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that a few partial studies have been conducted, but the problems, prospects and
policy implications for developing this industry are not studied as a whole.
This study is, therefore, a humble attempt to identify the factors that are
responsible for not developing the industry to the expected level.
2. Insurance Industry Scenario of Bangladesh:
In Bangladesh, during the 1970s, government-owned JBC and SBC were the
only provider of life and general insurance coverage for individual and
business properties. During that time insurance products were very few in
number and the industry did not take innovative efforts for product
development. In the country the first private insurance company was set up in
1985. Since then non-government insurers have shown rapid growth in terms
of institutional set-up, policy design and business expansion. When non-
government insurers gradually have gained the foothold in the country, real
competition in the sector has begun. However, the insurance industry in
Bangladesh is very small compared to its economy and the number of
insurance policyholders is still not increasing satisfactorily (Islam & Mamun,
2005). At present, there are 43 general (non-life) insurance and 17 life
insurance companies are operating in Bangladesh which are inadequate to
provide insurance services to about 150 million people (BIA, 2000; Ahmed,
1977; Siddiqui, Islam and Chowdhury, 1995).
The insurance companies of our country perform a wide range of activities
such as service designing, preparing contract and policy, marketing and
selling, underwriting, rating, reinsurance and other services and claim
settlement. The two government owned insurance companies i.e. the
Shadharan Bima Corporation and Jiban Bima Corporation get all the
government insurance business by virtue of the Insurance Act of Bangladesh.
According to the rule, all insurance in the government sector is done through
these two nationalized insurance companies, so they enjoy a monopoly. None
of the private insurance companies is allowed to offer insurance services to
government organizations. Furthermore, these two corporations are also
allowed to underwrite private businesses, and people feel confident about their
reliability. So they have not yet felt any strong need to practice marketing
properly.
Insurance is a form of risk management, used to hedge against the risk of a
contingent loss. It involves the transfer of the risk of potential loss from one
entity to another, in exchange for a risk premium. Given this role, the
insurance sector fosters financial stability by enabling economic agents to
undertake various transactions with the facility of transfer and dispersion of
risks. As a crucial component of the financial system, life insurance plans are
58 Insurance Industry in Bangladesh: ……………..
Reflecting the rapid growth of the national economy, Bangladesh insurance (both life
and general) market continues to make steady growth both in depth and dimension
despite reduction in business activities due to global recession coupled with drastic
fall in commodity prices. The premium income of all types of insurance companies in
1999 was Tk.9492.60 million and went up to Tk.51635.60 million in 2008 (Table-2).
43 general private insurance companies and one state owned corporation earned
Thoughts on Economics 59
The total asset of insurance companies in 1999 was Tk.28059.1 million and went up
to Tk.142205.64 million in 2008 (Table-2). Table-2 also shows that during the last
decade the average total asset of Bangladesh insurance companies about Tk.66650.36
million. Of this figure life insurance assets constituted Tk.47324.10 million and
60 Insurance Industry in Bangladesh: ……………..
nexus. Directly and indirectly insurers provide funds for investment and add to
demand for the respective financial market instruments. By providing liquidity
and to the respective markets, they improve the overall performance of the
respective markets. Due to higher liquidity it is much easier for private and
institutional investors to access diversified investment portfolios and to invest
in high risk, high productivity projects. On the other hand, this intensifies the
pressure on the economy to limit the waste of resources due to the increased
competition in the market and on the other hand aids economic growth by
smoothening the flow of funds to capital-intensive projects.
3. Objectives of the Study:
The specific objectives of the study are as follows:
(a) To focus the present insurance sector scenario of Bangladesh.
(b) To identify the problems that are hindering the development of
insurance industry of Bangladesh.
(c) To examine the scope and opportunities of insurance industry of
Bangladesh.
(d) To suggest some measures for improving the insurance industry of
Bangladesh.
