find ways to make their services more tangible. To increase the productivity of providers who are inseparable from their products, to standardize the quality in the face of variability, and to improve the demand situation and supply capacities in the face of service perish ability. Informing, educating, motivating, persuading, advising and other services prior to, at the time of and after the issuance of the insurance document make the purchase of insurance dissimilar from purchasing other products and from even other service.

What is insurance?
Insurance in its basic form is defined as A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event." In simple terms it is a contract between the person who buys Insurance and an Insurance company who sold the Policy. By entering into contract the Insurance company agrees to pay the Policy holder or his family members a predetermined sum of money in case of any unfortunate event for a predetermined fixed sum payable which is in normal term called Insurance Premiums. Insurance is basically a protection against a financial loss which can arise on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event. For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance company , the family members of insured person receive a fixed compensation in case of any unfortunate event like death. Insurance Products o Life Insurance , o Vehicle Insurance, o Home Insurance, o Health or Medical Insurance o Travel Insurance, etc. Types of insurance Life insurance: Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise.

General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance

Insurance company in Bangladesh

There are 2types of insurance company in Bangladesh: Life insurance Company: Public, Foreign, Private. General insurance company: Public, Private.

Life insurance Company

Among the Public life insurance company Jiban Bima Corporation, Jiban Bima Bhaban; 10, Dilkusha Commercial Area, Dhaka 1000, is the best Among the Private Life Insurance Company Delta Life Insurance Co. Ltd. Uttara Bank Bhaban, 90-91 Motijheel C/A, Dhaka 1000, is the best. Among the Foreign Life Insurance Company , American Life Insurance Co. Alico Building, 18-20, Motijheel C/A, Dhaka is the best.

General Insurance Company

Among the Public General Insurance Company, Sadharan Bima Corporation Sadharan Bima Sadan, 33, Dilkusha C/A, Dhaka is the best. Among the Private General Insurance Company , Bangladesh General Insurance Co. Ltd., 42, Dilkusha C/A, Dhaka 1000 is the best.

After independence, Bangladesh government nationalized the insurance industry in 1972 by the Presidential Order No 95, known as the Bangladesh Insurance (Nationalization) Order 1972.A total of 60 insurance companies are operating in Bangladesh till date. Of these companies, 57 are private, two state-owned and one is foreign

OBJECTIVES OF THE STUDY

To present the historical background of insurance industry in Bangladesh. To find out its basic operation. To compare performance of the insurance industry in Bangladesh.

Historical background of insurance company in Bangladesh

Insurance a system of spreading the risk of one to the shoulders of many. It is a contract whereby the insurers, on receipt of a consideration known as premium, agree to indemnify the insured against losses arising out of certain specified unforeseen contingencies or perils insured against.

Insurance is not a new business in Bangladesh. Almost a century back, during British rule in India, some insurance companies started transacting business, both life and general, in Bengal. Insurance business gained momentum in East Pakistan during 1947-1971, when 49 insurance companies transacted both life and general insurance schemes. These companies were of various origins British, Australian, Indian, West Pakistani and local. Ten insurance companies had their head offices in East Pakistan, 27 in West Pakistan, and the rest elsewhere in the world. These were mostly limited liability companies. Some of these companies were specialized in dealing in a particular class of business, while others were composite companies that dealt in more than one class of business. The government of Bangladesh nationalized insurance industry in 1972 by the Bangladesh Insurance (Nationalization) Order 1972. By virtue of this order, save and except postal life insurance and foreign life insurance companies, all 49 insurance companies and organizations transacting insurance business in the country were placed in the public sector under five corporations. These corporations were: the Jatiya Bima Corporation, Tista Bima Corporation, Karnafuli Bima Corporation, Rupsa Jiban Bima Corporation, and Surma Jiban Bima Corporation. The Jatiya Bima Corporation was an apex corporation only to supervise and control the activities of the other insurance corporations, which were responsible for underwriting. Tista and Karnafuli Bima Corporations were for general insurance and Rupsa and Surma for life insurance. The specialist life companies or the life portion of a composite company joined the Rupsa and Surma corporations while specialist general insurance companies or the general portion of a composite company joined the Tista and Karnafuli corporations. The basic idea behind the formation of four underwriting corporations, two in each main branch of life and general, was to encourage competition even under a nationalized system. But the burden of administrative expenses incurred in maintaining two corporations in each front of life and general and an apex institution at the top outweighed the advantages of limited competition. Consequently, on 14 May 1973, a restructuring was made under the Insurance Corporations Act 1973. Following the Act, in place of five corporations the government formed two: the SADHARAN BIMA CORPORATION for general business, and JIBAN BIMA CORPORATION for life business. The postal life insurance business and the life insurance business by foreign companies were still allowed to continue as before. In reality, however, only the AMERICAN LIFE INSURANCE COMPANY. continued to operate in the life sector for both new business and servicing, while three other foreign life insurance continued to

