Insurance Business

In
“Bangladesh”

Development of Insurance Business in Bangladesh:

According to insurance experts insurance business originated in Italy and then to
England, and in the process of development in gradually spread to Indian sub-
continent including Pakistan and Bangladesh. In this sub-continent insurance business
initially took root with life insurance business. The first insurance company in Bengal
Precedence was The Orient Life Insurance, which was setup by some European
entrepreneurs in 1818. Later on with the change of socio cultural activities and
different way of livelihood many other kinds of insurance business emerged.

The present day progress of insurance business basically started after 1947 up to 1957
no insurance company was established in Bangladesh by the initiative of local
entrepreneurs. It was only in 1958 that an insurance company was established by local
entrepreneurs. Although slowly, a number of insurance companies came into
existence before the independence in 1971. During that time there were about 51
insurance companies transacting both life and general insurance business here. There
companies were of various origins, viz. British, Australian, Indian, West Pakistan and
East competitive economy.

With the emergence of the People’s Republic of Bangladesh, the government, in order
to make available the fruit of liberation to the general mass, nationalized the insurance
industry in 1972 by Presidential Order No. 95, more specifically known as the
Bangladesh Insurance (Nationalization) Order, 1972. By virtue of this order, save and
expect postal life insurance and foreign life insurance companies (other than the
Pakistani Companies), all companies and organizations transacting all types of
insurance business in this country came under this nationalization. Five insurance
corporations were basically established,
1. Jatiya Bima Corporation
2. Teesta Bima Corporation
3. Karnaphuli Bima Corporation
4. Rupsha Jiban Bima Corporation
5. Surma Jiban Bima Corporation

The Jatiya Bima Corporation was not an underwriting corporation, instead, it was a
central corporation to supervise and control the activities of the remaining four
subsidiary corporations responsible for underwriting. As per this order Teesta and
Karnaphuli were made responsible for general insurance business and Rupsha and
Shurma were made responsible for life insurance business. All the existing 49
companies were merged with these 4 corporations. Whilst life companies or the life

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portion of a composite company joined the Rupsha and Surma, the general companies
or the general portion of a composite company joined the Teesta and Karnaphuli.

Later on to minimize unnecessary administrative expense for maintaining these

corporations and for other advantages the Govt. decided to merge these five
corporations into two corporations under Act VI, 1973.

 Sadharon Bima Corporation: To transact general insurance business only.

This was by merging Teesta and Karnaphuli Bima Corporations.
 Jibon Bima Corporation: To transact life insurance business only. This was
by merging Rupsha and Surma Jiban Bima Corporations.

Thus the general insurance business became the sole responsibility of the Sadharan
Bima Corporation and the life insurance business became the sole responsibility of the
Jiban Bima Corporation, the American Life Insurance Company and the Postal Life
Insurance Department.

At present many insurance companies are operating in our country. Up to April 30,
2002, 19 life insurance companies and 44 general insurance companies were
operating in this country. Some of them are-

Life Insurance Companies: General Insurance Companies:

 Jibon Bima Corporation
 American Life Insurance Company
 National Life Insurance Company
 Delta Life Insurance Company
 Green Delta Life Insurance Company
 Popular Life Insurance Company
 Prime Life Insurance Company
 Progoti Life Insurance Company
 Megna Life Insurance Company
 Shondhani Life Insurance Company
 Sadharon Bima Corporation
 United Insurance Co. Ltd.
 Green Delta Insurance Co. Ltd.
 Peoples Insurance Co. Ltd.
 Eastern Insurance Co. Ltd.
 Rupali Insurance Co. Ltd.
 Mercantile Insurance Co. Ltd.
 Agrani Insurance Co. Ltd.
 Nitol Insurance Co. Ltd.
 Asia Pacific General Insurance Co. Ltd.

