Problems and Prospects of Insurance Business in Bangladesh Part -I

1.1 Introduction This report has been prepared as a requirement of the Bank Management course. The report was based upon the overall insurance companys problems and prospects in Bangladesh. We were duly approved by our Course Teacher Salma Akther. This report will help us know about the insurance business problems and prospects in Bangladesh. Insurance is a system of spreading the risk of one to the shoulders of many. It can be defined as a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against that risk. 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. It can play an important role in a countrys economy. It is an old form of financial practice of sharing risk, which was introduced in this area in mid-18th century. 1.2 Rationale of the study The report is assigned by our course teacher Salma Akther as a part of our Bank Management course. The topic of this reported is Problems and Prospects of Insurance Business in Bangladesh. For preparing this report we had to visit their offices and by visiting there we have got chance to see the real picture of their business. By conducting this study we can enhance our knowledge and skill to apply various research methods in professional life on higher educational life. The report has given us a chance to raise our quality in developing research instrument and its applications. By doing so, we can boost our acceptability in job market and develop our real life knowledge.
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Problems and Prospects of Insurance Business in Bangladesh

1.3 Objectives of the report Primary objective: The main objective of this report is to show the scenario of "Problems and prospects of Insurance in Bangladesh" at a glance. Secondary objective: The research objectives regarding my term paper are To fulfill the requirement of the course curriculum.

To find out some major problems of insurance in Bangladesh such as Social, Political, Economical, Legal, Miscellaneous,

To earn proper and right knowledge about the insurance business in Bangladesh. How it works in this country & Corporate social responsibility (CSR) To know about general insurance & its classification. Problem behind the insurance industry future plan of it. To earn practical knowledge about management and distribution system. when the risk

To know the conditions under when claims are considered and the process of meeting claim. To know about their revenue, expenditure, profit, business policy, social work etc. To observe their development year by year. To earn knowledge about reinsurance business. To know how they respond to different parties.

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Problems and Prospects of Insurance Business in Bangladesh

To know the importance and necessity of insurance in different sector.

1.4 Scope of the Study There were huge scopes to work in the area of this Assignment. Considering the dead line, and exposure of the paper has been wide-ranging. The study Problems and Prospects of Insurance Business in Bangladesh has covered overall scenario of problems and prospects of insurance industry in Bangladesh. It has measured the living standard of mass people. We have a chance to work on the financial sector used in modern economic world. By doing the assignment, we are able to know that the importance of insurance business in the economy. In the assignment we have showed how the insurance institution face the problems and how they can overcome the problems in Bangladesh. And what will be the position of insurance business in nearby decades. 1.5 Methodology of the study We have prepared this report by analyzing the information which we have attained from several visits to Sadharan Bima Corporation (SBC) and Jiban Bima Corporation(JBC) . We have taken interview of almost 10 high officials of different insurance companies. We have also read the annual report of ten insurance companies of last 5years. By combining the knowledge of our textbook and knowledge from our visits, we have prepared our report. We have tried to present our gathered knowledge in this report systemically. Secondary sources of data will be used for data requirements of the report. Secondary sources of data; Use Internet and different articles published in the journals& magazines have been used. Secondary Sources are: Textbooks on insurance
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Problems and Prospects of Insurance Business in Bangladesh

Insurance Journals. Reference books on insurance. Annual Reports of BGIC. Internet Books. Annual report of insurance companies. 1.6 Limitations of the study Preparing the term paper we have faced some obstructions which are Lack of necessary information in the journals and official publications of insurance companies. Lack of proper information in the websites of the insurance company. Inexperience and time constraint is the limitation restricting this report from being more detailed. Secondary data has been collected from the hand books, magazines, whichmay biased to the insurance business.

