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
* Professor, Finance and Banking, University of Chittagong.
**Assistant Professor, International Islami University Chittagong.
56
Insurance Industry in Bangladesh: ……………..
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 undercapitalized; 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
Thoughts on Economics
57
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 nongovernment 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
Insurance Industry in Bangladesh: ……………..
58
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$1779 billion.
The industry’s paid-up capital shrank by 15-20 percent in non-life and 30-40 percent
in life. Life premiums declined by 3.5 percent, largely in the second half of the year
as a direct consequence of the financial crisis. Non-life premiums declined marginally
by 0.8 percent in 2008 due to lower demand for insurance cover and softening
premium rates. However, emerging markets grew at an impressive rate of 13.1% for
life and 10.2% for non-life insurance. The Chinese market registered a growth of
30.3% for life and 31.5% for non-life. The Indian life and non-life insurance markets
accelerated with an unprecedented growth rate of 36% and 26% respectively.
Table-1: Comparison of Asian Countries
Insurance Penetration: Premiums as % of GDP
2008
Country
Rank
Total Business Life
India
31
4.6
4.0
Malaysia
33
4.3
2.8
China
43
3.3
2.2
Sri Lanka
71
1.4
0.6
Philippines
73
1.4
0.9
Indonesia
75
1.3
0.9
Iran
78
1.1
0.1
Bangladesh
80
0.9
0.7
Pakistan
83
0.8
0.3
Saudi
85
0.6
0.0
Arabia
General
0.6
1.5
1.1
0.8
0.5
0.4
1.0
0.2
0.5
0.6
Premium Volume
(million US$)
Rank
2008
14
56,190
34
9,335
6
140,818
78
623
54
2,299
39
6,903
47
4,243
75
717
63
1,133
50
3,070
Share of World
Market (%)
2007
2008
57,782
1.32
8,633
0.22
92,483
3.30
469
0.01
2,105
0.05
6,983
0.16
3,645
0.10
617
0.02
1,094
0.03
2,290
0.07
Source: Sigma 03/2009, World Insurance in 2008.
Reflecting the rapid growth of the national economy, Bangladesh insurance (both life
and general) market continues to make steady growth both in depth and dimension
despite reduction in business activities due to global recession coupled with drastic
fall in commodity prices. The premium income of all types of insurance companies in
Thoughts on Economics
59
1999 was Tk.9492.60 million and went up to Tk.51635.60 million in 2008 (Table-2).
43 general private insurance companies and one state owned corporation earned
premium around Tk.12583 million in 2008, an increase of 18.12% from Tk.10653
million in 2007. The 17 private life insurers and one state owned life corporation
earned premium amounting to Tk.39053 million in 2008, an increase of 22% from
Tk.31815 million in 2007. Table-2 also shows that during the last decade the average
net premium of Bangladesh insurance companies was about Tk.24811.49 million. Of
this figure life insurance premiums constituted Tk.17685.12 million and general
insurance constituted Tk.7126.37 million (Table -3).
Table-2: Total Asset, Total Investment, and Gross Premium of Insurance
Companies and National GDP of Bangladesh (in Million TK.)
Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Mean
Total Asset
28059.11
27949.27
37596.44
42999.63
50095.13
59896.28
73411.27
89053.63
115237.22
142205.64
66650.36
Total Premium Income
9492.60
11222.61
13260.73
15391.73
18406.35
21918.96
28462.49
35825.78
42498.07
51635.60
24811.49
Total Investment
14433.57
15454.01
22839.57
26861.83
29444.63
40913.73
47836.28
58894.63
65093.86
90412.92
41218.50
GDP
2370900
2535500
2732000
3005800
3329700
3707100
4157300
4724800
5458200
6149400
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
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Mean
Private
General
3239.07
3645.50
4101.97
4506.86
5111.57
6003.72
7129.40
7971.61
9417.32
11163.93
6229.10
SBC
616.87
617.40
759.10
818.63
766.61
778.65
886.13
1044.54
1265.82
1418.99
897.27
Total
General
3855.94
4262.9
4861.07
5325.49
5878.18
6782.37
8015.53
9016.15
10683.14
12582.92
7126.37
Total life
Private life
4017.17
5109.90
6435.59
8274.27
10589.55
13358.76
18410.45
24576.11
29165.1
35974.52
15591.14
JBC
1619.49
1849.81
1964.07
1791.97
1938.62
1777.83
2036.51
2233.52
2649.83
3078.16
2093.98
5636.66
6959.71
8399.66
10066.24
12528.17
15136.59
20446.96
26809.63
31814.93
39052.68
17685.12
Gross
Premium
9492.60
11222.61
13260.73
15391.73
18406.35
21918.96
28462.49
35825.78
42498.07
51635.60
24811.49
Source: Bangladesh Insurance Association
The total asset of insurance companies in 1999 was Tk.28059.1 million and went up
to Tk.142205.64 million in 2008 (Table-2). Table-2 also shows that during the last
decade the average total asset of Bangladesh insurance companies about Tk.66650.36
Insurance Industry in Bangladesh: ……………..