4. Sources of Data and Methodology of the Study:
Both primary and secondary data are used in the study. In order to collect
primary data three sets of questionnaires are developed, which are prepared in
the light of the objectives of the study. The first set is used for interviewing the
executives of the sample insurance companies (both life and general) to gather
information regarding insurance policies and this subject matters, company’s
business position and its attitude towards the development of insurance
industry in the country. The second set is used for interviewing the
entrepreneurs (or customers) to gather information regarding the insurance
practices in Bangladesh. The third set is used for interviewing the
academicians, policy-makers, insurance-expert to gather information regarding
the country’s insurance academic curricula, existing insurance rules and
regulations, the actual problems and prospects of insurance industry in
Bangladesh. Before preparing the final questionnaire, a pilot survey was also
conducted in order to test the validity and relevance of the questions.
There are 43 general insurance and 17 life insurance companies operating in
Bangladesh, of which 6 life and 14 non-life insurance companies have been
selected as sample for collecting primary data in terms of their operational
experience, number of employees, premium income and total asset etc. It was
62 Insurance Industry in Bangladesh: ……………..
Table-6 indicates that 95 percent of the respondents were male and 5 percent
were female. Out of the total respondents, 7 percent of the respondents were
below 30, 56 percent of respondents were between 30 and 45, and 37 percent
of respondents were between 45 and 60 years range. 13 percent of respondents
were single, while the married accounted for 87 percent. A large number of
respondents (80%) were jobholders. The table also revealed that a significant
number of respondents (89%) was highly educated. Respondents were also
asked to indicate what type of insurance company they prefer. Three types of
insurance companies were given for their choice and the choice preferences
are shown in Table-6. Some 85% of respondents preferred private local
companies.
5.2. Factors in Selecting Insurance Companies and Policies
Respondents were asked to indicate factors that influence their selection of
particular types of insurance company. Ten major reasons influenced their
choices as shown in Table-7.
Table-7: Factors in Selecting Particular Types of Insurance Company and Factors
Influencing Buying Policies
Factors in Selecting Particular Types of Insurance Factors Influencing Buying Policies
Company
Factors Mean Rank Factors Mean Rank
Motivated by family ∕friends ∕ 3.10 Providing financial benefits to 3.83
5 3
relatives dependents
2.74 Pension benefits and retirement 3.60
Regulation of the government 7 5
Capital
64 Insurance Industry in Bangladesh: ……………..
(Note: Percentage exceeds 100 because respondents mentioned more than one factor)
Table- 8 indicates that the Sample companies were typically facing some
common risk presented as political, commercial, liquidity, credit risk. Out of
total respondents, 79%, 67%, 61% and 58 % of the Sample companies faced
Thoughts on Economics 65
Note: Percentage exceeds 100 because respondents mentioned more than one
factor.
Every respondent was asked to respond to the questions related to the
existence of R&D cell, the investment made (i.e. non-recurring expenditure
for R&D cell) in the last five years, availability of computer facility etc.
Results are reported in Table-9. The Table shows 85% of the companies do
not have proper research or R & D facilities, and 82% of the companies did
not invest in R & D and did not witness any product innovation.
5.5. Reasons of Non-popularity of Insurance in Bangladesh
Table 10: Reasons for not popularizing the Insurance in Bangladesh (Rank Analysis)
Reasons Mean Rank
Lack of government patronizing 4.04 5
Lack of strong legal frame work 4.00 6
Lack of separate regulatory body 3.10 11
Lack of trustworthiness 4.74 1
Lack of awareness 4.68 2
Low income of the people 4.62 3
Lack of attractive offerings 4.62 3
Lack of sufficient information 3.12 10
Delaying in claim settlement 4.74 1
High service/processing cost 3.18 8
Lack of marketing Research 3.44 7
Lack of product diversification 4.62 3
Lack of efficient workforce 4.08 4
Lack of updated system and technology 3.16 9
that insurance industry is way behind the expected level in terms of innovation
of new products. Low savings rate and unattractive offerings are also
responsible for not purchasing insurance policies by the respondents.