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Problems and Prospects of Insurance Business in Bangladesh

Part-II
2.1 History Of Insurance History of insurance refers to the development of a modern laws and market ininsuranceagainst risks. In some sense we can say that insurance appears simultaneouslywith the appearance of human society. We know of two types of economies in humansocieties: money economies (with markets, money, financial instruments and so on) andnon-money or natural economies (without money, markets, financial instruments and soon). The second type is a more ancient form than the first. In such an economy andcommunity, 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 thesame thing happen to one's neighbour, the other neighbours must help. Otherwise,neighbours will not receive help in the future. Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented inGenoain the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first

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Problems and Prospects of Insurance Business in Bangladesh

proved useful in marineinsurance. Insurance became far more sophisticated in post-Renaissance Europe, andspecialized varieties developed. Toward the end of the seventeenth century, London's growing importance as acentre for trade increased demand for marine insurance. In the late 1680s, Mr. EdwardLloyd opened a coffee house that became a popular haunt of ship owners, merchants, andships captains, and thereby a reliable source of the latest shipping news. It became themeeting place for parties wishing to insure cargoes and ships, and those willing tounderwrite such ventures. Today,Lloyd's of Londonremains the leading market (notethat it is not an insurance company) for marine and other specialist types of insurance, butit works rather differently than the more familiar kinds of insurance.

Insurance as we know it today can be traced to theGreat Fire of London, which in1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbonopenedan office to insure buildings. In 1680, he establishe d England's first fire insurancecompany, "The Fire Office," to insure brick and frame homes.

2.2 Definition of Insurance Insurance is a contract between two parties whereby one party agrees to undertakethe risk of another in exchange for consideration known as premium and promises to paya fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life
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Problems and Prospects of Insurance Business in Bangladesh

insurance or to indemnify the other partyon happening of an uncertain event in case of general insurance. The party bearing the risk is known as the 'insurer' or 'assurer' and the party whoserisk is covered is known as the 'insured' or 'assured'.

2.3 Concept of Insurance / How Insurance Works The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person actually suffers a loss on account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing commonrisks and collected by the insurance companies in the form of premiums.

2.4 Historical Background of Insurance Business in Bangladesh 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
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Problems and Prospects of Insurance Business in Bangladesh

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.

After independence of Bangladesh, insurance industry was nationalized. Subsequently through the enactment of Insurance Corporation Act VI, 1973, two corporations namely Sadharan Bima Corporation (SBC) for general insurance and, Jiban Bima Corporation for life insurance were established in Bangladesh.
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Problems and Prospects of Insurance Business in Bangladesh

SBC was acting as the sole insurer of general insurance till 1984. Between 1985 to 1988 first generation of private general insurance companies were emerged as Bangladesh Government allowed the private sector to conduct business in all areas of insurance for the first time in 1984. A total of 16 private general insurance companies were registered in that phase. In 1996 another 8 private general insurance companies were registered. The third generation of private general insurance companies, which included 18 companies, came into operation between1999 and 2001. The general insurance market in Bangladesh now consists of 43 private sector insurance companies and 1 state owned insurance company. Insurance Corporation (amendment) Act 1990 provides that 50% 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 50% 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.

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Problems and Prospects of Insurance Business in Bangladesh

2.5 Present position of insurance business in Bangladesh In Bangladesh, the Insurance business, after an early stage of dislocation, adventure and experimentation through half a century has now being established as a nascent industry distributed between the public and private sectors. Insurance business evolved in the Indian subcontinent late in nineteenth century when several business companies started their business and a few Christian missionaries began to operate mutual funds to serve their own community members. From Bangladesh perspective insurance business was not a promising sector in its early age but it is getting its pace day by day with the growth of overall economic condition of the country. The privatization policy adopted in the 1980s paved the way for a number of insurers to emerge in the private sector. This resulted in a substantial growth of premium incomes, competition, improvement in services, and introduction of newer types of business in wider fields hitherto untapped. 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 Shadharan Bima Corporation. Numerous institutions, associations and professional groups work to promote the development of insurance business in Bangladesh. Prominent among them is the Bangladesh Insurance Association (formed on 25 May 1988) having 30members. It aims at promoting, supporting and protecting the interests and welfare of the member companies. Another example is Bangladesh insurance academy. Surveyors and insurance agents occupy a prominent position in the insurance market of Bangladesh. The system of professional brokers has not yet developed in Bangladesh. A total of 60 insurance companies are operating in Bangladesh till date.
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Problems and Prospects of Insurance Business in Bangladesh

