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Insurance in Bangladesh - its Growth, Problems & Solution

n Insurance is a risk bearing organization. By receiving premium it takes the risk of thousands/crores of industries, godowns, shops, financial institutions money insurance, and various liabilities insurance, vehicle insurance and of life insurance in a various formation (Endowment, Three Plan, DPS etc.). But due to over expenditure in procurement of business and also the increase of other management expenditure insurance companies cannot meet the losses in time due to lack of sufficient fund. n Insurance is a highly regulated sector in worldwide. In our country the Insurance Development & Regulatory Authority (IDRA) started its function from January 26, 2011. From the very inception IDRA had to face an uphill task to enforce discipline in the market. IDRA formed vigilance teams to inspect different branches of insurance companies and any violation detected was severely punished through enforcement of heavy monetary penalties. Especially in the non-life sector for documents issued without receiving money and over commission as set by the Authority.

n Insurance is a risk bearing organization. By receiving premium it takes the risk of thousands/crores of industries, godowns, shops, financial institutions money insurance, and various liabilities insurance, vehicle insurance and of life insurance in a various formation (Endowment, Three Plan, DPS etc.). But due to over expenditure in procurement of business and also the increase of other management expenditure insurance companies cannot meet the losses in time due to lack of sufficient fund. n Insurance is a highly regulated sector in worldwide. In our country the Insurance Development & Regulatory Authority (IDRA) started its function from January 26, 2011. From the very inception IDRA had to face an uphill task to enforce discipline in the market. IDRA formed vigilance teams to inspect different branches of insurance companies and any violation detected was severely punished through enforcement of heavy monetary penalties. Especially in the non-life sector for documents issued without receiving money and over commission as set by the Authority.
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19th-Nov-2017       
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Mir Nazim Uddin Ahmed :
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. 10 insurance companies had their head office 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 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 originations 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 Jibon Bima Corporation, and Surma Bima Corporation. The Jatiya Bima Corporation was an apex corporation only to supervise and control the activities of the other insurance corporations, which were responsible for underwriting. 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. Rupsa and Surma for life insurance and Tista and Karnafuli Bima Corporations were for general insurance.
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 (JBC) 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 were emerged as Bangladesh Government allowed the private sector to conduct business in all areas if 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 19 companies, came into operations now between 1999 to 2001 and recent 2013 in new 02 companies joined in operation. The general insurance market in Bangladesh consists of 45 private sector insurance companies and 1 state owned insurance company and of life insurance companies to 31 including Jiban Bima Corporation and one foreign company American life company (now MetLife) which has been operating since 1972.
No market is a market without competition. A Competitive Market to foster insensitiveness, adaptability and flexibility to provide new coverage and protection for new developing industries, the financial resource and the financial stability provide the growth of an insurance company. A good number of quality and experienced people can help to develop the industry with flair and integrity.
Insurance is a risk bearing organization. By receiving premium it takes the risk of thousands/crores of industries, godowns, shops, financial institutions money insurance, and various liabilities insurance, vehicle insurance and of life insurance in a various formation (Endowment, Three Plan, DPS etc.). But due to over expenditure in procurement of business and also the increase of other management expenditure insurance companies cannot meet the losses in time due to lack of sufficient fund.
Nowadays a method of undercut rate is already started in the industry. This type of (undercut) price can reduce the premium of insurance companies and also Government loses the tax and vat which ultimately hamper the Government revenue earnings.
Experts are of the opinion that too many insurance companies are operating in a small market of Bangladesh causing most unhealthy competition. In market there must be competition and it should be ethical, but in our insurance market it is highly in ethical and imbalance. Only Insurance Development and Regulatory Authority can improve the situation by providing modernize rules and regulations to bring discipline in the sector, for the interest of the insurance industry.
To build up relation with public is very important. Practical experience and positive thinking can help to furnish/polish the end result. In our country a great number of people believe that insurance business is nothing but cheating and selling papers only. This negative attitude from the people is lessening the importance of absorbing insurance policy in a large extent and advertisement need to different distribution channels (TV and Print Media) for removes of this negative attitude from the peoples mind.
Education can play a vital role in service oriented organizations. An educated man can express the idea of thinking, convince people and motivate them by his positive activities. Without education no one can sell the new and modern conceptual product. If sale force is not equipped no insurance company can take risk to innovative new policy because of huge amount is involve in innovation.  Presently insurance market by the grace of IT technology everybody wants service promptly. This technical knows how personnel are very important to an organization. Those who have this type of knowledge can do better than the other.
Financial strength of an insurance company depends on earning i.e. number of policies sale in different segment and the expenditure incurred against it. Nowadays it is very difficult to make profit after adjustment of procurement cost and others calls management expenses. On the other hand investment return from FDR and Sanchaipatro is going through a downward trend and also the Share Market situation is not stable.
In developed countries on government securities are made favourable compared to other kinds of securities through the interplay of market forces of demand and supply. So, the insurance companies are attracted to invest in government securities helping the government to undertake expenditure with these funds without resorting to increase deficit financing.
