A BRIEF OVERVIEW AND PROSPECTS

OF GENERAL INSURANCE IN
BANGLADESH
COURSE CODE:BBA 224
COURSE TITLE:INSURANCE AND RISK MANAGEMENT
SUBMITTED BY:SADIA AFRIN
ID:18.01.02.019
INSTITUTE:AHSANULLAH
UNIVERSITY OF SCIENCE AND TECHNOLOGY(DEPT. OF
SCHOOL OF BUSINESS)
SUBMITTED TO:MR. MD. MAHFUJUR RAHMAN
(ASSISTANT PROFESSOR,SCHOOL OF
BUSINESS,AHSANULLAH UNIVERSITY OF SCIENCE
AND TECHNOLOGY)

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Table of Contents
EXECUTIVE SUMMARY .................................................................................. 3
1.0 Definition of 'General Insurance' ...................................................................... 4
2.0 Types of general insurance ............................................................................... 5
3.0 Overview of Non-life Insurance Sector of Bangladesh ..................................... 6
4.0 Prospects of insurance business in Bangladesh ................................................ 7
4.1 Higher GDP ................................................................................................. 7
4.2 Increased population .................................................................................... 8
4.3New business’s individual insurance ............................................................. 8
4.4Developing mass awareness about insurance ................................................ 8
4.5Micro insurance ............................................................................................ 9
4.6Development of new policy........................................................................... 9
4.7 Scope in non-traditional sector ..................................................................... 9
4.8 Scope of investment ....................................................................................10
4.9 Service diversification .................................................................................10
4.10 Agriculture sector ......................................................................................10
4.11Business sector ...........................................................................................11
4.12Education sector: ........................................................................................11
Math Solution ......................................................................................................11
5.0 The Reserve ....................................................................................................11
6.0 Premium Calculation.......................................................................................14
7.0 Mortality Table ...............................................................................................18
8.0 Marine Insurance ............................................................................................19
References ............................................................................................................24

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 EXECUTIVE SUMMARY
General insurance is a type of insurance in which one person makes regular
payments so that he receives a sum of money different types of accidental loss. The
process insurance has been evolved to safeguard the interests of people from
uncertainty by providing certainty of payment at a given contingency. The key
objectives of the studies are to identify the problems and prospects of the General
insurance in Bangladesh. The other objectives of this study are to generate some
suggestions to overcome the problems identified so as to ensure smooth functioning
and growth of insurance. To know about the best practices of insurance of
Bangladesh is also another objective of this study.

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1.0 Definition of 'General Insurance'

Definition: Insurance contracts that do not come under the ambit of life insurance
are called general insurance. The different forms of general insurance are fire,
marine, motor, accident and other miscellaneous non-life insurance.

Description: The tangible assets are susceptible to damages and a need to protect
the economic value of the assets is needed. For this purpose, general insurance
products are bought as they provide protection against unforeseeable contingencies
like damage and loss of the asset. Like life insurance, general insurance products
come at a price in the form of premium.

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General insurance helps us protect ourselves and the things we value, such as our
homes, our cars and our valuables, from the financial impact of risks, big and small
– from fire, flood, storm and earthquake, to theft, car accidents, travel mishaps – and
even from the costs of legal action against us. And we can choose the types of risks
we wish to cover by choosing the right kind of policy with the features we need.
In general, insurance works by spreading the cost of unexpected risks among a large
number of people in the same region who share similar risks.
When you take out an insurance policy, you pay a monthly or annual premium. That
money joins the premiums of many thousands of other policyholders and goes into
a big pool of funds.
With any luck, you will never need to draw on that pool. But if you happen to be one
of the unlucky ones affected by an unexpected calamity, perhaps through severe
weather or accident, that pool of funds can be used to help you up to the limit you
have selected in your policy.
If things go wrong, your insurer may either repair or replace the items that have been
lost or damaged, depending on the terms of your policy. You may also have the
choice of receiving a cash settlement for the amount of money agreed in your policy.
We can also help you with information on common types of general insurance.

2.0 Types of general insurance

General insurance can be categorised in to following:
1.Motor Insurance: Motor Insurance can be divided into two groups, two and four
wheeled Vehicle insurance.
2.Health insurance: Common types of health insurance includes: individual health
insurance, family floater health insurance, comprehensive health insurance and
critical illness insurance.
3.Travel insurance: Travel insurance can be broadly grouped into: individual travel
policy, family travel policy, student travel insurance, and senior citizen health
insurance.
4.Home insurance: Home insurance protects a house and its contents.

