Executive Summary

Insurance is not a new business in Bangladesh. Almost a century back, during British rule in
India, some insurance companies started transacting business, both life and general, in Bengal.

After independence of Bangladesh, insurance industry was nationalized. Subsequently through

the enactment of Insurance Corporation Act VI, 1973, two corporations namely Sadharan Bima
Corporation (SBC) for general insurance and, Jiban Bima Corporation for life insurance were
established in Bangladesh.

Insurance is basically a contract between two parties. An insurer is a company selling the
insurance; an insured or policyholder is the person or entity buying the insurance policy. All
types of policies issued by a life company or by the life branch of a composite company which
are Personal accident and sickness insurance, ordinary life insurance, industrial life assurance,
annuity etc.

We have discussed about contribution of insurance industry of our country.

We can realize that the policy makers within the government and the insurance company should
adopt effective measures in order to make good use of the opportunities and to tackle the threats
for ensuring a healthy development of the insurance industry.

So if we develop economic condition as well as overcome the problems, it will help a lot to
flourish this business in our country.

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 Chapter: One

Introduction

Origin of the report

This report is generated under the academic supervision of our course teacher FAHIM
MUNTAHA , Department of BBA, ASA University of Bangladesh. This report is prepared as
the requirement of Business Finance course. The topic is “Contribution of insurance industry
in Bangladesh cover”

Methodology

The data the project report contains is all secondary data. The secondary data was collected from
the internet, books, journals, magazines and newspapers.
Secondary data are those data that have already been collected by someone else and have already
passed through the statistical process. The secondary data is the type of data chosen by us.

Key Parts of the report

The main view of the report is to identify the impact of macro-environment forces on the
pharmaceutical industry to launch a new product. We focused on Life insurance trend in
Bangladesh and contribution of insurance industry of our country.

Objectives of the report

Broad Objectives: The main objective of the study is to evaluate the Practical trend of
contribution of insurance company in Bangladesh.

Specific Objectives:

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  To be acquainted with the Insurance Company.

 To learn clear knowledge of Life insurance.

 To learn about the process of insuring life.

 To have the practical knowledge of theoretical knowledge of Insurance.

Scope

In this report, at first we cover the preliminary concept of insurance. Then we go for the trend of
this insurance in our country.

Limitations
There were certain limitations of the problem we face both in report preparing analyzing.

 Unavoidable conditions:
Some of the unavoidable conditions also had a deterring effect on preparing the report.

 Restrictions that we faced:

Lack of information, lack of technology etc. are the restrictions within the problem.

 Lack of proper information in the websites of the insurance company.

 Lack of necessary information in the journals and official publications of insurance
companies.
 Inexperience and time constraint is the limitation restricting this report from being more
detailed.
 Secondary data has been collected from the hand books, magazines, which may biased to
the insurance business.

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 Chapter: Two

Brief Discussion Regarding Insurance

Introduction
Insurance is basically a contract between two parties. Insurance, in law and economics is a form
of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in
exchange for payment.

An insurer is a company selling the insurance; an insured or policyholder is the person or

entity buying the insurance policy. The insurance rate is a factor used to determine the amount
to be charged for a certain amount of insurance coverage, called the premium. Premium is also
known as the consideration which the insured has to pay to the insurer for the protection given to
him. Risk management, the practice of appraising and controlling risk, has evolved as a discrete
field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in
the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a large, possibly devastating loss. The insured receives a
contract called the insurance policy which details the conditions and circumstances under which
the insured will be compensated.

There are many other important concepts regarding insurance. These are Re-insurance, annuity;
surrender value, paid-up value, bonus, valuation etc.

Principles of insurance

Insurance is based upon the two following principles:

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 1. Principles of co-operation

In insurance the loss is shared by a group of people who are willing to co-operate.

2. Principles of probability

The loss in the shape of premium can be distributed only on the basis of theory of probability.
The probability tells what the chances of losses are and what will be the amount of losses.

Insurance of the person

All types of policies issued by a life company or by the life branch of a composite company
come up under the heading of Insurance of Person.

