Review



Thoughts on Economics

Vol. 23, No. 04

Insurance Industry in Bangladesh: Opportunities and Challenges

Dr. Mohammed Shamim Uddin Khan*

Mohammad Nazim Uddin**

[Abstract: 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. This paper presents the results of an empirical survey highlighting the present scenario of insurance industry in Bangladesh. In this study, many problems have been identified such as lack of trust, illiteracy, improper claim settlement, lack of product diversification, lack of information, poor risk management, absence of research and development (R&D) cell, reinsurance problems etc. The study offers recommendations to make the insurance market in Bangladesh vibrant and useful for the economy.

Key words: Risk, Insurance problems, Insurance prospects, Bangladesh.

1. Statement of the Problem:

Insurance represents an important tool to lessen risks borne by individuals and businesses in modern economies. It is nothing but a mechanism of spreading the risk of one to the shoulders of many. It is a contract whereby the insurer, on receipt of a consideration known as premium, agrees to indemnify the insured against losses arising out of certain specified unforeseen contingencies or perils insured against. Thus, insurance is a process which distributes the burden of the loss on a number of persons within the group formed for this particular purpose (Chaudhury, 2008). The insurance services can be described as a product in the form of a written legal contract plus a bundle of services associated with it. (Khondkar and Rahman, 1993). The primary objective of insurance companies is to protect individuals and corporations (policyholders) from adverse events. Insurance mitigates the risk involved in human life and trade and commerce. The insurance businesses are of two types, namely, life insurance and property-casualty (general) insurance. Life insurance provides protection against the possibility of untimely death, illness, and retirement. Property insurance protects against personal injury and liability such as accidents, theft and fire.

A well-planned, well-organized, efficient and viable insurance industry is a necessary condition for the economic and financial infrastructural development in a country. Insurance is one of the most important financial institutions in the sense that besides covering losses of individual policy holders for death and accidents or damages of properties, it serves as an important national purpose of channeling the savings of the general mass or special group of people to investment. Bangladesh economy is beset with pressure of over population, frequency of natural calamities, low per capita income and lack of technical know-how. Insurance has the potential to make a significant overall impact on the economy of Bangladesh where capital is relatively in short supply, the rate of savings is very low, investment opportunities are few and far between, inflation is the norm, and provisions of social security for the people are almost non-existent (Roy, 2008, Mandal, 1988). This (insurance) action would be conducive to raise per capita income and play a positive role in the economy. Consequently, the per capita insurance premium is also found very low and the market did not grow much, compared to the other Asian countries. For this reason the industry is under-capitalized; hence most insurance companies found it extremely difficult to retain a reasonable percentage of large risk undertaken by them. It is true that people must live with hazards and to some extent insurance can free people from those hazards. But the people of Bangladesh still do not prefer to insure themselves as their low purchasing power does not permit them to avail insurance policy. The main constraint in the development of insurance industry in Bangladesh is the lack of risk awareness, financial inability etc. In Bangladesh, there is a greater degree of risk but the insurance market is not so large as compared to the degree of risk. The insurance products are not sold spontaneously but sold just for meeting legal obligations.

For better functioning of insurance industry and for a suitable growth of this sector there is a paramount importance to know the factors which are responsible for less than the desired growth of insurance industry in Bangladesh. It is high time to assess the industry and how the insurance market in Bangladesh can be made more efficient and sound to prepare it for intense global competition in the upcoming year. The fact is that many important aspects of Bangladesh insurance industry with respect to different dimensions are yet to be understood. All these aspects of Bangladesh insurance industry deserve to be studied comprehensively. Literature in this area is scanty in numbers and partial in content. Existing literatures indicate 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 an important source of savings and long-term institutional investments essential for the development and growth of bond markets. The role of insurance as a financial intermediary is particularly important in countries like Bangladesh with low levels of financial penetration. Overall insurance penetration itself is also just 0.9 percent in the country; much lower than the regional average of 2 percent (Table-1).