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Marine Insurance: Marine cargo insurance covers goods, freight, cargo, and other
interests against loss or damage during transit by rail, road, sea and/or air.
5.Commercial Insurance: Commercial insurance encompasses solutions for all
sectors of the industry arising out of business operations.
6.Accident Insurance :Accidents of different types are possible at any time ,at any
place and in case of any person or object .Persons and vehicles are more prone to
accidents causing injuries and damages.
7.Fire Insurance :In order to get the asset ,stock or machines insured against fire ,a
proposal form is to be filled in and submitted to the insurance company .The
Insurance company examines the proposal with due regards to various factors and
the periodical amount of premium is fixed. A insurance policy is then issued in
favour of the applicant
Theft Insurance
Property Insurance
Aviation insurance
Livestock insurance
Crop insurance

3.0 Overview of Non-life Insurance Sector of Bangladesh

History of insurance business of Bangladesh is rooted back to a century. However,
immediately after the liberation of Bangladesh, insurance companies were
nationalized along with the banks under the presidential order no. 95 in 1972. This
order was implemented through creation of five corporations which were further
changed through merging these five corporations into two corporations namely
Sadharan Bima Corporation- for conducting general insurance business and Jiban
Bima Corporation- for conducting life insurance business. Privatization of Insurance
Sector took place in 1984 as a result of promulgation of Insurance Corporation
Ordinance 1984. Currently there are 78 insurance companies including two
previously mentioned government owned corporations. Among these, 47 are non-
life insurance companies and 31 are life insurance companies. 35 non-life and 12

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life insurance companies are listed in the capital market. However, Insurance sector
is still undergrown considering the age of privatization and comparing with other
constituents of financial sector. Insurance products fall in negative demand category
that means people are reluctant to buy an insurance policy unless there are any
regulatory bindings or there is extreme necessity. Moreover, absence of good
corporate governance and inadequate policy support also caused under penetration.
An autonomous regulator was formed in 2010 after 26 years of privatization.
However, non-life insurance sector is concentrated. Among the listed non-life
insurance companies, 47% of the gross premium is accounted for top five
companies. Greendelta is at the top of the list with 14% market share, followed by
Pioneer Insurance with 11%, Reliance Insurance with 10%, Pragati Insurance with
8% and Eastland Insurance with 4%. Concentrated market structure may be
interpreted as lack of product diversity among the market participants and/or absence
of thirst to capture new market beyond the existing market. This concentrated market
structure, perhaps, an explanatory variable of the steeper competition that is
prevailing in the non-life insurance sector.

4.0 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.

4.1 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.

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4.2 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.

4.3New business’s individual insurance

There are so many new businesses starting every day and manufacturing sector is
booming with global demand. Every business is insured under an insurance company
to protect its company from any kind of accident. Therefore growing industry, mill,
factories are creating better scope for the insurance companies to flourish their
business.

4.4Developing 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

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4.5Micro 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.

4.6Development 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 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 companies is Tk. 550million while the private
sector insurance companies ownTk.2500 million.

4.7 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
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such as health insurance, personal accident insurance, travel insurance, burglary
insurance and pension scheme.

4.8 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.

4.9 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.
The prospect of the insurance business in various sectors that affect our economy
can be differentiated in the following way.

4.10 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

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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.

4.11Business 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

4.12Education sector:
Insurance companies can provide different types of scheme to expand education plan
insurance.

PART-2
Math Solution
5.0 The Reserve
1.
First year
Net premium of 100 policyholder
Tk2500 each(2500*100) 250000

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Add interest @11% (250000*11%) 27500
Total amount reserve 277500
(-)claim paid out (no claim) 0
Terminal value 277500

2nd year
Net premium (2500*100) 250000
Add terminal reserve (1st year) 277500
Initial reserve 527500
Add interest (527500*11%) 58025
(-) claim paid out(150000*3) 450000
(3deaths)
Terminal reserve 135,525

3rd year
Net premium (2500*97) 242500
New join 4(4*2500) 10000
Add terminal reserve (last year) 135525
Initial reserve 388025
Add interest (388025*11%) 42683
Terminal reserve 430708

4th year
Net premium (2500*97+4) 252500
Add terminal reserve (last year) 430708

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Initial reserve 683208
Add interest (683208*11%) 75152
Terminal reserve 758360

