An Assignment on Present Status of Insurance Sector in Bangladesh

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An Assignment on Present Status of Insurance Sector in Bangladesh
Submitted to
Mohammad Sabbir, Lecturer
Department of Finance and Banking
Patuakhali Science and Technology University
Course: Insurance and Risk Management
Course Code: FBK 324
Submitted by
Md Mohiuddin
Id 1503070
Reg 06163
Session 2015-2016
Faculty of Business Administration and Management
Submission Dateline : 14th
August 2018

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Introduction
Just after independence, following a bitter and brutal war, the Government took over the control
and management of all the Pakistani Insurance Companies. Ultimately, the insurance industry
of Bangladesh was nationalised in August 1972. Bangladesh economy holds huge risk in every
sector because the country often faces natural disasters like flood, cyclone, draught, and
hurricane. There are also other factors like political strikes, and economic issues like inflation,
high interest rate, tax policy, deregulation, etc. that deepen the risks for the economy. However,
Bangladesh’s, insurance market is not very large compared to the degree of risk. For a better
functioning of the insurance industry and to attain good growth of this sector, it is worthwhile
to know the factors which are responsible for low growth of the insurance industry in
Bangladesh. The weak insurance industry of the country suffered a set-back. This is because
the newly created Life Insurance Corporation (Jiban Bima Corporation) had to take over the
liability of all life policies written by Pakistani insurers. As on 1- 1-1973 the assets of Pakistani
life insurers taken over by the Jiban Bima Corporation (JBC) amounted to Taka 148 million
against total liabilities of Taka 264 million. Similarly General Insurance Corporation known as
Shdharan Bima Corporation (SBC) inherited assets of taka 103 million against liabilities of
taka 76.5 million.
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 common risks and collected by the insurance
companies in the form of premiums.
Varies Types of Insurance Business in Bangladesh
Fareast Islamic Life Insurance
Fareast Islamic Life Insurance Co. Ltd. emerged as the 1st full-fledged Islami Life Insurance
Company in the country in 2000 and has, by the grace of Almighty Allah, been able to bring
confidence among the common people of the country.

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Standard Insurance Ltd.
Standard Insurance Ltd. (SIL) is one of the leading General Insurance Company in
Bangladesh.
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Homeland life insurance Company limited (HOLICO)
Homeland Life Insurance Company Limited is first time introduce Islami Life Insurance on
basis of Quran & Sunnah in Bangladesh.
Rupali Insurance
A well know insurance company in Bangladesh
Dhaka mirror
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Pragati Life Insurance Limited
Pragati Life Insurance Limited is a public limited company registered with the Registrar of
Joint Stock Company and licensed by the Controller of Insurance, Govt. of Bangladesh to
transact life insurance business in Bangladesh.
Alico
American Life Insurance Company (ALICO) is one of the largest international financial
service companies globally. Incorporated in Delaware USA.
Jibon Bima Corporation
The Jiban Bima Corporation (JBC) is the lone state-owned life Insurance company in
Bangladesh, which started its maiden journey on May 14, 1973.

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Eastland Insurance Company
Eastland general insurance company is involve with providing general insurance for all kind
of occasions.
American Life Insurance Company (ALICO)
American Life Insurance Company (ALICO), a subsidiary of American International Group,
Inc. (AIG), is one of the largest international life insurance companies in the
Reliance Insurance Bangladesh
Reliance general insurance, fire insurance, marine cargo insurance, engineering, motor and
Miscellaneous insurance.
Progoti Insurance
Fire and other insurances. A group of young entrepreneurs of Bangladesh who had earlier
launched a commercial Bank in the private sector sponsored the company with 30 million
Taka capital in 1986.
Phoenix Insurance
Fire, marine, motor, flood & disaster insurance.
The City General Insurance Company Ltd. (CGIC)
Sponsored by few of the most eminent business personalities, industrialists and bankers of
Bangladesh under the patronization and guidance of Al-Haj Anwar Hossain, Chairman of
Anwar Group of Industries.
Meghna Life Insurance Company Ltd.
We are proud of our transparent and accountable services being rendered to our valued
customers at their utmost satisfaction. Life insurance.
Paramount Insurance Company Limited.
Paramount Insurance Company Limited is one of the leading insurance companies of the
country, since its establishment in November 1999; the company has successfully been in
operation.
Pioneer Insurance Company Limited.
Pioneer Insurance Company Limited was founded in 1996 sponsored by a group of
entrepreneurs of Bangladesh who had earlier established themselves as leading industrialists
and business magnates of the country. Pioneer Insurance Company Limited is a public.
Tactful Islamic Insurance Company Ltd.
Tactful Islamic Insurance Company Ltd is a leading General Insurance Company of
Bangladesh.