operate only for servicing their old policies issued during Pakistan days. Postal life maintained its business as before. After 1973, general insurance business became the sole responsibility of the Sadharan Bima Corporation. Life insurance business was carried out by the Jiban Bima Corporation, the American Life insurance Company, and the Postal Life Insurance Department until 1994, when a change was made in the structural arrangement to keep pace with the new economic trend of liberalization. The Insurance Corporations Act 1973 was amended in 1984 to allow insurance companies in the private sector to operate side by side with Sadharan Bima Corporation and Jiban Bima Corporation. The Insurance Corporations Amendment Act 1984 allowed floating of insurance companies, both life and general, in the private sector subject to certain restrictions regarding business operations and reinsurance. Under the new act, all general insurance businesses emanating from the public sector were reserved for the state owned Sadharan Bima Corporation, which could also underwrite insurance business emanating from the private sector. The Act of 1984 made it a requirement for the private sector insurance companies to obtain 100% reinsurance protection from the Sadharan Bima Corporation. This virtually turned Sadharan Bima Corporation into a reinsurance organization, in addition to its usual activities as direct insurer. Sadharan Bima Corporation itself had the right to reinsure its surplus elsewhere outside the country but only after exhausting the retention capacity of the domestic market. Such restrictions aimed at preventing outflow of foreign exchange in the shape of reinsurance premium and developing a reinsurance market within Bangladesh. The restriction regarding business placement affected the interests of the private insurance companies in many ways. The restrictions were considered not congenial to the development of private sector business in insurance. Two strong arguments were put forward to articulate feelings: (a) Since the public sector accounted for about 80% of the total premium volume of the country, there was little premium left for the insurance companies in the private sector to survive. In this context, Sadharan Bima Corporation should not have been allowed to compete with the private sector insurance companies for the premium (20%) emanating from the private sector; (b) Being a competitor in the insurance market, Sadharan Bima Corporation was hardly acceptable as an agency to protect the interests of the private sector insurance companies and should not have retained the exclusive right to reinsure policies of these companies. The arrangement was in fact, against the principle of laissez faire. Private sector insurance companies demanded withdrawal of the above restrictions so that they could (a) underwrite both public and private sector insurance business in competition with the Sadharan Bima Corporation, and (b) effect reinsurance to the choice of reinsurers. The government modified the system through promulgation of the Insurance Corporations (Amendment) Act 1990. The changes allowed private sector insurance companies to underwrite 50% of the insurance business emanating from the public sector and to place up to 50% of their reinsurance with any reinsurer of their choice, at home or abroad, keeping the remaining for placement with the Sadharan Bima Corporation.

Up to 2000, the government has given permission to 19 general insurance companies and 10 life insurance companies in the private sector. Insurers of the country now conduct almost all types of general and life insurance, except crop insurance and export credit guarantee insurance, which are available only with the Sadharan Bima Corporation. Numerous institutions, associations and professional groups work to promote the development of insurance business in Bangladesh. Prominent among them are the Bangladesh Insurance Association and BANGLADESH INSURANCE ACADEMY. Bangladesh Insurance Association was formed on 25 May 1988 under the Companies Act 1913. It is registered with the Registrar of Joint Stock Companies and has 30 members. It aims at promoting, supporting and protecting the interests and welfare of the member companies. Surveyors and insurance agents occupy a prominent position in the insurance market of Bangladesh. The surveyors are mainly responsible for surveying and assessing general insurance losses and occasionally, for valuation of insurance properties, while the agents work to procure both life and general insurance business against commission. The system of professional brokers has not yet developed in Bangladesh. However, it is a common practice of the insurers to engage salaried development officers for promotion of their insurance business.
banglapedia.search.com.bd/HT/I_0077.htm - 20k

The Operational process of insurance company

1.1 The main controls that have been implemented include: Eliminating project loans All premiums and loan repayments must be deposited the following day by the organizer or the accountant (where this is not possible or pragmatic because of geographic constraints, additional controls are put in place) Issuing new numbered receipt books in quadruplicate; maintaining an official inventory Of them; keeping unused receipt books locked up (new receipt books are only issued after the previous book has been reconciled) Immediately reconciling deposits and receipts, and investigating any discrepancies Photographs of the clients are included with the application to ensure that payouts are given to the right person Claims above BDT 50,000 or in the first year must be investigated by an underwriter Firm punishments for fraud, including legal prosecution and jail Rewards are offered to encourage employees to report irregularities Development of a new software system Numbered premium receipt books Premium receipts as basis for bank reconciliation and commission calculations. 1.2. Internal Audit Check List for Unit Office
1. Verify amount of cash, if any. 2. Take stock of premium receipt (PR) books and reconcile the stocks with ZOC records. 3. Check the daily premium collection as per Daily Collection Statement (DCS) & unit PR copy and confirm the bank deposit. 4. Reconcile the unit income with ZOC and head office records. 5. Verify the loan recovery as per PR unit copy with loan ledger balances & reconcile with bank deposits. 6. Check whether the PR books register, DCS, Loan ledger, Policy ledger, Attendance register, Movement register and other necessary documents are properly maintained at unit offices. 7. Check the office rent and space of area of the rented office and payment procedures. 8. Verify the offices fixed assets from the fixed asset register. 9. Verify the staff position and their regular attendance. 10. Test check of PR book stocks with the organiser and confirm the justification of PR issue to the organizer. 11. Verify the disbursement of salary/commission to the office staff, unit manager & organiser. 12. Verify whether other payments such as office expenses etc. are properly done. 13. Confirm the visit/supervision of unit office by the senior development officials.