2.
First year
Net premium of 20 policyholder
Tk 2,000 each(20*2,000) 40,000
Add interest @10% (40,000*10%) 4000
Total amount reserve 44000
(-)claim paid out (no claim) 0
Terminal value 44000

2nd year
Net premium (20*4000) 40,000
Add terminal reserve (1st year) 44,000
Initial reserve 84,000
Add interest (84,000*10%) 8400
(-) claim paid out(40000*2) 80,000
(2 deaths)
Terminal reserve 12400

3rd year
Net premium (18*4000) 36000
New join 1(1*2000) 2000

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Add terminal reserve (last year) 12400
Initial reserve 50400
Add interest (50400*10%) 5040
Claim(4*40,000) 160000
Terminal reserve -104560

4th year
Net premium (16*2000) 32,000
Add terminal reserve (last year) -104560
Initial reserve -72560
Lessm2(2*40,000) 80,000
Terminal reserve -152560

6.0 Premium Calculation

1. Table for calculation of Net Single Premium

Year Age No. of No. of Amount Present PV of
insured death of claim value of death
person per tk @5% claim
death
1 45 5000 20 200000 0.952 3808000

2 46 4980 35 200000 0.907 6349000

3 47 4945 48 200000 0.863 4284800

4 48 4902 55 200000 0.822 9042000

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 5 49 4847 61 200000 0.783 9552600

Total present value of death claim=37036400

Number of living person at the end of 5th year=(4847-61)
=4786 person
Total claim of living person=(4786*200000)
=957200000
Total present value of living person claim=(957200000*0.783)
=749487600 Taka
We know,
Net single premium(NSP)=Present value of total death claim/Total no. of insured
person
=(37036400+749487600)/5000
=157304.8 Taka
Calculation of Net Annual Premium (NAP)

Table for calculation of Net Annual Premium for five years endownment policy
Table for calculation of Net Single Premium
Year Age No. of Premium Present PV of
insured collected value of tk premium
person Tk @5% collected
1 45 5000 5000 1 5000

2 46 4980 4980 .952 4740.96

3 47 4945 4945 .907 4485.113

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 4 48 4902 4902 .863 4230.426

5 49 4847 4847 .822 3984.234

We know that,
NAP= Total PV of claim(death +living)/Total of premium collected @Tk 1 per
policy holder
=37036400+749487600/22440.74
=Tk 35048.93

2. . Table for calculation of Net Single Premium

Year Age No. of No. of Amount Present PV of
insured death of claim value of death
person per tk @5% claim
death
1 26 10,000 200 5000 0.962 962000

2 27 9800 300 5000 0.925 1387500

3 28 9500 400 5000 0.889 1778000

4 29 9100 500 5000 0.855 2137500

5 30 8600 600 5000 0.822 2466000

Total present value of death claim=8731000

Number of living person at the end of 5th year=(8600-600)
=8000person
Total claim of living person=(8000*5000)

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 =40000000
Total present value of living person claim=(40000000*0.822)
=32880000Taka
We know,
Net single premium(NSP)=Present value of total death claim/Total no. of insured
person
=(8731000+32880000)/10000
=4161.1Taka
Calculation of Net Annual Premium (NAP)

Table for calculation of Net Annual Premium for five years endownment policy
Table for calculation of Net Single Premium
Year Age No. of Premium Present PV of
insured collected value of tk premium
person Tk @5% collected
1 26 5000 5000 1 5000

2 27 4980 4980 .962 4790.76

3 28 4945 4945 .925 4574.125

4 29 4902 4902 .889 4357.878

5 30 4847 4847 .855 4144.185

We know that,
NAP= Total PV of claim(death +living)/Total of premium collected @Tk 1 per
policy holder
=8731000+32880000/22866.948

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 =Tk 1819.701

7.0 Mortality Table

10.
Age Living Number of Probability of Probability of
Numbers deaths death survival
20 10,00,000 4090 0.00409 0.99591

21 995910 3684 0.00370 0.9963

22 992226 3443 0.00347 0.99653

23 9887803 3381 0.00342 0.99658
24 985402 3370 0.00342 0.99658
25 982032 3289 0.00335 0.99665

6.
Age Living Number of Probability of Probability of
Numbers deaths death survival
20 10,00,000 5000 0.0050 0.995

21 995000 4478 0.0045 0.9955

22 990522 3962 0.0004 0.9960

23 986560 3452 0.0035 0.9965
24 983108 2949 0.0003 0.9970
25 980159 2450 0.0025 0.9975

