Assignment on:

IMPACT OF INSURANCE IN MOBILIZING CAPITAL FOR

INVESTMENT: STUDY FOCUS ON BANGLADESH

Course Tittle: Insurance and Risk Management

Course Code: BUS 303

Submitted to:
MR. MD. ASAD NOOR
Assistant Professor and Program Coordinator of BBA
Green Business School

Submitted by:
Kazi Mohaimenul Islam

ID:182006005
Green Business School

Date of Submission: 9 SEPTEMBER 2022

ABOUT INSURANCE

A contract where an individual or substance gets monetary security against misfortunes from an
insurance agency. Protection is a method of move hazard and spread of chance.

ACKNOWLEDGEMENT

The most helpful place for me to do this assignment is my esteemed course teacher MD. ASAD
NOOR Sir. I thank Asad Noor Sir, because he helped me with a lot of information to complete
this task. He explained the about insurance chapter to me in very fluent language. I took some
important information from Md. Asad Noor and Prof. Dr. Golam Ahmed Faruqui’s book which
is helped me to make the assignment more informative. I thank Md. Asad Noor and Prof. Dr.
Golam Ahmed Faruqui for gifting us such a beautiful book.
 TABLE OF CONTENT

TITLE PAGE
Abstract 1

Introduction 1

Objectives 1

Literature Review 1

Methodology 3

Analyzing and Findings 3

Limitation 4

Recommendation 4

References 5
Abstract

The insurance companies raise capital by selling policies with exchange of premium. The
capital is invested to the portfolio markets. The mobilization of insurance capital impacts on the
economy. Society, money market etc. The insurance companies invest the capital in different
sectors such as currency transactions, loans, call money, government bonds, corporate bonds
etc. As the mobilization of insurance capital becomes, the development of a country becomes.
The insurance impacts on the overall economy and society. The insurance increases economic
growth of a country.

Introduction

Insurance companies collect funds through selling policies and taking in saving deposits and
investing in different forms of insurance investment. The mobilization of insurance capital is
the process of investment in the markets. Insurance funds are invested in currency transactions,
loans, real estate, mutual funds, government bonds, corporate bonds, call money small and
cottage industry etc. If the funds are utilized, economy, society, infrastructure will be
developed. The impact of mobilization of insurance capital on economy, society, money market
etc.

Objectives

The main purpose of the study is

a. to use insurance capital for economic and social development of a country.

b. to use insurance capital for controlling money market.
c. to control inflation
d. to create employment opportunities.
Literature Review

Reed, Cotter, Gill, and Smith (1980) advanced two approaches aimed at explaining the
behaviour of financial institutions in respect of fund mobilization. They started with the Pool of
Funds approach, which anchor on the premise that all insurance funds (premium and savings)
should be pooled and allocated to various insurance investments (real estate and mortgages,
loans, securities, cash etc) according to their return implication without much consideration to
the source of the funds. The second theory called the Asset Allocation and Conversion of
Funds approach posits that mobilized funds should be invested in different assets thereby
forming various portfolios. This approach distinguishes between different sources of funds and
requires that the source of fund be put into consideration in taking allocation decisions. The
theory considers the source of funds and encourages insurance companies to comply with the
matching principles of investments. Given this theoretical foundation to the concept of fund
mobilization, some empirical works have been conducted at various times and in different
climes to test the validity of these theories. For example, Kugler and Ofoghi (2005) used the
components of insurance premiums (disaggregated analysis) and real GDP to investigate the
long run relationship between development in insurance market size and economic growth in
the United Kingdom. By disaggregating total insurance premium, they attempt to solve the
aggregation problem with a view to examining whether the results of Ward’s and Zurbruegg’s
(2000) study that reported no long run relationship will be sustained. The authors made use of
Johansen’s trace and maximum co-integration tests as well as Granger causality equations.
The co-integration test results showed that, in most cases, there exists a long- run relationship
between insurance market size and economic growth. The causality test result provided
information about the possible pattern or direction of the relationship by revealing that
causality runs in both directions. That is, both life, property, and liability insurance premiums
Granger cause growth in real GDP and vice versa. In another related work, Park, Borde and
Choi (2002) studied the linkage between insurance penetration and Gross National Product
(GNP). They employed some socio-economic factors adopted from Hofstede (1983) such as
uncertainty, avoidance, individualism – collectivism, power distance, masculine-feminine, SPI
index and index of economic freedom. They applied the ordinary least squares estimation
technique on a cross-sectional data for thirty-eight (38) countries including twelve European
Union (EU) countries in 1997. Overall, the evidence from this study suggests that there is a
significant relationship between GNP, masculinity, socio-political instability, economic
freedom, and insurance penetration. All other factors were found to be insignificant and were
subsequently dropped after checking for heteroscedasticity. Furthermore, deregulation was
found to be a way to facilitate growth in the insurance industry just as socio-political instability
was found to be more of a proxy for poverty than an indicator for the need to insure. This
assertion supports the expectations of Kong and Singh (2005). Webb, Grace, and Skipper
(2002) investigated the effect of banking and insurance on the growth of capital and output.
Employing a Solow-Swan model with productivity parameters estimated across fifty-five (55)
countries including www.sciedu.ca/ijfr International Journal of Financial Research Vol. 5, No. 2;
2014 Published by Sciedu Press 71 ISSN 1923-4023 E-ISSN 1923-4031 seventeen EU countries
for the period 1980-1996, the authors used the ordinary least square (OLS) estimation method
on the panel data. Their findings indicate that the components of banking and life insurance
penetration are found to be robustly predictive of increased productivity. When split into the
three areas of banking, life insurance sector and property and liability insurance sector, it is
only the banking and life insurance sector that remain significantly related to Gross Domestic
Product (GDP). Property and liability insurance penetration was found not significantly
correlated with GDP. The result of the study suggests that higher levels of banking and
insurance penetration jointly produce a greater effect on growth than would be indicated their
individual contributions. Their findings indicate that financial intermediation inclusive of
insurance penetration significantly correlate with Gross Domestic Product GDP. This suggests
that insurance intermediation is a determinant of economic growth.
Methodology