1.3 The Result Of Operating Expenses Ratio

ALICO Delta Life Insurance National Life Insurance Sandhani Life Insurance Homeland Life Insurance

37.1% 47.2% 50.9% 55.6% 79.4%

Loan Recoveries
Insurance does not have a good track record of loan repayments, which is one of the reasons for terminating the project loans (the other main reason being fraud). Over the past few years, the recovery rate has been around 50 percent, which means that when the loan term endsall loans are 12 monthsabout half of the principle and interest has been repaid. For the policy loans, this situation is not a major cause for concern since the loans are 100 percent secured by the insurance policy. With the bad debts from the project loans, There expects to recoup 80 percent of them by liquidating the loan balances against the savings. Despite optimistic loan recovery expectations, the project loan problems have created a serious financial gap in the loan portfolio. Project loans disbursed are graphed against project loan repayments. The gap significantly widened during the period 1994 1999, and has remained relatively stagnant since then. However, there remains a repayment gap of US$ 1.9 million. Insurance company suffered from default on about 50% of its loans, and lost nearly one-third of the total amount disbursed. 1.4 Financial Result During the early days, pricing for micro insurance was lower per unit of coverage than the Ordinary Life products, reflecting the social priorityGGB was initially more concerned about development objectives than viability. In the late 1990s the board became less willing to absorb losses from Gono and Grameen Bima. In 2002, finally, the actuarial valuation showed these programmes actually contributing to the profits of the company. Before this valuation, management and the Board had been considering separating GGB from Delta Life through the creation of an NGO that would house the microinsurance activities.

Cost Structure
Today the risk premium per unit for the micro insurance products is equivalent to the ALL products. This is done because all company does not have sufficient data to properly assess the risks of this market. Management recognizes the significant differences between the risks of these groups and plans to make appropriate adjustments when the information is available based on actual risk instead of social concerns. To simplify the work for the field officer and improve the ability of policyholders to understand product pricing, Gono-Grameen Bima is priced based on the average age of their policyholders. Thus, premiums are set at the 35-year old level. OL products have premiums calculated for each individual based on age, profession and gender. The actuary notes that there are no exclusions for GGB based on profession, although some professions are strongly discouraged. The actuary offered that he is concerned with the single age pricing, and may introduce variable pricing based on risk in the future.

The operational cost component of the gross premium is derived based on projected direct costs of Gono-Grameen Bima. These direct costs are accessible because a substantial amount of the GGB work is through separate office and staff, and thus accounting is differentiated. Indirect and amalgamated costs are more difficult to obtain. The operations costs ratio for GGB in 2003 was 41.0 which, although high, is an improvement over recent years. Regarding commissions, since July 2004, organizers are paid 30 percent of the premiums collected for first year policies, For renewals, the organizer receives 10 percent. This new scheme, intended to increase sales, is an interesting strategy given the severe problem with policy lapses. Rather than trying to pile on more policyholders, it might be appropriate to try to reduce lapses.

1.6 Premium collection Although this collection arrangement is extremely convenient for the low-income market, it is an expensive approach that is prone to fraud. To overcome these challenges, Moving from weekly to less frequent premium payments Requiring organizers to deposit premiums (and loan repayments) daily where at all possible Requesting policyholders to pay their premiums to the accountants at the unit offices Encouraging more clients to make their own premium payments directly into bank accounts The organisation is currently analysing the effects of these changes to determine if

institutional policies need to be developed.

When new policies are issued, the head office sends policy documents to the policyholder via the unit office. This document is in the form of a passbook, which is kept by the policyholder, and it contains the policy details, the clients picture and signature. The passbook has columns for recording the amount and date of premium payments. When a premium is paid, the organizer or the accountant initials the passbook and issues an official receipt.

Basic operations of insurance company in Bangladesh

Primary

To spread the financial loss of insured members over the whole of the insuring community by compensating the unfortunate few from the pool formed by the contributions of all members.