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United Insurance
United Insurance Company Ltd. (UICL) is a Public Limited General Insurance Company
(Non-Life) maintaining the traditional values of insurance business since commencement in
1985.
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 hither to 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 30 members. 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. 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.
Scenario of Life Insurance Sector in Bangladesh
At present sixty three insurance organisations including postal life insurance are in operation
Bangladesh. Out of which only 19 insurers are offering life insurance policies. In this
subcontinent, Postal Life Insurance (PLI) has a long tradition and is the oldest institution in the

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country to provide life insurance service to individuals. It was established in 1884 with the
purpose to provide life insurance at a low cost to the employees of the post office. It was set
up as a mutual fund and was being operated on non-profit basis. In 1947, its life insurance
service was opened up to the government employees and in 1958 it was opened up for general
people. It can offer life insurance policies at the lowest premium. The competitive advantage
of postal life insurance is its large institutional set up in both urban and rural areas. Like
commercial life insurance companies, P.L.I offers whole life policy, education and marriage
endowment policy, three stage policy etc. PLI has introduced Annuity scheme with effect from
1960 and also undertakes group insurance contracts. Loans to the extent of 90% of cash
surrender value acquired by policy after two years are granted to the policy holders to meet
their immediate financial needs to be repaid by them on easy installments. Jiban Bima
Corporation (JBC) is a public sector organisation under the Ministry of Commerce. The
policies offered by JBC include Whole life, Endowment, Child Protection, Three Stage,
Pension, Group Term, Group Endowment, Group Gratuity, Group Pension etc. The most
common is pension and endowment policy. The persistency rate is less than 30% in comparison
to more than 80% of ALICO. 3 The American Life Insurance Company (ALICO) is the only
foreign insurance company in Bangladesh. ALICO offers both ordinary and group life
insurance policies. Its share of group life premium is approx, 25%. The most common is the
endowment policy.
Scenario of Non-Life Insurance Sector in Bangladesh
Sadharan Bima Corporation is the only public sector insurer. It also acts as the sole reinsure of
all general insurance companies of the country. SBC is dealing with the traditional types of
general insurance as marine, fire, motor etc. More than 50% of its premium comes from the
marine insurance. Besides the traditional types of insurance SBC introduced crop insurance
and personal accident policy in 1977. People’s personal accident insurance is open to every
person of 16 to 60 years of age. It covers accident while on travel by bus, train, steamer, air
plane of any other modes of conveyance. The insured’s family is indemnified by taka ten
thousand against an annual premium of taka twenty only. The victim will also be eligible to
get full amount of indemnity he losses both eyes, two limbs or becomes otherwise permanently
disabled following an accident. If a victim looses one eye or one limb, be will be entitled to
half of the sum insured. This scheme however does not cover occupational accidents. Crop
insurance is a mechanism designed to enable borrowers to repay their loans when their crop
yield declines sharply due to climatological factor. To date, crop insurance has not been

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widespread or successful in Bangladesh. The SBC operated a pilot project for 16 years
between1977 to 1992. The program remained very small during its entire life and covered only
995 farmers and 1141 acres of land per year. The financial results were very poor. In fact, the
pure loss ratio (claim/premium) trended upward from 156% to almost 800% in 1991.
Comparison of Insurance Business in Asian Countries with Bangladesh
Table-1: Comparison of Asian Countries
Insurance Penetration: Premiums as % of
GDP
2008
Premium Volume Share
of World
(million US$)
Market (%)
Country Ran
k
Total
Business
Life Gener
al
Ran
k
2008 2007 2008
India 31 4.6 4.0 0.6 14
56,190 57,78
2
1.32
Malaysi
a
33 4.3 2.8 1.5 34
9,335
8,633 0.22
China 43 3.3 2.2 1.1 6 140,81
8 92,48
3
3.30
Sri
Lanka
71 1.4 0.6 0.8 78
623
469 0.01
Philippi
nes
73 1.4 0.9 0.5 54
2,299
2,105 0.05
Indonesi
a
75 1.3 0.9 0.4 39
6,903 6,983
0.16
Iran 78 1.1 0.1 1.0 47
4,243
3,645 0.10

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Banglad
esh
80 0.9 0.7 0.2 75
717
617 0.02
Pakistan 83 0.8 0.3 0.5 63
1,133
1,094 0.03
Saudi
Arabia
85 0.6 0.0 0.6 50
3,070
2,290 0.07
Source: Sigma 03/2009, World Insurance in 2008.
Previous Recodes of Financial Information of Bangladeshi Insurance Companies
& GDP of BD
Table-2: Total Asset, Total Investment, and Gross Premium of Insurance Companies and
National GDP of Bangladesh (in Million TK.)
Year
Total
Asset
Total Premium
Income
Total
Investment GDP
1999 28059.11 9492.60 14433.57 2370900
2000 27949.27 11222.61 15454.01 2535500
2001 37596.44 13260.73 22839.57 2732000
2002 42999.63 15391.73 26861.83 3005800
2003 50095.13 18406.35 29444.63 3329700
2004 59896.28 21918.96 40913.73 3707100
2005 73411.27 28462.49 47836.28 4157300
2006 89053.63 35825.78 58894.63 4724800
2007 115237.22 42498.07 65093.86 5458200
2008 142205.64 51635.60 90412.92 6149400
Mean 66650.36 24811.49 41218.50 3817070
Source: Economic Survey of Bangladesh and Bangladesh Insurance Association