7.
Age Living Number of Probability of Probability of
Numbers deaths death survival
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40 66666 400 0.006 0.994

41 66266 463 0.007 0.993

42 65803 526 0.008 0.992

43 65277 300 0.0045 0.9955

8.0 Marine Insurance

Problem 1:
A ship was caught by a cyclone in the sea a part of the cargo was dropped in the sea
and the ship was dragged manually to the safe zone. The ship was however partly
damaged the partial less and expenditure in this connection are given below prepare
a statement showing general average loss and its adjustment to various partners
involved.
PARTIAL LOSS AND OTHER EXPENDITURE:
Damage of ship=30000
Dragging expenditure=40000
Cargo dropped=15000
Freight loss=8000
OTHER INFORMATION:
Ship(original value)=550000
Goods=300000
Freight =25000

Solution :
Table of calculation of general partial loss:
Damage of ship =30000
Dragging expenditure=40000

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Cargo dropped=15000
Freight loss=8000
___________________________
General partial loss= 93000

Calculation table of PV of the property

Partners involved Actual value Amount of loss PV
Taka taka Taka
Ship 550000 30000 520000

Good /cargo 300000 15000 285000

Freight 25000 8000 17000

Partners PV taka Proportionate rate Distribution Amount of

involved of loss on the basis of loss on the loss
of PV basis of taka
proportionate
rate
Ship 520000 520000/822000=0.63 0.63*93000 58590

Goods 285000 285000/822000=0.35 0.35*93000 32550

/cargo
Freight 170000 170000/822000=0.02 0.02*93000 1860

Total distribution loss=93000

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Problem 2:
Statement showing the particulae average loss and the amount of claim
Particulars Rate Tk. Tk.

Insured value of 8.00 80000

10000bags
(80000/10000)=8
Insured value of 8.00 1200*8=9600
damaged 1200 bags

Market value of 7.00 8400

damaged 1200 bags in
undamaged condition
Sales value of 3.00 (3600)
damaged 1200 bags
amount of average 4800
loss
Adjusted insurance
claim proportionate
loss(insured value of
damaged bags/market 5486
value of damaged
bags)*amount of
loss=9600/8400*4800

Add: sales commission @2% (3600*2%) 72

Survey fee 50
Sales expenses 100
=222
Actual amount of insurance claim = (5486+222)= 5708
@10 tk per bags
Statement showing the particulae average loss and the amount of claim

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Particulars Rate Tk. Tk.

Insured value of 8.00 80000

10000bags
(80000/10000)=8
Insured value of 8.00 1200*8=9600
damaged 1200 bags

Market value of 10.00 12000

damaged 1200 bags in
undamaged condition
Sales value of damaged 3.00 (3600)
1200 bags amount of
average loss 8400
Adjusted insurance
claim proportionate
loss(insured value of
damaged bags/market 6720
value of damaged
bags)*amount of
loss=9600/12000*8400

Add: sales commission @2% (3600*2%) 72

Survey fee 50
Sales expenses 100
=222
Actual amount of insurance claim = (6720+222)= 6942

Table for calculation of the amount of insurance claim

When the policy is overvalued and market value per bag @7 tk
Particulars Rate Tk Tk

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Market value of 7.00 8400
damaged 1200
bags in
undamaged
condition
Less: sales value 3.00 3600
of damaged 1200
bags

Amount of partial 4800

loss

Add : sales 72
commission @2%
(3600*2%)
Survey fee 50
Sales expense 100

5022

Actual amount of insurance claim=5022

When the policy is undervalued and market value per bag @10 tk
Particulars Rate Tk Tk

Market value of 10.00 1200

damaged 1200
bags in
undamaged
condition
Less: sales value 3.00 3600
of damaged 1200
bags

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 Amount of partial 8400
loss

Add : sales 72
commission @2%
(3600*2%)
Survey fee 50
Sales expense 100

862

Actual amount of insurance claim=862

References
1. https://en.wikipedia.org/wiki/General_insurance
2. https://sg.inflibnet.ac.in/bitstream/10603/106259/15/15_chapter%208.pdf
3.https://eprawisdom.com/jpanel/upload/articles/1215pm6.B.%20Raghavendra%2
0&%20C.%20Gangadhar.pdf

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