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Personal accident and Sickness Insurance

This type of insurance scheme ensures a financial benefit arising out of accidental death or
bodily injury or specific diseases or all sickness to the insured. Different policies are:

• Accident only policy

• Accident & specific diseases policy

• Accident & all sickness policy

• Coupon schemes

• Group schemes

• Permanent contracts

Accident only policy

This is the most basic type of policy providing cover against accidental death or bodily injury to
the insured and also provides benefits in respect of temporary total or temporary partial or
permanent total or partial disablement of the insured arising out of accident. The usual scales of
benefit are:

Death Sum insured

Loss of two limbs or two eyes Sum insured

Loss of one limb or one eye 50% of the sum insured

Permanent total disablement Sum insured

Permanent partial disablement A percentage of the sum insured

Temporary total disablement Weekly benefit at a rate percent of sum

insured

Temporary partial disablement Weekly benefit at a reduced rate

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 percentage of the sum insured than in

Accident & Specified Disease Policy

This is primarily an accident only policy and, therefore, covers all the items as mentioned there
under. In addition, weekly benefits are also available in respect of temporary total disablement
arising out of certain specified diseases. These policies are losing their popularity because of the
introduction of “all sickness” policy.

Accident & All sickness policy

This is also primarily an accident only policy but covers, in addition thereto, weekly benefits in
respect of temporary total disablement arising out of all or any kind of sickness. This policy is
wider than “accident & specified disease” policy in that it covers all sickness rather than
specified sickness only.

Coupon Schemes

Quick covers are arranged in this manner at airports so that it can be secured immediately and
without formality before going on a journey by air.

Group Schemes

Rather than taking individual policies by each member of a working group, cover may be
obtained by all members in one policy. A discount is usually allowed where all the employees of
a firm or the members of a club or organization are insured in this way

Permanent Contracts

Normal personal accident policies are insured for a year or sometimes only for a journey.
However, policies may also be taken for a consecutive number of years until the insured reaches
a particular age. Provided the premiums are paid regularly and conditions observed by the
insured, such policies can’t be cancelled by the insurers until the stipulated period. Such
contracts are known as permanent contracts. Benefits are same as “accident only policies”,
“accident & specified diseases policy”, “accident & all sickness policy”.

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Ordinary life assurance

Various types of policies or schemes are available under the heading of ordinary life assurance.
Basically there are three types of covers and rests of the schemes are primarily the mixture or
modification of these three.

The three basic covers:

Term or Temporary Assurance

This is the oldest and simplest form of life assurance cover. The policy is issued for a certain
term or period. The contract provides that the sum-assured under the policy shall be paid only if
the life-assured dies within the period mentioned in the policy. Nothing is payable if the assured
survives this period, and the contract comes to an end. As the risk element is less in comparison
to other types of policies, this is the cheapest form of life cover available.

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This type of policy is of particular advantageous to:

• Cover a debt or loan by affecting a policy, either by the creditor on the life of debtor, or
by the debtor on his own life to the extent of the loan for a period or term corresponding
the loan repayment period. The debtor will repay the loan in the usual way as per loan
agreement. Only if he dies during the period, ie., within the term period of the policy,
then policy money becomes available for loan repayment. Policy may be arranged on
decreasing-term basis also.

• Businessmen or persons going abroad for short trip.

• Young person or persons of lower income group who want to have a life cover but can
not pay higher premiums for other types of comparatively costly policies.

Whole Life Assurance

Under such type of policies assured sum is payable only at the death of the life assured,
whenever such death might take place. Premium is usually payable throughout the life span of
the life assured. However, arrangements may be made for the payment of premium up to a
certain selected age, where after the premium payment ceases, but the policy continues until the
death of the life assured when the sum assured is paid to the legal personal representatives of the
deceased. As the policy assures a capital sum payable at death whenever it might take place, such
a policy is comparatively a bit costlier than the term assurance. The policy is very much helpful
for those who have got dependent relatives and for whom the assured wants to make future
provisions on his death for a substantial amount with the premium available. This type of policy
is comparatively cheaper than the endowment assurance but costlier than the term assurance.

Pure Endowment Assurance

Under this type of policy the sum-assured is payable only if the life-assured survives a stipulated
period mentioned in the policy. Nothing is payable if the life assured dies during the specified
period. As the possibility of claim payment is less since there will be no payment if the life
assured dies within the specified period, the premium is also negligible like term assurance.

Usefulness
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 • The person forming a capital

• Unable to afford costlier policies

• Do not have dependents.