Among other reasons for not popularizing the insurance are ‘ Lack of efficient
workforce’, ‘Lack of government patronizing’, ‘Lack of strong legal frame work’,
‘Lack of marketing research’ and ‘High service/processing cost’, which are ranked
as 4th, 5th, 6th, 7th and 8th respectively.
6. Problems of Insurance Industry in Bangladesh:
The following problems of the insurance industry in Bangladesh are identified
in the present study:
Lack of Public Faith: Insurance agents are responsible for creating negative
image of insurance to the public. It shrinks the scope of insurance business.
Poor public image is mainly responsible for not expanding the sector. This
opinion is held by 94.80 percent respondents in the study.
Lack of Public Awareness: Mass illiteracy hinders the growth of the
insurance sector. A vast majority of people especially in rural areas are left
outside the insurance coverage. This mainly results from the look of awareness
among the people. This problem is supported by 93.60% in the study. Even a
large portion of people in the country have no minimum idea about insurance.
People are not aware of the benefits from the insurance policy and a good
number of people believe that insurance business is nothing but cheating and
they assume that insurance policy is quite unnecessary.
Centralization Policy: 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 opportunities for their business in cites because the
economic condition of the urban areas is better than in the rural areas. They
forget that the large number of our population reside in rural areas. Thus this
centralization policy acts as an obstruction to the growth of insurance business
in our country.
Poor Economic Conditions: Bangladesh is one of the poorest countries in the
world and most of the people in this country live under extreme poverty. All
of these people fight hard to earn their livelihood. It is quite impossible for
them to save some money for future need. Therefore, they are quite unable to
give the amount to the insurer which is called premium and regarded as safety
or precautionary measure against any accident. This problem is mentioned by
74.80% people in the study.
68 Insurance Industry in Bangladesh: ……………..
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 segment of the population is completely unaware about the
insurance policy. Another problem is that the insurance company does not
provide adequate information in the company’s websites which can meet the
queries of their potential customers and encourage them to buy insurance
policy.
Absence of Business Ethics: In a competitive market, some insurance
companies use some business tactics that violate the business standard and the
provision of insurance acts. Some insurance companies create harassment to
the policy holders when they want back their money after death or maturity.
The insurance companies show different causes for not settling the claim
timely. Besides this, some field officials also often try to give false
information to the people for buying a policy. Such kinds of illegal acts create
bad reputation to the insurance companies and hinder the development of the
overall insurance business in the country. Those customers that are harassed
by the insurance companies normally try to discourage other people to buy any
insurance policy.
Lack of Motivational Program towards Public: According to our survey,
the people of the country are not much motivated by the company to take
insurance policy for safeguarding themselves against any kind of risk. They
fail to understand that insurance policy makes their life risk free. For lack of
motivation among the people, insurance companies are always lagging behind
their expected target.
Lack of Information Technology: Automation facilities prompt service and
paves the way of cost and time savings but the insurance sector in Bangladesh
is still conducting its operations manually (or on conventional method). They
do not use any web address, which is essential for an insurance company.
They can provide more information to its client by using web site. But still the
operations of insurance companies are not automated. The clients of insurance
sector are deprived of the convenient use of e-insurance, online business,
internet, Web and computerized system. This problem is cited by 78.40%
people of the study.
Insufficient Service: Insurance people failed to provide better services to the
mass people of the country. That’s why the people who want to take the
insurance policy they lose their interest from insurance. This problem is
mentioned by 66.60% people of the study. As can be seen in a foreign country,
insurance workers go to customer’s house and offices regularly to influence
70 Insurance Industry in Bangladesh: ……………..
deteriorated over the years, which has adversely affected the operation of the
private sector insurance companies.
7. Prospects of Insurance Business in Bangladesh:
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.
Large Population: There is a big opportunity for the insurance companies as
the population of our country is increasing day by day. The growth of
population opens greater scope for every kind of insurance business.
Higher GDP: The GDP of our country is increasing which results in the
increase of per capita income. With the growth in the income more, people are
now willing to take an insurance policy for safeguarding themselves against
any danger.