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 Contribution of Insurance Business
In
Economic Development of Bangladesh
Bangladesh is a developing country. In the FY 2000-01, the gross national product of
the country came from sectors like agriculture, industry and service sector at a 25%,
26.2% and 48.8% accordingly. Contribution of insurance in the GDP was 0.3% as a
whole and 0.6% of the service sector. Thus, it is understandable that insurance sector
is still in a primary stage. Though, limited but the contributions of insurance business
in the economic development of the country are described below:

1. Increase of saving: Rate of saving in this country is low due to lower per
capita income. Insured people are forced to save by payment of premiums
periodically. As a result personal and national saving increases.
2. Formation of capital and increasing of investment: The premium collected
by insurance companies play a major role in building up national capital. This
sort of capital can increase overall production by investing in different sectors.
3. Reduce of hindrance of risk: In the world of business there are various risks
observed in case of production and distribution of products. The rate of risk in
our country is much higher because of the underdeveloped condition. These
risks can be reduced by taking marine, fire, accident insurance.
4. Distribution of risk: Because of the poor condition of the people of
Bangladesh, most of us are unwilling to transfer risk to each other. Insurance
distributes this risk to many parties. As a result, even if risk arises if will not
hamper individual life.
5. Maintenance of national wealth: Insurance business not only provides
financial security but also encourages its policyholders to take good care of
their valuables so that they do not face any risk. It also ensures security of
national wealth.
6. Extension of business: Businessmen of this country always lack from
sufficient capital. So, occurrence of any sort of perils would cause them harm
to do business. Insurance gives guarantee to give compensation to losses. It
also helps to extend business in such a way by gathering capital.
7. Increase of awareness: As most of the people of this country are illiterate and
are unaware about the present circumstances, they are unable to plan about the
future. Publicity and operations of insurance create mass awareness among
those people.
8. Increase of employment facilities: With the help of insurance facilities many
industries are growing up in this country. These industries and also the
insurance business provide employment to many people of this country. This
helps to reduce unemployment problem.
9. Brings social security: Insurance reduces risks of life and property and brings
social security. Due to this security people can plan the future properly and
contribute to country’s development.
10. Increase of invisible export: Insurance contributes in country’s export
sectors. The goods that are exported are to be insured which the importers bear
the cost. So, incase of export cost of insurance is added with cost of goods.

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 11. Increase national income: Insurance income helps to increase the national
income, thought its contribution is not significant in the total national income
of Bangladesh. But it facilitates investment and savings, helps to establish
industries and other organizations, and to reduce unemployment problem. So,
in broader sense it increases national income of the country.
12. Economic development: Insurance reduces risks and ensures development in
agriculture, industry and trade.

Problems of insurance business in Bangladesh

Bangladesh is a developing country. The progress of insurance business is slow
compare to other countries in the subcontinent. Various problems and obstacles are
making the progress of this business very slow. Some of these problems are as
follows:

1. Weak economy: The development of insurance business is dependent on

development of different sectors of the economy. But all the economic sectors
of Bangladesh are facing problems. Export income is limited and 76% of the
income is coming from garments and knitwear sectors. All sectors like
agriculture, mineral, industry and transport is revealing weakness. So,
insurance is not favorable in this economic condition.
2. Lack of capital: To direct insurance business properly its capacity should be
big. To do this insurance business needs to spread business in both local and
international places. Thus, it needs huge capital. Business governing becomes
hard due to lack of capital.
3. Lower rate of savings: The per capita income of this country is low. Most of
the population lives under poverty level. The percentage of saving in GDP was
17.78% in FY 1999-2000. This occurs to do the propensity to purchase only
life insurance of other social insurance.
4. Weakness in Industrial sector: Bangladesh is an agricultural country.
Industrial sector of this country is very weak. About 7.7% of total manpower
is industrial labors. In FY 2001-02 only 26.5% of total national product was
industrial product. Fire insurance and accident insurance is directly dependent
on industry. So, weakness in industrial sector is hindrance for insurance
business.
5. Inefficiency in management: In every stages of our country we can see
inefficiency of management. In insurance business this inefficiency is higher.
As a result, insurance business is getting problematic.
6. Lack of public trust: There is big lack in trust of public over honesty of
insurance businesspersons. There are many misuses of the insurance policies.
7. Lack of publicity and education: In our country there is no proper publicity
and education regarding the significance of insurance. Insurance hasn’t gained
enough exposure from the education system.

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 8. Lack of effective principle: At pre-independence period insurance was
managed in one way. After liberation nationalized insurance business run in a
different way. From 1985privatization of insurance businesses has been
started. Still there are problem with effective principles after privatization.
This lack of effective principle for running insurance business is creating
problem.