At present, the world is facing ‘Financial Tsunami’ originating in the developed countries, which started as a subprime mortgage crisis in the USA and spread out quickly all over the globe. The damage to economic growth, income and jobs are already being felt sharply in every corner of the world. Many economists believe that the financial crisis has plunged the world economy into its worst crisis since the great depression of the 1930’s. In this global financial circumstance, global insurance premiums amounted to approximately US$4270 billion in 2008. The life business accounted for US$2490 billion, non-life insurance accounted for US$1779 billion. The industry’s paid-up capital shrank by 15-20 percent in non-life and 30-40 percent in life. Life premiums declined by 3.5 percent, largely in the second half of the year as a direct consequence of the financial crisis. Non-life premiums declined marginally by 0.8 percent in 2008 due to lower demand for insurance cover and softening premium rates. However, emerging markets grew at an impressive rate of 13.1% for life and 10.2% for non-life insurance. The Chinese market registered a growth of 30.3% for life and 31.5% for non-life. The Indian life and non-life insurance markets accelerated with an unprecedented growth rate of 36% and 26% respectively.

Table-1: Comparison of Asian Countries

|Insurance Penetration: Premiums as % of GDP | Premium Volume Share of World |

|2008 |(million US$) Market (%) |

|Country |Rank |Total Business |Life |General |

|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

Table-3: Premium Income by Different Types of Insurance Companies in Bangladesh (in Million)

|Year |Private |SBC |Total General |Private life |JBC |Total life |Gross Premium |

| |General | | | | | | |

|1999 |7848.59 |5353.20 |13201.79 |9935.37 |4921.95 |14857.32 |28059.11 |

|2000 |9178.11 |526.81 |9704.92 |12629.27 |5615.08 |18244.35 |27949.27 |

|2001 |9868.34 |5671.88 |15540.22 |15868.87 |6187.35 |22056.22 |37596.44 |

|2002 |10326.73 |5663.33 |15990.06 |20318.93 |6690.64 |27009.57 |42999.63 |

|2003 |11145.68 |5942.04 |17087.72 |25599.95 |7407.46 |33007.41 |50095.13 |

|2004 |12666.70 |6359.72 |19026.42 |32821.21 |8048.65 |40869.86 |59896.28 |

|2005 |14199.72 |6051.90 |20251.62 |44248.51 |8911.14 |53159.65 |73411.27 |

|2006 |15815.53 |6666.18 |22481.71 |56888.88 |9683.04 |66571.92 |89053.63 |

|2007 |19829.68 |7768.14 |27597.82 |71651.40 |15988.00 |87639.4 |115237.22 |

|2008 |22756.46 |9623.84 |32380.3 |91367.73 |18457.61 |109825.34 |142205.64 |

|Mean |13363.55 |5962.70 |19326.26 |38133.01 |9191.09 |47324.10 |66650.36 |

Source: Bangladesh Insurance Association

Table-5: Investment Made by Different Types of Insurance Companies in Bangladesh (in Million TK.)

|Year |Private |SBC |Total General |Private |JB C |Total life |Total |

| |General | | |life | | |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

Total investment of the insurance companies in 1999 was Tk.14433.57 million and that figure rose to Tk.90412.92 million in the year 2008. The GDP share of insurance sector is increasing over the years. Table-2 also shows that during the last decade the average total investment of Bangladesh insurance companies about Tk.41218.50. million. Of this figure life insurance investment constituted Tk.32158.53 million and general insurance constituted Tk.9059.97 million (Table-5).

Insurance companies are major investors in shares, bonds, and loans and real estate in the country. Thus relating total investment by the insurance sector to GDP growth should be a major avenue for analyzing the insurance-growth 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 decided to allocate a sample of 2 branches to each of the insurance companies. Branches have been chosen as large, medium and small sizes in terms of their employees, customers, premium income etc. From each branch, branch manager, and an executive officer have been selected for the purpose. So, 2 insurance officers from each branch of the sample insurance companies have been interviewed. The total number of 80 insurance officials taking 4 from each selected insurance companies has been considered for collecting data. Again, 5 policyholders have been selected from each branch. To this end, first of all, a list of customers has been collected from all selected branches. Simple random sampling method has been used for selecting respondents. Thus, a total number of 200 respondents have been selected for collecting primary data. Our selected study areas are concentrated in Dhaka and Chittagong purposively. 20 academicians, policy-makers and insurance experts are also selected purposively from Dhaka and Chittagong for collecting information related to primary data.

Secondary data relevant to this study have been collected from available publications including different text books, journals, magazines, websites etc. Data relating to the insurance of Bangladesh Insurance Association (BIA), Ministry of Finance, Bangladesh Planning Commission, IMF Reports, World Bank Reports, Economic Survey of Bangladesh, Statistical Pocket Book, Annual Reports of the sample insurance companies under study period etc. have been consulted for the theoretical development of the study.