Of these companies, 57 are private, two state-owned and one is foreign. Insurance Directorate, under the Ministry of Commerce, is the regulatory-body of the country's insurance sector. At present there are 44 general insurance companies running in Bangladesh. Many other private companies are about to commence business. 2.6 The Government Guidelines for Formation of an Insurance Company (1) The intending sponsors must first submit an application in prescribed form to the Chief Controller of Insurance for prior permission. (2) After necessary scrutiny the Chief Controller shall forward the application with his recommendation to the Ministry of Commerce. (3) After further scrutiny, the Ministry of Commerce shall submit its views to the Cabinet Committee constituted for this purpose. (4) The decision of the Committee, if affirmative, should be sent back to the Ministry of Commerce which in turn should send it back to the Chief Controller of Insurance for communicating the same to the sponsors. (5) The sponsors would then be required to apply in a prescribed form to the Registrar of Joint Stock Companies to get registration as a public liability company under the Companies Act. Memorandum and Articles of Association duly approved by the Controller of Insurance would have to be submitted with the application. (6) Once the registration process was completed the sponsors would have to obtain permission of the Securities and Exchange Commission to issue share capital.

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Problems and Prospects of Insurance Business in Bangladesh

(7) Reinsurance arrangements would have to be made at this stage. (8) After all the above requirements were fulfilled the license to commence business under the Insurance Act 1938 is to be obtained from the Chief Controller of Insurance. Application can only be made subject to government announcements in this regard.

2.7 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 its 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:

2.7.1 Social Problems

Less Public awareness: A vast majority of people especially in rural areas are left outside the insurance coverage. This mainly results from the

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Problems and Prospects of Insurance Business in Bangladesh

unawareness among the people. Even a large portion of people dont 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. 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 dont 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.

2.7.2 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
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Problems and Prospects of Insurance Business in Bangladesh

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. Poor financial position of the insurance companies: Most of the insurance companies of our country are facing financial problems. Recently government is trying to take initiative to close some of the insurance companies because they are not maintaining the minimum standards. They are investing their money in poor securities and business which is vulnerable regarding getting back the money with profit. As a result most of the insurance companies are suffering from loss years after years and for poor financial condition the insurance companies are also unable to expand their branch which is a barrier for the growth of 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 labor from the total labor 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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Problems and Prospects of Insurance Business in Bangladesh

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.

2.7.3 Political problems

Political instability: Political instability is a major problem in Bangladesh. For the instability in politics, many disruptive situations are often created which are bad for any businesses. The people who operate various businesses in our country often experience various types of inconvenience in running their business. Insurance business is not an exception 0of this. Political instability and inconsistency of political courses are a serious problem for the insurance business. Lack of supervision from the government: Lack of surveillance from government ministry encourages many insurance companies to follow some unethical practices like make
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Problems and Prospects of Insurance Business in Bangladesh

harassment to policy holder and showing less in the financial statement. This not only destroying the reputation of the wellknown insurance companies but also creates negative impact in the mind of the people about insurance. Besides this government sometimes impose some conflicting rules and regulation without discussing with insurance companies governing body. It creates conflict among insurance companies with government and act as one of the main hindrances of growing insurance business. Problem of planning and administration: Planning and administration structure are not suitable for public and private insurance business in Bangladesh. After the change of the government, the whole planning and administrative measures are changed which is the main constraint for long term plans. Without long term planning any permanent development or solution of existing problems are impossible.

2.7.4 Legal Problems

Too much complexity: To take an insurance policy there are great number of rules and regulations which must be compelled by the insured person. And into those rules a vast number of complexities are present there. Therefore the people are discouraged to take insurance policy because they think that the complexities will create extra pressure on their mind which may hamper other jobs.

2.7.5 Other problems

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Problems and Prospects of Insurance Business in Bangladesh

Lack of capital: The broadness of insurance business is helpful to survey. It needs to establish many branches in different country. It requires lots of capital. But lack of capital in our country creates the problem of insurance business. Lack of skilled staff: There needed a lot of educated and skilled staff for insurance business. But Insurance companies perform their activities by recruiting marketing agent and they try to convince the people to take a policy. Most of the cases the agents are not properly trained and they dont know the right process to catch potential people to make their policy holders. Therefore these field level agents are unable to fulfill their target and act as a constraint in the insurance business. Lack of skilled and trained staff the insurance business in our country is not wide. Limitations of insurance knowledge: The scope of education about insurance is so much little in our country. The education about insurance is very limited in syllabus of our primary and higher education. It is a hindrance in our insurance business. Lack of training: The people who are concerned with insurance business are not trained. There are no sufficient institutions in our country to give training to employees and entrepreneur. Spread of insurance business in Bangladesh failed for lack of proper training by the employees specially the field employees of insurance companies. Still there are not enough training centers to provide proper training regarding insurance activities for the officials of insurance

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Problems and Prospects of Insurance Business in Bangladesh

company. Though there is one insurance training center in Bangladesh it totally failed to achieve its target in insurance field.