Other types of cover/schemes

• Endowment assurance

• Decreasing term

• Convertible term

• Family income policy

• House purchase scheme

• Group life assurance

• Group pension scheme

• Joint life assurance

• Juvenile policies

• Educational policies

• Marriage policies

• Child’s deferred assurances

1) Endowment Assurance

Endowment assurance is virtually combination or mixture of term assurance and pure

endowment. Under this type of policy sum assured is payable either at death of the life assured or
maturity of the policy whichever is earlier. This is a term or period mentioned in the policy..
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Normally it varies from 15, 20, 25, 30 years to be decided by the insured. If the life assured dies
within this period the policy money immediately becomes payable. If the life assured does not
die during this period the sum assured is payable on maturity, that is, on the expiry of the period.
This means that a claim is a must under this policy irrespective of life insured’s death or survival.
This type of policy is indeed combination or mixture of term assurance and pure endowment
assurance since this policy secures a capital sum either at death during the period mentioned in
the policy( element of term assurance) or on survival of the period (element of pure endowment
assurance).

This policy is costlier in comparison to term assurance, whole life assurance or pure endowment
assurance since a payment is ensured either at maturity or at death prior to maturity.

Such policies are particularly advantageous where-

• The assured has the means to pay a bit higher premium,

• The assured wants to provide some financial benefits for his dependents in case of his
premature death,

• The assured wants to secure a capital sum at a particular time

• The assured wants to secure a pension or augment pension by purchasing an annuity with
the money available from the policy,

• The assured wants to secure a loan or mortgage,

• The assured wants to provide for his children’s education or marriage expenses

• The assured wants to make a good investment and at the same time wants to get life
cover.

Endowment assurance policies are becoming very popular now-a-days forming a major portfolio
of a life branch or life office.

2) Decreasing term assurance:

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This is basically a term assurance with the only difference that under this policy the sum-assured
gradually reduces every year, at a predetermined rate, throughout the duration of the policy.
Policy is arranged in such a way that because of the reduction factor there remains no sum-
assured under the policy at the expiry of the term. If the life assured dies any time within the
term period then only the balance sum-assured is payable under the policy. For example, if a
policy is taken out for tk. 1000 for a term of 10 years, decreasing each year at the rate of tk. 100,
and if the insured dies after 3 years of effecting the policy then only tk. 700 will be payable as
that will then be the sum-assured remaining on the policy.

These policies are particularly useful for securing a loan, repayable over a period of years at a
certain rate per year. The policy is arranged linking up the loan repayment period, and the
decrease in the sum-assured is made corresponding to loan repayment installment. If the assured
dies any time within the term, the balance sum-assured is available for repayment of the balance
loan still unpaid.

3) Convertible term:

This is also basically a term assurance with the only difference that at a later predetermined date
(within the term period) the policy may be convertible into either whole life or endowment. If it
is not convertible at the option date, the policy remains a simple term assurance and comes to an
end at the expiry of the term. If the assured survives the period nothing is payable and if the
assured dies within the period full sum assured is paid.

The advantages of a convertible term assurance are:

• The assured enjoys a relatively higher cover during the early years of assurance at a
lower premium.

• He has the option to convert the policy into whole life or endowment when his premium
paying capacity increases.

• At the time of conversion no further medical examination is required.

• The premium is calculated on the basis of the age at entry.

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 5) House purchase scheme:

It is issued when houses are purchased by obtaining loans and mortgaging the houses to the
creditor. If the mortgagor dies this policy repays the remaining loansIt is a decreasing policy
which decreases with the rate of debt repayment.

6) Group Pension Scheme

This scheme secures pension for individual employees from time of retirement. It depends
directly on salary and rate increases as the salary increases.

7) Joint Life Assurance

More than one life is assured under each policy. Sum-assured may be payable in various ways
like- a) on the death of the first life. b) on the death of the last survivor. c) on the death of a
specified life, if the death takes place during the life time of another.

8) Juvenile Policies: Various types of schemes are available under this:

1. Educational Policies: This policy aims at providing child’s educational expenses at

different stages benefitting the need. It starts from the maturity date of the policy and the
amounts become available throughout the duration of the education period.

2. Marriage Policies: This policy aims to provide financial support for the parent at the
stage of child’s marriage. It matures at a time when the child reaches the marriage age
and money is required to defray such expenses.

3. Child’s Deferred Assurances: It usually takes out a policy by the parent for a period
expiring on the selected date that is the day when the gift is intended to be made.