The data and information thus collected have been processed manually as well as through personal computer. Statistical tools, namely, average; percentage, 5-point Likert- type-scale, rank etc. have been used in the study. The data and results of the study have been analyzed critically in order to make the study more informative, useful and acceptable to the readers, academicians, policymakers, and those people who are devoted to the development of insurance industry in Bangladesh.

5. Findings and Analysis:

The major findings of the study and their analyses have been summarized below:

5.1. Demographic Profile and Insurance Types Preference

In the questionnaire, there was a section concerning respondents’ profile to get

a general idea about the respondents’ age, education, designation, as various factors might also influence their perception. A profile of respondents’ is presented in Table 6.

Table 6: Demographic Information and Preferred Insurance Companies by of the Respondent

|N = 300 | |Frequency |Percentage |

|Gender |Male |285 |95% |

| |Female |15 |5% |

|Age |Below -30 |21 |7% |

| |30-45 |168 |56% |

| |45-60 |111 |37% |

|Marital Status |Single |39 |13% |

| |Married |261 |87% |

|Working Status |Business |60 |20% |

| |Jobholders |240 |80% |

|Education |Graduation |33 |11% |

| |Post graduation |267 |89% |

|Types of Insurance Company |Public |2 |10% |

| |Private: |18 |90% |

| |(a) Local |17 |85% |

| |(b) Foreign |1 |5% |

Source: Field investigation

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 Company |Factors Influencing Buying Policies |

|Factors |Mean |Rank |Factors |Mean |Rank |

|Motivated by family ∕friends ∕ relatives|3.10 |5 |Providing financial benefits to |3.83 |3 |

| | | |dependents | | |

|Regulation of the government |2.74 |7 |Pension benefits and retirement Capital |3.60 |5 |

|Reputation of the company |3.73 |3 |Future savings for uncertainty in future|3.58 |6 |

|Low service processing cost |2.67 |8 |Meeting expenditure of marriage |2.43 |9 |

| | | |ceremonial program | | |

|Influence of the sales people |3.93 |2 | Meeting the expenditure of children |2.28 |10 |

| | | |education | | |

|No other options available |2.62 |9 |For execution of future plan |2.80 |8 |

|Higher return on investment |2.79 |6 |High return on investment |3.15 |7 |

|Reference by workplace |3.31 |4 |Life security and accidental loss |3.67 |4 |

| | | |coverage | | |

|Political and legal situations |2.17 | 10 |Buying policy for legal requirements |3.92 |2 |

|Risk coverage and future savings |3.99 |1 |Risk coverage and future savings |4.33 |1 |

Source: Field Survey.

5. 3: Managing and Measuring Risk by Insurance Companies

Table-8: Risk Faced, Managing Techniques and Measuring Risk by Sample Companies

|Risk Faced by Insurance Company |Techniques for Managing |Measuring of risk |

|Pattern of Risk |No of |Techniques |No of |Tools of |No of |

| |Respondents (in | |Respondents (in |Measurement |Respondents (in |

| |percent) | |Percent) | |Percent) |

|Credit risk |58% |Risk Avoidance |18% |Credit Rating |30% |

|Liquidity risk |61% |Risk Transfer |100% |Gap Analysis |3% |

|Interest risk |12% |Risk Reduction |27% |Duration Analysis |3% |

|Commercial risk |67% |Risk Retention |76% |Maturity Matching |3% |

|Legal risk |12% |Hedging |9% |Earning at Risk |27% |

|Insolvency risk |6% |Others |0% |Value at Risk |73% |

|Political risk |79% | | |Simulation | |

|Country risk |3% | | |Estimates of Worst|3% |

| | | | |Case | |

|Technological/operational risk|55% | | |Risk Adjusted |9% |

| | | | |Return on Capital | |

|Foreign exchange risk |21% | | | | |

|Off balance sheet risk | 0% | | | | |

|Others |3% | | | | |

Source: Field investigation.

(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 political, commercial, liquidity and credit risk respectively. 55% of Sample companies faced technological risk.

It is noted that there were two sections in the Questionnaire about Management and Measurement of risk to get an idea about how insurance companies managed risk and what techniques were used. The risk Management factors and Measurement tools used by Sample companies are presented in Table 8.