Insufficient service: The insurers or companies are not able to give the proper services to the insured people. In Bangladesh insurance company people failed to provide better service to the mass people thats why the people who want to take the insurance policy they loss their interest from insurance. At same time in foreign country insurance workers goes to customers house and offices regularly to aware themselves and influence them to take insurance policy. In thats case Bangladesh insurance company people are not that much expert. So the people are not interested to involve themselves and their properties with insurance business. Lack of exposure: Another main problem in the country is that the media is unconcerned to send the right message regarding insurance to the people. As a result a large portion of population is completely unaware about the insurance policy. Another problem is that the insurance company does not provide adequate information in the companys websites which can fulfill the queries of their potential customers and satisfy themselves to buy an insurance policy. Absence of business ethics: Some insurance companies create harassment on the policy holders or sometimes on the dependents of the policy holders when they want back their money after death or maturity. The insurance companies show different causes in order to make delay to return back the money at expected time. Sometimes they are eager to pay less than the desired amount by creating
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Problems and Prospects of Insurance Business in Bangladesh

various circumstances such as they try to say that the disaster of the subject matter of the policy is not responsible due to their activities. Besides this some field officials also create some illegal acts. They often try to give false information to the people for buying a policy. And these kind of illegal acts create bad reputation to the insurance companies and hindrance the overall insurance business. Those who are harassed by the insurance companies discourage other not to take an insurance policy. Lack of motivation program towards public: According to Green Delta Life Insurance Company the people of our country are not much motivated by the company to take insurance policy for safeguarding themselves against any kind of risk. Almost every time they failed to understand the people that insurance policy makes their life risk free all time. For lack of motivation among the mass people insurance companies are always lagging behind from their expected target. Lack of information technology: Another problem is they do not use any web address, which is essential for a large leasing company. They can provide more information to its client by using web site. Delay in payments of claims: The insurance companies in our country are not fully able to pay the claim of insured as when claimed. That is another problem of insurance in Bangladesh. Traditional Method: The modern and technological methods are not followed in insurance business in our country. All most all insurance company ran their business in traditional way. It is a hindrance of insurance
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Problems and Prospects of Insurance Business in Bangladesh

business. Whereas foreign companies are using modern systems like computerized system; our local company does not want to change themselves. SHORTAGE OF FUND: Most of the policyholders cannot continue their policies owing to price spiral and shortage of fund.

Lower Rate of Savings: People of Bangladesh have a very small saving potentially and thus have less or no disposable income. Maximum people are live under poverty line. In 2004-2005 our internal saving was only 20.16% of total GDP. Life insurance and other insurance are mostly dependable on the saving of the people. 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 policy. So it creates the Problems. Not Knowing What Customers Expect: Based on interviews, the authors found that executives perceptions of superior quality service are largely congruent with customers expectations. Customers expectations versus management perceptions are the result of the lack of a marketing research orientation, inadequate upward communication and too many layers of Management. The Wrong Service-Quality Standards: Arises when there is a discrepancy between what managers perceive that customers expect and the actual standards that
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Problems and Prospects of Insurance Business in Bangladesh

they (the managers) set for service delivery. This gap may occur when management is aware of customers expectations but may not be willing or able to put systems in place that meet or exceed those expectations. The Service-Performance Gap: Organizational policies and standards for service levels may be in place, but is front line staff following them? A very common gap in the service industry is the difference between organizational service specifications and actual levels of service delivery. Service specifications versus service delivery is the result of role ambiguity and conflict, poor employee-job fit and poor technology-job fit, inappropriate supervisory control systems, lack of perceived control and lack of teamwork. When Promises Do Not Match Delivery: Customers perceived that organizations are delivering low-quality service when a gap appears between promised levels of service and the service that are actually delivered. This gap is created when advertising, personal selling or public relations Overpromise or misrepresent service levels. Service delivery versus external communication may occur as a result of inadequate horizontal communications and propensity to over-promise. The discrepancy between customer employees perceptions: expectations and

The discrepancy between customer expectations and employees perceptions rely as a result of the differences in the understanding of customer expectations by front-line service providers. DEARTH OF UNDERWRITER:

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Problems and Prospects of Insurance Business in Bangladesh

In Bangladesh, there is a serious dearth of life insurance underwriters and for that reason-underwriting decision is delayed to the detriment of the sales force and the proposed policyholders. 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. RELIGIOUS SUPERSTITION: 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.