Micro Insurance for Poor and Rural People: Insurance services need to be
redesigned to meet the needs of different classes of people. We should have
consistent product development to meet emerging needs of the poorer class
and the rural class. Distinctive product innovation relevant to indigenous
conditions of the poor and especially for the borrowers of micro-credit is the
need of the time. Micro insurance can be a great prospective area for the
insurance business in Bangladesh. Most of the people of the country are
unable to have costly and long term insurance policies. Micro insurance can be
provided to individual persons or to small business owners against low
insurance premiums and with easy terms and conditions. When people will
afford to minimize their risks at a lower price, more and more people will take
that opportunity. A huge portion of the society can thus be a prospective target
market for this business.
Investment Scope: Bangladesh has large scope of investment in trade,
commerce and industry. The insurance fund is now invested in government
bonds, ICB projects, marketable securities, and FDR which are not much
profitable. The private insurance companies are realizing this fact. There are
opportunities to enhance profit through effective and efficient money
management by employing capable and experienced personnel. There is scope
of investment expansion in the areas leasing, housing, health and money
market.
New Business’s Individual Insurance: There are so many new businesses
starting every day with a booming global demand. Every business is insured
under an insurance company to protect itself from any kind of accident.
Thoughts on Economics 73
Therefore the growth of industry, mills, and factories is creating better scope
for the insurance companies to flourish their business.
Extent of Market: There is a great scope of facility to explore the insurance
market. The market is big but a large part of it is still unexplored. The
insurance sector should take step to introduce innovative and diversified
products to cover risk in the unexplored areas of the economy.
Government Aid: Government is the key player of all development. In order
to boost the growth of the insurance sector, the government should frame a
liberal tax policy, reform the legal structure and set up a strong regulatory
body. Since the government is liable to ensure the safety and security of
people, it can obligate the people to take policy in some cases and also attract
investors in this sector.
Developing Mass Awareness: People are now much more conscious about
their safety and security. Government and the industry can easily draw their
attention regarding the significance of insurance in their life so that they can
be encouraged to take an insurance policy for making their life free from any
unexpected situation. The increase in literacy rate is also helping to create
awareness among the people regarding taking insurance policy. Besides,
insurance companies are also trying to alter the negative attitude of people
towards insurance by organizing various programs such as seminars, programs
including social responsibilities etc.
Furnish Modern Services: The technology should be used in operating
system to reach services promptly to the customer. These comfortable and soft
services attract the customers and enhance the volume of sales. The insurance
sector till now does not use modern tools providing services. So the insurance
sector should introduce e-insurance, online insurance, e-mail, Web and ATM
booth that facilitate transactions in withdrawing their claim, depositing their
premium and knowing the balance sheet etc.
Strict Application of Rules and Regulations: Due to strict application of
rules and regulations, anarchy is prevailing in this sector. The regulations
should be aimed to reduce, not increase, the problems of the insured and to
protect them from any kind of deception. The Controller of Insurance should
closely monitor the insurance company’s functions and obligate them to
follow the current Insurance Act 2010. By enforcing law, this sector can come
back in a systematic manner.
Developing New Insurance Products: In course of time, there is a great
change in climate and atmosphere over the world that adds new pattern of risk
in trade and commerce. The insurance should add new products to cover the
74 Insurance Industry in Bangladesh: ……………..
Siddiqui, Hafiz G.A.; Islam, M.S. and Chowdhury, M.J.A. (1995): “Life
Insurance Business in Bangladesh – An Evaluation” Insurance Journal,
Bangladesh Insurance Academy, Dhaka, Vol.47.
Sigma (2009): “World Insurance in 2008”, 03/2009, USA.
Solaiman, M. and Haque, M.A. (1999): “Developing of Insurance Industry in
Bangladesh: An Innovative Approach”, Insurance Journal, Bangladesh
Insurance Academy, pp.43-48.
Uddin, M.N. and Khan, M.S.U. (2005): “Performance Evaluation of Some
Private Sector General Insurance Companies in Bangladesh”, The Chittagong
University Journal of Business Administration, Vol.20, pp.349-366.
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