5.4: R& D Scenario and Training Arrangement by the Insurance Companies

To create an environment of growth, a sound policy of training and manpower development is essential in any insurance company. An insurance company needs to formulate policies of recruitment, remuneration, compensation, and grievance handling mechanism. In the questionnaire, there was a section concerning respondents’ Arrangement of Training program to have an idea about the respondents’ working skill, efficiency, adaptation with the working environment, as various factors might also influence their perception. Various training programs of respondents are presented in Table 9.

Any improvement and innovation can be possible only with proper research and development practices. Research helps any product maintain and improve the quality of the existing one. It brings out the weakness of the existing product, if any. At the same time, new products can also be developed with the help of research. The Japanese have embraced research and achieved success. The success of the Japanese lies in the principle “Be Better, Not Behind. If not better, be different. Being better means having better or at least equivalent products. Being different means finding a niche that is out of the main stream of competition”

Table- 9: Arrangement of Training for Employees and R&D Scenario in Insurance Companies in Bangladesh

|Arrangement of Training for Employees |R&D Scenario in Insurance Companies |

|Programs |No of Respondents (in |Queries |Response |

| |percent) | | |

|Case Method | 0% | |Yes |No |

|Seminar |76% |R &D exists |15% |85% |

|Special Course |73% |Investment |18% |82% |

|Workshop |85% |Having any Marketing |15% |85% |

| | |Research | | |

|Job orientation |24% |Product Innovation |18% |82% |

|Job rotation |6% | | | |

|Understudy method |0% | | | |

|Others |0% | | | |

Source: Field investigation.

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 |

Source: Field Survey.

Table-10 shows reasons of non-popularity of the insurance sector in Bangladesh. The responses from the respondents have been ranked with the help of Likert scale. The study reveals that ‘Lack of trustworthiness’ and ‘Lack of awareness’ have the highest same mean and ranked 1st followed by ‘Delaying in claim settlement’ as ranked 2nd. The study reveals that the insurance industry should take proper action to create awareness development and enhancing faith among the people. These two initiative actions are the crying need to expand the development of insurance products in Bangladesh. It also indicates that complexity, lengthy procedure and delaying in claim settlement are responsible for not popularizing the insurance industry in Bangladesh. ‘Lack of product diversification’, ‘Low income of the people’, and ‘Lack of attractive offerings’ are considered as ranked third. This implies 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.

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: 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. This is not only destroying the reputation of the insurance companies but also creates negative impact in the mind of the people about insurance. This problem has been mentioned by 80.80% respondents of the study.

Legal Complexity: The current Insurance Act is lacking in several aspects of determining margins of solvency, investment of funds, accounting standard, morality table and protection of the interest of the insured. This problem is identified by 80% people of the study. To take an insurance policy there is a lengthy procedure and so many complexities are faced by the insured person. Therefore, the people are discouraged to take insurance policy because they think that the complexities will create extra pressure on their mind, which may hamper regular activities.

Lack of Qualified Officials: Insurance companies perform their activities by recruiting marketing agents. They try to convince the people to take a policy. Most of the agents are not properly trained and they do not know the right process to catch potential policy holders. 68% of people opined in the study that the insurance companies lack in efficient workforce. Therefore, these field level agents are unable to fulfill their target.

Lack of Training for the Employees: Spread of insurance business in Bangladesh failed for lack of proper training of the employees, especially the field employees of insurance companies. Still there is not enough training centers to provide proper training regarding insurance activities for the officials of insurance company. This problem is cited by 81% respondents of the study.

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 them to take insurance policy, but in Bangladesh insurance people seldom provide this service.

Lack of Marketing Policy: One of the major problems in an insurance company of this country is the lack of proper marketing policy. Management is not taking initiative to increase their marketing expansion. They spend tiny amount in advertisement, which is not sufficient for increasing business development.

Lack of Information: Lack of information about the insurance policies to the potential insured is a problem for making decision to buy insurance policies. They are not aware of the benefits of insurance policies. The insurance companies do not have adequate arrangement to make the people understand about different policies, opportunities, benefits etc. This opinion is shared by 78.4% respondents of the study. The accurate and sufficient information does not reach the public doors. The government, too, did not still constitute any institutional information cell to educate the people or provide prompt information in this regard.