Industrial Life Assurance

Industrial life assurance does not fall in the category of normal life assurance business. In our
country, industrial life assurance has not yet made any entry into the market. But it has a bright
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prospect here. Industrial life assurance basically evolved as a result of necessity arising out of the
socio-economic effects of the Industrial Revolution of the 19th century. Industrial revolution and
automation made laborers to overcrowd the cities. Their future financial security lead and their
failure to pay annual, half-yearly or quarterly premiums lead to modern industrial life assurance.

Basis of Industrial Life Assurance

It is based on the same assurance principles as applicable to ordinary life assurance. Sometimes
some minor modifications are made in some special cases.

The usual types of policies are not varied like ordinary life assurance and are mostly limited to
whole life and Endowment assurances, even though Children’s Endowments are also
occasionally issued. The major portfolio mainly covers endowment assurances.

Basic Characteristic: Basic characteristics of industrial life assurance are given here:

• Premium is required to be collected from the homes of the policy holders, by the
representatives of the insurers

• Such collection of premium has to be at more frequent intervals, usually weekly,

fortingly or at best monthly

• Average sum-assured is very small in comparison to ordinary life business

• The simple system and procedure of industrial life assurance brings life cover to those
who, by reason of their circumstances, would not normally be interested in carrying life
assurance cover.

• Policies may be affected on the lives of parents, step-parents and grandparents. It is not
possible under ordinary life assurance for a man to have a policy on the life of his parent,
step-parents or grandparents

It is acknowledged that policyholders will not exercise self-discipline in saving money towards
payment of annual, half-yearly or quarterly premium.

National Insurance

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National insurance is one kind of social security scheme run by the government of a country for
the required financial security of its citizens, more particularly for the persons who are employed
in various organizations or self-employed or non-employed. Even though it has various
advantages, it has not yet gained any access in our country.

Basic Characteristics

• Scheme is administrated by the government and no entry for the private insurers

• No policies and the scheme is managed by stamping of cards issued by government

• Contribution (premium) normally deducted by the employers at source and credited to

appropriate government authority

• Solvency of the scheme is guaranteed by the state

Annuities

Annuities is a contract between the insurance company and the annuitant .In consideration of the
purchase price, the other party undertakes to make annual payment .This process continues until
the death of the annuitant or for a fixed period.

Annuity for life

Under this annuity, the payment starts from a particular date. Payment continues until the
annuitant’s death and Payment stops from the death of the annuitant.

Annuity Certain

This is for a predetermined period. The payment stops when the period is over regardless of
whether the annuitant is dead or not.

Guaranteed Annuity

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Under this contract, annuity continues until the annuity’s death. Annuity is guaranteed for a
certain minimum period. It is almost similar to annuity for life. Payments continue even after the
death of the annuitant. If guaranteed period is over, payment still continues and stops on death.

Reversionary Annuity

Here, payment to the annuitants starts from the time of death of another person mentioned in the
contract. Then payment continues for the remainder of the annuitant’s life.

Chapter: Three

Contribution of Insurance industry in

Bangladesh

Bangladesh and Insurance Business:

Insurance is not a new business in Bangladesh. Almost a century back, during British
rule in India, some insurance companies started transacting business, both life and general, in
Bengal. Insurance business gained momentum in East Pakistan during 1947- 1971, when 49
insurance companies transacted both life and general insurance schemes. These companies were
of various origins British, Australian, Indian, West Pakistani and local. Ten insurance companies
had their head offices in East Pakistan, 27 in West Pakistan, and the rest elsewhere in the world.
These were mostly limited liability companies. Some of these companies were specialized in

16
dealing in a particular class of business, while others were composite companies that dealt in
more than one class of business. The government of Bangladesh nationalized insurance industry
in 1972 by the Bangladesh Insurance (Nationalization) Order 1972. By virtue of this order, save
and except postal life insurance and foreign life insurance companies, all 49 insurance companies
and organizations transacting insurance business in the country were placed in the public sector
under five corporations. These corporations were: the Jatiya Bima Corporation, Tista Bima
Corporation, Karnafuli Bima Corporation, Rupsa Jiban Bima Corporation, and Surma Jiban
Bima Corporation. Tista and Karnafuli Bima Corporations were for general insurance and Rupsa
and Surma for life insurance. The specialist life companies or the life portion of a composite
company joined the Rupsa and Surma corporations while specialist general insurance companies
or the general portion of a composite company joined the Tista and Karnafuli corporations.