A healthy insurance market must have a base and growing volume of business. In our present market, only a few types of general insurance businesses (schemes of insurance) are underwritten, mostly on compulsion basis. A vast field of private property remains outside insurance protection. No doubt the volume of business has increased to some extent, but the schemes of insurance are restricted a few types viz, a few schemes under fire, marine, motor and accident insurance business are in practice. Many insurance schemes like Householder's policy, locker insurance, jeweler's block policies, loss of profit or consequential loss policy, employers liability, public liability, product liability, professional indemnity, Machinery Break Down, Deterioration of Stock, Hotel Owner insurance, Industrial all risk, Contractor's all risks, plate glass insurance, crop insurance, credit insurance, livestock insurance, Money insurance, ATM booth insurance and many other non-traditional schemes of insurance are hardly underwritten in the private sector. Of course, the financial strength and lack of specialized knowledge of the new and smaller companies don't permit them to underwrite such risks. Even bigger companies are often shy of underwriting such risks. But for the sake of growing market more and more risks should be covered to minimize the loss. People should be persuaded and educated to buy new types of insurance products. Unless this is done, the companies will involve themselves in unfair competition in a limited market for procuring the same business.
Same is the case with life insurance. Life products are also restricted to a few traditional schemes. Various innovative products can be developed to cover different needs viz, accidents, medical needs, education/marriage of children, retirement benefits and other needs of human beings from cradle to death. But presently the life companies can't satisfy these needs satisfactorily rather they concentrate on a few products like endowment scheme, three/five stage policy and pension policy, etc. Although micro-insurance has brought about a tremendous improvement in the selling of life insurance policies but it has also given rise to many anomalies, viz, undercut of rate, high lapse ratio, misappropriation of fund etc.
Recent days it is thus obvious that insurance market in the country is not expanding and has of late come to a stagnant position. This view of supported by business statistics of the insurance industry. It is also mentioned that political instability also one of the reason for negative indication.
Insurance company diversifies the risk by re-insurance to Sadharan Bima Corporation/Jiban Bima Corporation 100% or other foreign countries as per law of the land 50% and rest 50% to two Corporations (SBC/JBC). Those who are reinsured with the foreign company they influence the market by giving low price and others suffer and lose their business. In a little market this type of discrimination can hamper the growth of those companies who are not ready to reinsured other than the local reinsurer.
In case of any loss or damages foreign reinsurer are very much active to settle it at highest priorities. On the other hand our local reinsurer asks lot of queries and hampers the flow of private company's activity. To satisfy the clients' private company pays the insured claim in time and waits years for settlement of claims by the local reinsurer.
Local reinsurer also imposes various barriers to private company in terms of reinsurance commission, loss participation clause, sliding scale, profit commission etc.
Insurance business runs with the help of Agent. In life insurance no one can procure business except agent. They officially recognized and get proper training from own office and others institutions. Agents are earning by using license. On the other hand non-life insurance is selling their product by development personnel who are the company's permanent employee and getting all facilities available in the market. No agents procure business of non-life insurance. For realizing commission as per law they nominated agents who are there relatives or family member or the person hire for banking transaction by paying some percentage to him/her. By this situation agent employment of non-life insurance need to stop and accordingly amendment of law required and to recognition and development need of Officers/Executives in same formation/hierarchy in every company. For the sake of industry Insurance Development and Regulatory Authority can apply their expertise and if need gets opinion from insurance expert to solve the problem.
Managing Director and Chief Executive Officer are appointed in a notify rules. The rules indicate the procedure, qualification, experience and others terms. Sometimes we see somewhere it's violated which makes it questionable.
In Managing Director and CEO, notify rules all foreign insurance degree are recommended and recognized but our local degree in insurance i.e. BIA Diploma is not recognized, it should be included otherwise, and no one is interested to acquire this type of degree from Bangladesh Insurance Academy.
Branch opening process is not so easy. Branches are the main source of earning premium of an insurance company. Before open a branch insurance companies select personnel, rent a office, connect land phone & internet, after arranging these they are to submit proposal to IDRA by a pay order/demand draft of Tk.50,000/= (fifty thousand) only. After long time observation IDRA denied to give permission of the branch due to some illogic reason, by this time companies paying office rent and other utilities charges. Companies' loss lot of money for this purpose which ultimately affect the Management expenses. If insurance companies does not earn premium in what way they pay the IDRA dues and penalties due to non IPO in market.
Maximum companies are not regular in IPO due to the Act 2010, to increase/raise the Paid up Capital from 6 crore/9 crore to 30 crore/40 crore it is a reality. This should be taken into consideration by the Authority.
It may be mentioned that the Insurance Development and Regulatory Authority Act, 2010 has emphasized on training and holding of seminars and workshops etc. Bangladesh Insurance Academy was established mainly to train insurance employees. Academy is usually conducting training programs time to time but the response from the insurance companies is very poor. They are shy to spend money to train their employees.
On the other hand IDRA notification, our local degree in insurance i.e. BIA is not recognized and it is not treated as experience. Those who are acquired that type of degree companies are not also upgraded them in service. Other reason is Insurance Academy is far from the work place of companies and communication is also time consuming.
Of late a few private training institutes have also started training programs for the insurance personnel. Insurance Association, Dhaka University has opened a faculty viz Banking and Insurance Department. The program of this institute should be upgraded as per modern requirement.    
Insurance is a highly regulated sector in worldwide. In our country the Insurance Development & Regulatory Authority (IDRA) started its function from January 26, 2011. From the very inception IDRA had to face an uphill task to enforce discipline in the market. IDRA formed vigilance teams to inspect different branches of insurance companies and any violation detected was severely punished through enforcement of heavy monetary penalties. Especially in the non-life sector for documents issued without receiving money and over commission as set by the Authority.
IDRA has been working on making rules and regulation for the insurance industry. The Chairman and Member of IDRA are interrelated with IDRA Act. They are working since formation and now they are working for implementation of Insurance Act, 2010. They are very much experienced and educated in their line on the other hand they work in the initial stage of preparing Insurance Act, 2010, so expectation from them is in highest level to the insurance industry.   

(Mir Nazim Uddin Ahmed Writer:  Managing Director & CEO, Islami Commercial Insurance Co. Ltd.)

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