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Premium Income from Insurance Companies from 1999 to 2008
Table-3: Premium Income by Different Types of Insurance Companies in Bangladesh (in
Million)
Year
Private
General
SBC Total
General
Private
life JBC
Total life
Gross
Premium
1999 3239.07 616.87 3855.94 4017.17 1619.49 5636.66 9492.60
2000 3645.50 617.40 4262.9 5109.90 1849.81 6959.71 11222.61
2001 4101.97 759.10 4861.07 6435.59 1964.07 8399.66 13260.73
2002 4506.86 818.63 5325.49 8274.27 1791.97 10066.24 15391.73
2003 5111.57 766.61 5878.18 10589.55 1938.62 12528.17 18406.35
2004 6003.72 778.65 6782.37 13358.76 1777.83 15136.59 21918.96
2005 7129.40 886.13 8015.53 18410.45 2036.51 20446.96 28462.49
2006 7971.61 1044.54 9016.15 24576.11 2233.52 26809.63 35825.78
2007 9417.32 1265.82 10683.14 29165.1 2649.83 31814.93 42498.07
2008 11163.93 1418.99 12582.92 35974.52 3078.16 39052.68 51635.60
Mean 6229.10 897.27 7126.37 15591.14 2093.98 17685.12 24811.49
Source: Bangladesh Insurance Association

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Investment Made by Different Types of Insurance Company from 1999 to 2008
Table-4: Investment Made by Different Types of Insurance Companies in Bangladesh (in
Million TK.)
Year
Private
General
SBC Total
General
Private
life
JB C Total life Total
Investment
1999 2239.23 2776.50 5015.73 5868.13 3549.71 9417.84 14433.57
2000 3194.84 330.49 3525.33 7935.30 3993.38 11928.68 15454.01
2001 3655.25 3376.69 7031.94 11233.09 4574.54 15807.63 22839.57
2002 4488.33 3067.32 7555.65 14288.95 5017.23 19306.18 26861.83
2003 5100.14 1199.14 6299.28 18300.78 4844.57 23145.35 29444.63
2004 5667.79 5667.79 11335.58 24088.95 5489.20 29578.15 40913.73
2005 6611.11 3819.59 10430.7 30568.74 6836.84 37405.58 47836.28
2006 7220.89 4008.05 11228.94 40078.89 7586.80 47665.69 58894.63
2007 8571.40 4141.07 12712.47 43997.75 8383.64 52381.39 65093.86
2008 11132.41 4331.71 15464.12 67151.19 7797.61 74948.8 90412.92
Mean 5788.14 3271.84 9059.97 26351.18 5807.35 32158.53 41218.50
Source: Bangladesh Insurance Association

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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.
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.
Excessive Management Expense
Growing cost of business is a problem that insurance companies are facing now a days. Most
of the second and third generation insurance companies are facing the problem of excessive
management expense that is much higher than the prescribed limit. Currently there are ten or
more tiers in the field level. This is unsustainable in the long-run.
Political Instability

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Sound and robust political environment is a pre-requisite for a country’s development.
Political instability is a serious problem for the insurance business. Moreover, Bangladesh
government formulates national policy, rules, and regulations on political consideration that,
too, restrict the normal growth of insurance in the country.
Lack of Supervision from the Government
Lack of surveillance from controlling agency of government encourages many insurance
companies to follow some unethical practices like delay in claim settlement, harassment to
policy holders and showing fake financial statement.
Conclusion
The insurance sector, whether in Bangladesh or elsewhere, ought to be one of the most closely
monitored, if not heavily regulated. This is simply because the insurance industry plays a
pivotal role in protecting individuals and business from unforeseen, financially divesting
events. The success of the insurance industry depends on insurer’s ability to meet its contractual
obligations and government is obliged to preserve this security. It may be noted that the recent
worldwide trend has been toward deregulation of the insurance industry. But to many
observers, deregulation really means re-regulation i.e. shifting from “exante “ approaches to
“ex-post” and “self-regulatory” approaches. Considering the present state of affairs in the
insurance sector, effective re-regulation is of prime importance. in fact, the present day
regulations and supervisions have to be according to international standards as well as fair and
transparent. The present market ought to be served by financially healthy insurance entities
comprising direct insurers, reinsurer and insurance intermediaries all working together.