Secondary

Freeing funds otherwise tied up in reserves - Insurance substitutes a certain premium payment in place of an uncertain loss payment. No prudent businessman would invest large sums of money without suitable safeguards. In the absence of insurance, large reserve funds would be necessary. Insurance has the effect of releasing these reserves for further investment and developments. Investment by insurers - Insurers have accumulated funds over the years and a large proportion of these resources are invested, therefore boosting the overall development of the economy. Aid to credit - Seldom will a loan be advanced unless the item being financed is insured. Provides employment - A large number of people are directly employed in the insurance industry. Loss prevention and loss reduction - Insurers encourage loss reduction and prevention by offering lower rates and discounts to those who take loss prevention and loss reduction measures.

Registration policy in an insurance company Complete the registration form provided and mail together with the company cheque or any other modes of payments except personal cheques to reach 30 DAYS BEFORE the course commences.

 Participants will only be registered upon clearance of the cheque. Reservation for the course can be made by phone or fax but will be confirmed upon receipt of the registration form and payment. A FULL FEE is chargeable if no written notice of cancellation is received 14 DAYS before the course commences or if the participant fails to report for the course. However, we accept substitute participant (s). The organizer reserves the right to reschedule or cancel the course due to unforeseen circumstances and will notify the contact person accordingly. Confirmation of the course will be made to the contact person/registered participant(s).

Registration Form

To compare performance of the insurance industry in Bangladesh.

PAYMENT OPTIONS
Cash/Cheque/Bank Draft. Enclosed is our money order/postal order/bank draft no. ____________________ for BDT_________________ Credit Card : Visa/Mastercard. Card No____________________________________ Expiry Date ___________ Signature _____________ Direct bank-in to account for local participants: A/C No. _____________ Telegraphic Transfer for overseas participant in USD to: A/C No. _____________ Note: 1. Payment to be made payable to The Bangladeshi Insurance Institute 30 days before the commencement of the program. 2. Participants will not be registered for the program until payment is received. 3. We wish to inform that does not accept personal cheques.

Operations of insurance company graphically

The increasing rate of insurance policy in BD

Appendix
http://www.ssa.gov/policy/docs/progdesc/ssptw/2002-2003/asia/bangladesh.pdf
www.microfinancegateway.org/section/resourcecenters/microinsurance 1. Developing donor guidelines for supporting micro insurance 2. Document case studies of insurance products and delivery models

To compare performance of the insurance industry in Bangladesh.

American Life Insurance Company (Alico Bangladesh) started full service branch operations in Bangladesh on 15 January 1974 and has since then been marketing individual and group life insurance products under the Insurance Act 1938, Insurance Rules 1958, and other applicable laws. Alico, incorporated in 1921 in Wilmington, Delaware, USA, is the largest international life insurance Company in the world. It is a member company of the American International Group (AIG) that operates life insurance businesses in more than 135 countries. American Life Insurance Company Bangladesh (referred to as the company hereafter) runs its business through its agency offices scattered mostly in big cities such as DHAKA (43), CHITTAGONG (9) and KHULNA (3). Over 2700 career agents are working for the company. The company has a trained and dedicated work force of 223 employees in Bangladesh.

www.alico bd.com

Net premium income received by the company from direct business in 1999 was Tk 1,896.75 million as against Tk 21.12 million in 1981. The figures include both new or first year premiums and renewal premiums derived from its various life insurance plans/schemes such as ordinary life policies, personal accident protection, group life, group medical, and ordinary term insurance. Re-insurance premium paid by the company to its re-insurer abroad was Tk 0.32 million in 1999, when it paid a net amount of commission of Tk 333.94 million. Net claims settled by the company during the year amounted to Tk 75.11 million.

Apart from net premium income derived from direct life insurance business, the company earned Tk 514.81 million in 1999 as interest, dividend, and rent income.

Executive summary Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured is the person or entity buying the insurance. 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. In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one. Should the same thing happen to one's neighbour, the other neighbours must help. Otherwise, neighbours will not receive help in the future. This type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread (for example countries in the territory of the former Soviet Union). Conclusion Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavourable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised and sold.

Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. An agent can represent more than one company. An independent insurance consultant advises insured on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

Global insurance premiums grew by 11% in 2007 (or 3.3% in real terms) to reach $4.1 trillion. The macro-economic environment was characterized by slower economic growth in 2007 and rising inflation. Profitability improved in life insurance and fell slightly in the non-life sector during the year. Life insurance premiums grew by 12.6%, accelerating in the advanced economies with the exception of Japan and Continental Europe. Non-life insurance premiums grew by 7.6% during the year. Figures for premium income are not yet available for 2008, but the insurance industry is likely to see a slowdown in new business and falling investment revenue. Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies and regulated as insurance and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pensions that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life insurance.