Ways of Overcoming the Problems of Insurance

Business in Bangladesh
To solve the problems faced by the insurance businesses in Bangladesh the following
measures can be taken:

 By providing insurance related education to the students

 By increasing publicity of insurance policies
 By increasing awareness of mass people
 By providing proper training facilities to the managers, employees and field
workers of insurance businesses
 By formulating effective principles to run the insurance business
 By developing different sectors of economy
 By modernizing the insurance business

Causes of Nationalization of Insurance Business in

Bangladesh
With the emergence of the People’s Republic of Bangladesh, the government
nationalized the insurance industry in 1972 by Presidential Order No. 95, more
specifically known as the Bangladesh Insurance (Nationalization) Order, 1972. By
virtue of this order, save and expect postal life insurance and foreign life insurance
companies (other than the Pakistani Companies), all companies and organizations
transacting all types of insurance business in this country came under this
nationalization. Five insurance corporations were basically established. Later on to
minimize unnecessary administrative expenses for maintaining these corporations and
for other advantages the govt. decided to merge these five corporations into two
corporations, Sadharon Bima Corporation and Jiban Bima Corporation.

Reasons behind nationalization of insurance companies after liberation were as

follows:

1. Protection of national interest: At the time of liberation there were 67

insurance companies which were operating their activities in the country. The

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 headquarters and owners of most of these companies were in the then West
Pakistan. So, it was difficult to impose local authority over them if they
weren’t nationalized. So, to reserve the rights and interest of the newly liberate
country all the insurance business were nationalized.
2. Public welfare: Nationalization of an institution of any country is commenced
for the purpose of public welfare. The same reason was observed for the
nationalization of insurance business in this country. To prevent capital
drainage and to achieve and stable public rights under socialistic philosophy
insurance business were nationalized.
3. Removing indiscipline: Most of the owners of the insurance business were
West Pakistani capitalist at post-liberation. As a result, local officers had no
communication with the headquarters. Most of the non-Bengali directors left
the country causing the companies dysfunctional. To remove these
irregularities and indiscipline it became necessary to nationalize insurance
business.
4. Providing proper assistance to industry and commerce: To provide aid and
assistance to industries and commerce insurance businesses were nationalized.
Risk is a roadblock to every at easy business. Nationalization process was
undertaken so that business and industry could have insurance at easy
conditions.
5. Removing unnecessary competition: Unnecessary competition not only
harms competitive business but also all the business involved with it. For that
reason, all the insurance businesses were nationalized.
6. Organizational development: It was necessary to provide the insurance
facility door-to-door in every corner of the country after independence. So, the
decision to nationalized insurance business was adopted.
7. Formation of capital and strengthening investment: One of the ways to
form capital is insurance. Periodic insurance premium is very helpful for
capital formation and inflation. Insurance businesses were nationalized so that
owners can invest in a regulated way.

Benefits of Privatization of Insurance Business

The development of Insurance business was mentionable after the decision to
privatize the business in 1984. But for the lack of proper structure, direction and
promoter this business is progressing slowly. Till April 30, 2000 the number of Life
Insurance Company was 19 and general insurance company was 44. The shareholder
from the capital market was also benefited from these companies.

Benefits that being observed from the privatization from more then 20 years are
described below:

1. Increasing national production: Insurance sector is one of the important

sectors of Bangladesh for earning revenue income. In the FY 2000-01 the

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 contribution of insurance in the GDP was 0.3% as a whole and 0.6% of the
service sector.
2. Collection of saving and formation of capital: Insurance companies play a
major role for saving and capital formation of any country. The private and
public insurance companies collect premiums from policyholders which are
considered as savings. Companies from various insurance funds, which have
significant role in capital formation.
3. Providing loan and investment: Insurance companies contribute heavily in
providing loan and investment activities. With private promotions insurance
businesses have increased their credit and investment sectors. These
organizations are also providing loans to government by purchasing bonds and
securities.
4. Emergence of group of insurance: With the nationalization of insurance
business initiative of investing in insurance sector were lost from a group of
insurers. But after privatization these group of insurers have emerged again.
As a result other sectors along with insurance business are being benefited.
5. Expansion of the scope of insurance business: Once nationalized insurance
businesses were limited only in the cities. But after 1984, insurance businesses
are vastly expanding. Customized village insurance programs have taken
insurance business closer to rural areas.
6. Developing the quality of customer service: After privatization the quality of
customer service is advancing with intense competition.
7. Increasing government revenue: Private insurance companies pay a portion
of their profit as tax which has a direct influence in the increase of govt.
revenue. Again a lot govt. stamps are sold to complete the insurance contract.
8. Creating a positive influence on the share market: A considerate number of
members who are listed in the stock exchange are insurance companies. The
transactions of shares of these companies are very good due to their success in
business.

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