After independence of Bangladesh, insurance industry was nationalized. Subsequently through

the enactment of Insurance Corporation Act VI, 1973, two corporations namely Sadharan Bima
Corporation (SBC) for general insurance and, Jiban Bima Corporation for life insurance were
established in Bangladesh. SBC was acting as the sole insurer of general insurance till 1984.
Between 1985 to 1988 first generation of private general insurance companies were emerged as
Bangladesh Government allowed the private sector to conduct business in all areas of insurance
for the first time in 1984. A total of 16 private general insurance companies were registered in
that phase. In 1996 another 8 private general insurance companies were registered. The third
generation of private general insurance companies, which included 18 companies, came into
operation between 1999 and 2001. The general insurance market in Bangladesh now consists of
43 private sector insurance companies and 1 state owned insurance company. Insurance
Corporation (amendment) Act 1990 provides that 50% of all insurance business relating to any
public property or to any risk or liability appertaining to any public property shall be placed with
the SBC and the remaining 50% of such business may be placed with this corporation or with
any other insurers in Bangladesh. But for practical reason and in agreement with the Insurance
Association of Bangladesh SBC underwrites all the public sector business and 50% of that
business is distributed among the existing 43 private general insurance companies equally under
National Co-insurance Scheme.

Insurance background in Bangladesh

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 • Tritorn insurance, Calcutta pioneer in general insurance established in 1850

• Oreantel life insurance company, the first insurance company, established in 1818.

• Were generally limited to the british people working in india.

• Insurance business operated by basically private sector in Pakistan period.

Current scenario of insurance industry of Bangladesh

In Bangladesh, the Insurance business, after and 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 it’s 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 hitherto
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.

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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
business.

• 62 insurance companies.
• 2 state-owned corporations
• 43 general & insurance companies
• 17 life insurance companies
• SBC was acting as the sole insurer of general Insurance till 1984
• Bangladesh Government allowed the private sector to conduct business in all areas of
insurance for the first time in 1984
• At present, nearly all the companies place

The government guidelines for formation of an insurance company

are:

(1) The intending sponsors must first submit an application in prescribed form to the Chief
Controller of Insurance for prior permission.

(2) After necessary scrutiny the Chief Controller shall forward the application with his
recommendation to the Ministry of Commerce.

(3) After further scrutiny, the Ministry of Commerce shall submit its views to the Cabinet
Committee constituted for this purpose.

(4) The decision of the Committee, if affirmative, should be sent back to the Ministry of
Commerce which in turn should send it back to the Chief Controller of Insurance for
communicating the same to the sponsors.
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(5) The sponsors would then be required to apply in a prescribed form to the Registrar of Joint
Stock Companies to get registration as a public liability company under the Companies Act.
Memorandum and Articles of Association duly approved by the Controller of Insurance would
have to be submitted with the application.

(6) Once the registration process was completed the sponsors would have to obtain permission
of the securities and exchange commission to issue share capital.

(7) Reinsurance arrangements would have to be made at this stage.

(8) After all the above requirements were fulfilled the license to commence business under the
Insurance Act 1938 is to be obtained from the Chief Controller of Insurance. Application can
only be made subject to government announcements in this regard.

The control over insurance companies, including their functions relating to investments, taxation,
and reporting, are regulated mainly by the Insurance Act 1938 and the Finance Acts.

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 hitherto
untapped. Prior to privatization, the yearly gross premium volume of the country was
approximately Tk 900 million in general insurance business and approximately Tk 800 million in
life insurance business. In 2000, premium incomes rose to Tk 4,000 million in general insurance
business and Tk 5,000 million in life insurance business.

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 Sadharan Bima Corporation.

Numerous institutions, associations and professional groups work to promote the development of
insurance business in Bangladesh. Prominent among them are the Bangladesh Insurance
Association and Bangladesh insurance academy. Bangladesh Insurance Association was formed
on 25 May 1988 under the Companies Act 1913. It is registered with the Registrar of Joint Stock

20
Companies and has 30 members. It aims at promoting, supporting and protecting the interests
and welfare of the member companies.