Delaying in Claim Settlement: Insurance companies suffer from the poor public image due to their failure to properly settle customers’ claims in time. There is an uncertainty about getting insurance claims after the maturity of the policy. 83.40% customer of insurance industry had opined that insurance companies made delay in claim settlement. This problem makes insurance business unpopular to the people.

Customs of Commission: Practice of commission is the main motivational factor used to make sales of insurance product. It is being badly practiced in the insurance market for which insurance companies are involved in unhealthy competition. They are offering very high commission rate even 55 to 60 percent of premium received to procure the business even if that violates the Insurance Act. It erodes the potential profitability and risk coverage.

Absence of Research and Development Cell: A systematic organization requires an effective research and development cell. It is very conducive to diagnose industry sickness and analyze the problems. It is a process of creating, building, improving, adopting and bettering, but the present study finds that 88.80% of insurance companies have no research activity.

Poor Risk Management: Most of the sample insurance companies have used traditional methods in evaluating comprehensive risk. The shortage of skilled and experienced professionals in the insurance companies has the consequence that most of sample enterprises are unable to underwrite and manage their risks on a scientific basis. They underwrite and retain risks indiscriminately without considering what results they may subsequently face. Lack of professional knowledge misguides these companies with regard to risk assessing, claim handling, and risk managing, consequently weakening their financial strengths.

Constrained Investment: Zonal and local branches of insurance company do only premium collection activity and have no authority to invest the fund as per their choice. As a result, the insurance industry in the unit level is not becoming a potential and ideal sector as the banking sector. A part of the funds of the insurance sector is kept in the form of Fixed Deposit Receipt (FDR) in different banks, which is mandatory. If these funds were invested in tangible assets of land, building, machinery and manufacturing projects, that would make the investment more profitable.

Lack of Product Diversifications: Insurance companies usually offer some common and traditional products. Generally, customers always demand innovative products. The study finds that the insurance market was not exploring product diversification. The problem is observed by 69.40 % of the respondents. The pattern of risk is always changing and ever-increasing. The insurance market demands new products to cover the risk arising from changing and growing needs of society.

Tax Constraints: Insurance officials say that the high corporate tax restricts the growth of the insurance sector. Now the insurance companies pay a corporate tax rate of 42.5 percent which is higher than in other countries.

Reinsurance: At present the insurance law requires that all general insurance companies must compulsorily place 50% of their reinsurance with SBC and the balance 50% is optional, which can be placed either with SBC or other re-insurers at home or abroad. It is on record that most of the private general insurance companies obtain their reinsurance from SBC. Historically, due to its monopolistic position SBC was a direct insurer under writing both public and private sector insurance business. However, after 1985 the position gradually changed, and, as it stands now, SBC has become by and large a reinsurance company. An analysis of SBC’s Annual Account reveals that 75% of their premium income is derived by way of reinsurance cession from private insurance companies, 20% from public sector business, and 5% from private sector insurance business directly (Roy, 2008). It is found that there is an inherent clash of interest between the role of an insurer and a re-insurer. A reinsurance company cannot and should not compete with its own reinsuring clients in respect of direct insurance business. Though SBC has come to play the role of a re-insurer in Bangladesh, its services have continuously 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. 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 additional risk and to meet the new tastes of entrepreneur. There is considerable scope of developing new product and service in insurance sector to cover all sectors of our economy. In our study, some insurance companies are being advancing in product modification and attempt to introduce new products. This action of generating new product and service will considerably expand the demand for insurance products.

Service Diversification: Insurance is not just a tool of risk coverage. It is also an attractive instrument of savings. The combination of risk coverage with savings gives the opportunity for innovative product designing which means service diversification. So far very little efforts have been taken to innovate and introduce need oriented insurance services in response to existing threats. The prospect of the insurance business in agriculture and business sectors appears bright, as described blow:

Agriculture Sector: The economy of Bangladesh is predominantly agrarian, with most people engaged in farming and fishing. The uncertainty of agriculture due to crop failure is caused by climate variation, drought, cyclone, and flood and pests, which affect farmer income as well as government revenue. Furthermore, in the last few years commercialization has occurred in some sections of the agricultural sector. Increasing investment in the agricultural sector is creating a new opportunity for the 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 an important role in the economic development. But they are deprived from taking loans from bank for a large amount. If insurance business focuses this service in Bangladesh they will able to contribute more in the economy. Thus, insurance business has a bright prospect in business sector in Bangladesh.