The study is applied from collecting online data. A model is developed by this study. The
model shows that the impact of insurance mobilizing capital for investment. The input data is
premium or insurance capital and mobilization of fund. The result is impact on the country
economy and society.

Analyzing and Findings

A model has been developed about the impact of insurance in mobilizing capital for
investment. The model shows the impact on economic and social development in a country

Investment:
1. Currency
transactions Impact
. 2. Loans 1. Economic
3. Real Estate development
Insurance 2. Social
4. Mutual funds
Capital
5. Government development
Bonds 3. Infrastructure
6. Corporate Bonds development
7. Bank 4. Inflation control
8. Infrastructure 5. Money market
9. Call money control
10. Small and 6. Job opportunities
cottage industry
When Insurance companies invest capital to the financial markets, The investment impacts on
the economic, social development. It affects the money market and inflation as well as job
opportunities.

The insurer invests capital to the financial markets and increases money supply in the market.
It causes inflation Central control money market by imposing strict rules on the insurance
companies. Insurance companies buy different currencies from the market and sell it.
Insurance companies buy government corporate bonds. It also invests different infrastructure.
Sometimes Insurance company lend money to the bank for call money. When insurance
company invests to small and cottage industries. It creates job opportunities.

The mobilization of capital impacts on the economically and socially. It develops the banking
and employment sectors. When insurance companies invest, the GDP, GNP, economic growth
is increased. When insurance companies invest real estate and different infrastructures in a
country, the country will be developed.

Limitation

The study has some limitations. People don’t want to believe the insurance companies for
raising funds. The government rules and regulations affect the conduction of insurance
business. Sometimes, government gives the license of fraud insurance company. Huge banks
and financial institutions compete with the insurance companies. It is the first limitation of
mobilizing capital in the market. Collecting data form the online interrupts for wrong
information.

Recommendation

To economic and social development, the government should take some steps for insurance.

1. Cancelling license of the fraud insurance companies.

2. Giving independence of insurance companies.
3. The use of insurance should be increased.
4. Increasing the awareness of people about insurance.
5. Investing portfolio in the markets.
6. Raising funds by insurers.
7. Increasing belief between insurers and insured persons.
Conclusion

The study shows that Insurance affects the different sectors for mobilizing capital. By
mobilizing capital, the money supply in the market is increased. As capital mobilizes, the
economic development become. The insurance company collects funds by selling policy with
premium and it is invested to the financial market. The impact of insurance fall over the
economy. People should know about insurance and use it against properties. The government
should raise the consciousness of people for the distribution of risk. The government also
should cancel the licenses of fraud companies. The mobilization of insurance capital
contributes to any country.
References -

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