Surveyors and insurance agents occupy a prominent position in the insurance market of
Bangladesh. The surveyors are mainly responsible for surveying and assessing general insurance
losses and occasionally, for valuation of insurance properties, while the agents work to procure
both life and general insurance business against commission. The system of professional brokers
has not yet developed in Bangladesh. However, it is a common practice of the insurers to engage
salaried development officers for promotion of their insurance business.

Problem of insurance business in Bangladesh

Weak Economy:

The development of insurance business is dependable to the development of economy of

deferent sectors. But in Bangladesh there are many lacking to the development of economy. Our
export income in limited and 78% income come from cloths and nightwear sector. So the types
of economy are not suitable for insurance business.

Lack of capital:
The broadness of insurance business is helpful to survey. It needs to establish many branches in
different country. It requires lots of capital. But lack of capital in our country creates the problem
of insurance business.

Lower Rate of Savings:

In our country the average income of our people is very low. Maximum people are live under
poverty line. In 2004-2005 our internal saving was only 20.16% of total GDP. Life insurance and
other insurance are mostly dependable on the saving of the people. So it creates the Problems

21
Weakness in Industrial Sector:
BANGLADESH is an agricultural country; the industrial sector of their country is poor. In our
country 9.71% are industrial labor from the total labor force. In 2004-2005 industrial
productivity was only 28.88% of the total national productivity. So these types of weakness are
one of the main barriers of insurance business.

Not Knowing What Customers Expect:

Based on interviews, the authors found that executives’ perceptions of superior quality service
are largely congruent with customers’ expectations. Customers’ expectations versus management
perceptions are the result of the lack of a marketing research orientation, inadequate upward
communication and too many layers of Management.

The Wrong Service-Quality Standards:

Arises when there is a discrepancy between what managers perceive that customers expect and
the actual standards that they (the managers) set for service delivery. This gap may occur when
management is aware of customers’ expectations but may not be willing or able to put systems in
place that meet or exceed those expectations.

The Service-Performance Gap:

Organizational policies and standards for service levels may be in place, but is front line staff
following them? A very common gap in the service industry is the difference between
organizational service specifications and actual levels of service delivery. Service specifications
versus service delivery is the result of role ambiguity and conflict, poor employee-job fit and
poor technology-job fit, inappropriate supervisory control systems, lack of perceived control and
lack of teamwork.

When Promises Do Not Match Delivery:

Customers perceive that organizations are delivering low-quality service when a gap appears
between promised levels of service and the service that is actually delivered. This gap is created
when advertising, personal selling or public relations Over-promise or misrepresent service

22
levels. Service delivery versus external communication may occur as a result of inadequate
horizontal communications and propensity to over-promise.

The discrepancy between customer expectations and their perceptions of the service
delivered:
as a result of the influences exerted from the customer side and the shortfalls (gaps) on the part
of the service provider. In this case, customer expectations are influenced by the extent of
personal needs, word of mouth recommendation and past service experiences.

The discrepancy between customer expectations and employees’ perceptions:

as a result of the differences in the understanding of customer expectations by front-line service
providers.

The discrepancy between employee’s perceptions and management perceptions:

as a result of the differences in the understanding of customer expectations between managers
and service providers.

Overview of Recent Developments

The Insurance industry plays a significant role in a growing economy in terms of providing
indemnification of risks faced by both individuals and companies, in addition to being an
institutional investor . In the year 2004, the insurance industry continued to reap the
benefits of sustained GDP growth and increased economic activities, especially in the industrial
and consumer finance sectors. Moreover, the regulatory requirements set forth by the Securities
and Exchange Commission of Pakistan (SECP)1 also strengthened the financial soundness of the
companies as reflected in the increased paid-up capital base. Six companies that were unable to
meet the paid-up capital requirement continued to remain suspended from undertaking new
insurance business, and three new companies started business in the non-life insurance sector.
One of these companies offers Islamic insurance facilities. The total assets of insurance
companies have seen a consistent improvement since CY01 with an average growth of over 14.5
percent in the last four years . The non-life sector has shown a faster growth of 16.2 percent in
23
CY04, as compared to 14.6 percent growth in life and a moderate 6.1 percent growth in
reinsurance.3 This growth in the assets of the insurance sector has primarily been due to the
enhanced paid-up capital requirements which ultimately increased the risk management capacity
of the insurance companies and enabled them to undertake increased insurance business with
improved retention capabilities. As mentioned above, the asset structure of insurance companies
shows that the assets of the non-life business are increasing at a faster pace than the life
insurance business.