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. ILLETERACY:

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Problems and Prospects of Insurance Business in Bangladesh

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. LACK OF REMAINDER: Increase in liability, lack of reminder notice from the insurance company causes for discontinuation of policy. NEGLIGENCE OF POLICY HOLDERS: Many of the policyholders have expressed that; their policies lapsed for their own negligence to pay premium in time. RESTRICTION: Another important reason for discontinuation is restriction investment allowance by the government relating to income tax. IMAGE: High lapses of life insurance policies do much to harm insurance image. 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. RED TAPISM TO OBTAIN COMPENSATION: When an accident takes place, a claimant faces many difficulties to obtain money from the insurance company. This also
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Problems and Prospects of Insurance Business in Bangladesh

discourages people CONTINUITY: for being a policyholde LACK OF

Discontinuation of insurance policy is found higher. This also adversely affects the market efficiency of insurance business. LACK OF NEW PRODUCT: 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. 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. 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.

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. TRADITIONAL INSURANCE ACT:

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Problems and Prospects of Insurance Business in Bangladesh

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) are 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. 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. LACK OF ADVERTISEMENT: The lacking of proper advertisement and information about life insurance package are also important factor for poor life insurance business. INABILITY TO SOLVE PROBLEMS: Many of the life insurance companies are unable to solve the problems of the policyholders. LACK OF RELIABILTY: 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. ADVNTAGES OF PSC:

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Problems and Prospects of Insurance Business in Bangladesh

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. DISCRIMINATORY ATTIRUDE: 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. LACK OF CONFIDENCE: Lack of faith upon insurers is one of the fundamental reasons for which insurance business cannot strong position in Bangladesh. Most of the respondents have said that insurance in Bangladesh couldnt achieve the fullest faith of people. At one side, insurance business is not well known to the general people and on the other side; the known people are dubious about its service. Public image about services of insurance companies is very poor. Majority of the insurance concerns and almost all non-policy holders confessed this very frankly and counted it as a burning constraint behind the progression of insurance business in Bangladesh. This feeling of distrust is very intense in the case of life insurance as life insurance contract is usually made for a

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Problems and Prospects of Insurance Business in Bangladesh

longer period of time. The non-policy holders argued that the motive of insurance companies is to be a millionaire overnight.

2.8 Ways of overcoming the problems In our country the problems that exist in insurance business cannot be overcome over aright .It needs long term planning. Besides making the people aware the insurance businessman should come forward with govt. to make this business famous. Coming from the existing problems following steps should be taken to make this business famous.
1.

Spread of insurance education: To make the insurance business people should be made aware about the helpless & necessity of insurance. For this purpose effective steps must be taken too speared of insurance education.

2.

Publicity & increase of awareness: We know by proper publicity it is easy to market anything. Insurance is one type of unsought goods. So, people are not so much aware of it. High publicity and insurance knowledge can led the people to make insurance policy more and more. Mass publicity activities are very essential to overcome from unwillingness wrong idea, doubt & unbelief of the people this country. The people media can provide an effective help regarding country interest.

3.

Increase of training facilities:

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Problems and Prospects of Insurance Business in Bangladesh

To continue the insurance business effective standard training facilities must be arranged for the manager & workers who are employed in this business. Insurance business is very complex and technical. To perform this business properly, obviously it needs vast knowledge regarding its performance. To achieve vast knowledge training has no alternative. So training is very necessary to overcome problem in insurance.

4.

Formulation of effective Principles: Long term formulation of effective principles is compulsory to continue the insurance business successfully. To run the insurance smoothly, it is mandatory to implement the principles strictly. If everyone follows principles and rules, achieving goal is possible.

5.

Uphold the interest of policy holder: Success of this type of business is depended on the trust of insured persons. To gain the trust insurance companies should come forward to compensate the real injured as soon as possible.

6.