8. Suggestions for Policy Implications:

The concerned policy makers of insurance sector should adopt the following measures in order to make the best use of the opportunities and to tackle the threats for ensuring the growth and development of the insurance industry in Bangladesh.

Regain Popularity with Appropriate Marketing Strategy: To regain and maintain a positive public image, the insurance companies should practice appropriate marketing strategy and provide better service to its customers. To create people awareness, insurance companies should also arrange on regular basis seminar, symposium, road show etc in different parts of the country.

Product Innovation: Insurance Companies should diversify their product. They should introduce new products to satisfy customers’ needs.

Developing Professional Code of Ethics: Insurance companies should try to develop professional ethics among its personnel. Government should have a regulatory body for the surveillance on insurance companies so that they must perform their business maintaining the ethical issues properly

Establishment of R&D Cell: In response to the opportunities of growing market, the insurance companies should expand their market by identifying and providing responsive services. In order to do so each company should establish an effective research and development cell.

Arrangement of Training Programs: Relevant authorities in collaboration with supportive agencies should provide training to the insurance related personnel for improving the insurance business in the country. Bangladesh Insurance Academy (BIA) should arrange training programme on regular basis. The syllabus, curriculum and training programs of the academy need to be modified to meet the future challenges of the insurance industry.

Investment: The collected premium should be invested in large and beneficial sectors so that insurance companies can return their clients the expected gain timely. In this respect, they should progressively come forward to invest heavily in profitable earning sectors such as real estate, health, education, leasing, share market and other money markets.

Pricing Policy: The pricing policy should be flexible so that the companies can exercise some autonomy. The government should allow the insurance companies to quote different premium rates according to their requirement that will help to increase the profitability of the insurance companies.

Monitoring: The office of the Controller of Insurance should be strengthened with expert professional people aiming at efficient handling of the affairs of the insurance companies.

Legal Reforms: Existing insurance laws should be improved incorporating upcoming challenges of the insurance industry. The existing provisions allow the only two public sector insurance companies to do all government insurance business. Also, according to current insurance rules only these two public sector insurance companies can do reinsurance business. This restriction need to be withdrawn so that the private insurance companies can do reinsurance business. This would help to save foreign exchange outflows, create new technical job opportunities, open up scope for innovations which are important to build confidence in the market.

Recruitment Strategies: Insurance companies need to modify their recruitment strategies with increased focus on the marketing and sales training because insurance being a service industry it requires a special attention. Insurance companies should recruit youths who are trainable and developable.

Claim Settlement: Claim settlement procedure should be made easy, transparent and improved by the insurance companies.

Removing Multi-tier Fake Agents: Unnecessary multi-tier organizational set up should be replaced by one tier. This is essential for reducing the management expenses. Fake agents or dummy agents who indulge in malpractices should be eliminated and selection of agents should be unbiased. Appointment of too many agents in particular area should be stopped. Full time agency should be encouraged and part-time agency should be discouraged.

Reducing Excessive Management Expense: Management should take remedial measures to reduce expenses to a more acceptable and controllable level. An insurance company having high expense ratio should not allow the present high management expense and should do possible everything to reduce it to about 20% to 30% of total premium income within the shortest span of time. Management expense growth over the future years should be at least 10% lower to premium growth rate. This can be ensured by reducing the present supervisory tiers.

Reinsurance: A reinsurance company cannot and should not compete with its own reinsuring clients in respect of direct insurance business. In both India and Pakistan, the state-owned reinsurance companies, namely, ‘General Insurance Corporation of India’ and ‘Pakistan Re-insurance Company Ltd.’, operate strictly as a re-insurer and they do not underwrite direct insurance business. Therefore, it is most desirable that SBC should restrict its activities to either as a direct insurer or a re-insurer but not both simultaneously.

9. Conclusion:

Insurance sector in Bangladesh is contributing to the growth and development process of the business and property by protecting all variety of assets from all types of hazards. However, the size of the insurance industry in Bangladesh is small but over-institutionalized. Only by achieving competitiveness, this sector can contribute more to the development of the economy of the country. In spite of all constraints both at macro and micro environment, good growth rate and tremendous growth potential reconfirm the brightest prospects of the insurance sector in Bangladesh. If insurance sector can be developed at optimum level by eliminating the problems identified in the study, it is expected that it will continue to march forward at an accelerated speed and bring economic benefits to the economy.

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