Future aspects of Insurance Business:

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

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.

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
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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.

New 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.

Developing 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.

Micro 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.

Development of new policy

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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 policy
making 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
company’s is Tk. 550 million while the private sector insurance companies own
Tk.2500 million. 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
such as health insurance, personal accident insurance, travel insurance, burglary
insurance and pension scheme.

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.

Service diversification

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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).

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 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.

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

Ways of overcoming the problem

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 In our country the problems that exist in insurance business can not be overcome over a
right .It needs long term planning. Besides making the people aware the insurance
businessman should come forward with govt. to make this business famous. Coming
from the existing problems following steps should be taken to make this business
famous.

1. Spread of insurance education: To make the insurance business people should be

made aware about the helpless & necessity of insurance. For this purpose effective
steps must be taken to speared of insurance education.

2. Publicity & increase of awareness: Mass publicity activities are very essential to

overcome from unwillingness wrong idea, doubt & unbelief of the people this
country. The people media can provide an effective help regarding country
interest.

3. Increase of training facilities: To continue the insurance business effective

standard training facilities must be arranged for the manager & workers who are
employed in this business.

4. Formulation of effective Principles: Long term formulation of effective principles

is compulsory to continue the insurance business successfully.

5. Uphold the interest of policy holder: Success of this type of business is depended on the trust of
insured persons. To gain the trust insurance companies should come forward to compensate the
real injured as soon as possible.

6. Importance to the economic development: Insurance business is depend on the

development of the different sector of economic .So insurance business can never
be developed by retaining the weak situation of the sectors including industry
commerce transportation.

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Comments and suggestion

From the presiding discussions of the report, we can realize that the policy makers within the
government and the insurance company should adopt effective measures in order to make good
use of the opportunities and to tackle the threats for ensuring a healthy development of the
insurance industry. The following actions are suggested.

• The insurance companies of Bangladesh should practice marketing through the use of
promotional tools such as advertising, sales promotion, public relation and publicity,
personal selling and direct marketing.

• In order to create the growth of insurance business in our country, insurance companies
should expand their target market by providing responsive services and establish efficient
departments to perform such task.

• Government must minimize the restrictions on premium so that insurance companies can
fix their premium according to their demand. This will increase the profitability of the
insurance companies.
• One of the basic requirements for the insurance industry to have sustained growth is to
enhance training facilities. Bangladesh Insurance Academy is providing training facilities
and professional education to those engaged in insurance business in the country. The
syllabus, curriculum and training programs of the academy need to be modified to meet
the modern needs of the insurance industry.

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 • To regain and maintain a positive public image the insurance companies should
overcome the dissatisfaction in regards to services and claim settlements and should
maintain a service standard.

• The collected premium should be invested in large and beneficial sectors so that
insurance companies can return their clients expected return in timely.
• Government should have a regulatory body for the surveillance on insurance companies
so that they must perform their business maintains the ethical issues properly.

• Insurance companies need to modify their recruitment strategies with increased focus on
the marketing and sales training because, insurance being a service marketing industry it
requires special attention.

• In response to the opportunity of growing market the insurance companies can expand
their target market by identifying and providing responsive services. In order to do so
each company should established and effectively operate research and development
department.

Conclusion

In present insurance is too much important to the business and individual sector. Most of the
companies provide more or less same services. For this reason the competition is increasing day
by day between the insurance companies. On the other hand some new insurance companies are
going to start businesses in the competent market. BGIC need to develop their some productive
sectors. In present, a company cannot establish properly without developing information
technology. People search their desires requirement through Internet so, insurance companies
need to develop Web address to increase both foreign and local investors. So we have discussed
about both the problem and prospects of insurance business in Bangladesh. The progress of
insurance business depends on the progress of economic condition .Insurance business also faces

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many problem. So if we develop economic condition as well as overcome the problems, it will
help a lot to flourish this business in our country.

Reference

Ms. FAHIM MUNTAHA

Lecturer
Department of Finance
ASA University

Md. Tasmir Chowdhory

Senior Executive Officer

Green Delta Insurance LTD.

Books

Risk & Insurance (2nd ed)

Azizul Huq Chaudhuri

Websites
http://www.bangladeshtrades.com
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en.wikipedia.org
http://www.banglapedia.org/

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