Importance to the economic development: Insurance business is depended on the development of the different sector of economic .So insurance business can never be developed by retaining the weak situation of the sectors including industry commerce transportation.

7.

Development of management:

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Problems and Prospects of Insurance Business in Bangladesh

Like every sector insurance is affected by mismanagement in Bangladesh. Management can play a vital role in the development of insurance business. When there will be coming good managerial environment in insurance then a good performance can be done easily.
8.

Modernization of insurance business: Modernization of insurance business means to make the business much more modern and suitable for new generation. New policies can be introduced if it is familiar to other world. Everyone try to improve the present condition and serve clients more properly. More modern insurance business must attract the clients.

9.

Govt. monitoring system: The private insurance companies are not so much aware about the govt. rules and regulations. For this reason, sometimes unreal competition created in the market. So, proper govt. monitoring system should be introduced.

10.

Modernized the insurance Acts and Ordinances: Government should amend the insurance related acts and ordinances because this is traditional acts that create problems for insurance business in our country. That is very necessary for our economy.

11.

Emphasize on other sectors development: Insurance business development depends on the development of other sectors. So, it is possible to develop insurance sector by developing other sectors like, industry, mining, agriculture etc.
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Problems and Prospects of Insurance Business in Bangladesh

Now-a-days people of Bangladesh are so much aware of their future. They try their best level to be insured themselves against any type of hazard. It is a good sign for insurance market in Bangladesh. Every insurance company also tries to overcome the problems. So we can hope that if the insurance company can overcome every problems regarding insurance marketing in Bangladesh then the insurance marketing in Bangladesh will be facilitated.

2.9 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
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Problems and Prospects of Insurance Business in Bangladesh

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. 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 businesss 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
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Problems and Prospects of Insurance Business in Bangladesh

programs such as 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. 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 days 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 in non-traditional sector: Nowadays, along with traditional insurance services, they can offer various non-traditional insurance services to their customer.
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seminars,

programs

including

social

Problems and Prospects of Insurance Business in Bangladesh

Target market of insurance company may expand and they can offer different types of non-traditional insurance services such as, 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.

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Problems and Prospects of Insurance Business in Bangladesh

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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Problems and Prospects of Insurance Business in Bangladesh

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.In1990 the government amended the relevant provisions of the insurance Act allowing50% 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 policymaking 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 companys is Tk. 550 million while the private sector insurance companies ownTk.2500 million. The policy holders are very much worried about the settlement of claims. Ordinary people also consider it main constraint. Therefore, instance companies should settle the claims as quickly as possible to create a healthy public image. For this purpose the claim settlement procedure can be simplified and the insurers can provide proper written guidelines of claim settlement to the policyholders.

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Problems and Prospects of Insurance Business in Bangladesh

Finally, if the above steps can be taken, more and more people in Bangladesh will be interested in buying insurance.

Part-III 3.1 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.

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Problems and Prospects of Insurance Business in Bangladesh

3.2 Comments and Suggestion

From the presiding discussions of the report, 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.

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. 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. 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. One of the basic requirements for the insurance industry to have sustained growth is to enhance training facilities. Bangladesh Insurance Academy is providing training
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Problems and Prospects of Insurance Business in Bangladesh

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.

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. The collected premium should be invested in large and beneficial sectors so that insurance companies can return their clients expected return in timely. Government should have a regulatory body for the surveillance on insurance companies so that they must perform their business maintains the ethical issues properly. Insurance companies need to modify their recruitment strategies within creased focus on the marketing and sales training because, insurance being a service marketing industry it requires special attention. 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 department.

3.3 Conclusion
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
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Problems and Prospects of Insurance Business in Bangladesh

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.

3.4 Bibliography
Books:

Elements of insurance by Azizul Huq Chaudhuri, Higher Banking & Insurance by Khalekuzzaman

Principles and Practice of Insurance by M.N. Mihsra. Website: http://www.sbc.gov.bd http://www.jbc.gov.bd http://www.bankersbd.com/bangladesh-insurancecompany.html

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Problems and Prospects of Insurance Business in Bangladesh

Other:

Annual Reports (2007 to Companies of Bangladesh. Thoroughly reports. Revised Edition

2011)

Different

Insurance and

2010&2011Magazines

Bangladesh General Insurance Company Ltd, Annual Report 2010. Insurance Journal 1993 Insurance Journal 1997Banglapedia.

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