60
million. Of this figure life insurance assets constituted Tk.47324.10 million and
general insurance constituted Tk.19326.26 million (Table-4). The aggregate total
assets at the end of 2008 were about 5 times those in 1999.
Table-4: Assets by Different Types of Insurance Companies in Bangladesh (in
Million TK.)
Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Mean
Private
General
7848.59
9178.11
9868.34
10326.73
11145.68
12666.70
14199.72
15815.53
19829.68
22756.46
13363.55
SBC
5353.20
526.81
5671.88
5663.33
5942.04
6359.72
6051.90
6666.18
7768.14
9623.84
5962.70
Total
General
13201.79
9704.92
15540.22
15990.06
17087.72
19026.42
20251.62
22481.71
27597.82
32380.3
19326.26
Private
life
9935.37
12629.27
15868.87
20318.93
25599.95
32821.21
44248.51
56888.88
71651.40
91367.73
38133.01
JBC
4921.95
5615.08
6187.35
6690.64
7407.46
8048.65
8911.14
9683.04
15988.00
18457.61
9191.09
Total
life
14857.32
18244.35
22056.22
27009.57
33007.41
40869.86
53159.65
66571.92
87639.4
109825.34
47324.10
Total
Asset
28059.11
27949.27
37596.44
42999.63
50095.13
59896.28
73411.27
89053.63
115237.22
142205.64
66650.36
Source: Bangladesh Insurance Association
Table-5: Investment Made by Different Types of Insurance Companies in
Bangladesh (in Million TK.)
Year
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Mean
Private
General
2239.23
3194.84
3655.25
4488.33
5100.14
5667.79
6611.11
7220.89
8571.40
11132.41
5788.14
SBC
2776.50
330.49
3376.69
3067.32
1199.14
5667.79
3819.59
4008.05
4141.07
4331.71
3271.84
Total
General
5015.73
3525.33
7031.94
7555.65
6299.28
11335.58
10430.7
11228.94
12712.47
15464.12
9059.97
Private
life
5868.13
7935.30
11233.09
14288.95
18300.78
24088.95
30568.74
40078.89
43997.75
67151.19
26351.18
JB C
Total life
3549.71
3993.38
4574.54
5017.23
4844.57
5489.20
6836.84
7586.80
8383.64
7797.61
5807.35
9417.84
11928.68
15807.63
19306.18
23145.35
29578.15
37405.58
47665.69
52381.39
74948.8
32158.53
Total
Investment
14433.57
15454.01
22839.57
26861.83
29444.63
40913.73
47836.28
58894.63
65093.86
90412.92
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
Thoughts on Economics
61
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
62
Insurance Industry in Bangladesh: ……………..
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.
Thoughts on Economics
63
Table 6: Demographic Information and Preferred Insurance Companies by of the
Respondent
N = 300
Gender
Age
Marital Status
Working Status
Education
Types of Insurance
Company
Male
Female
Below -30
30-45
45-60
Single
Married
Business
Jobholders
Graduation
Post graduation
Public
Private:
(a) Local
(b) Foreign
Frequency
285
15
21
168
111
39
261
60
240
33
267
2
18
17
1
Percentage
95%
5%
7%
56%
37%
13%
87%
20%
80%
11%
89%
10%
90%
85%
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
Mean Rank
Motivated by family ∕friends ∕ 3.10
5
relatives
2.74
Regulation of the government
7
Factors Influencing Buying Policies
Factors
Providing financial benefits to
dependents
Pension benefits and retirement
Capital
Mean
3.83
3.60
Rank
3
5
Insurance Industry in Bangladesh: ……………..
64
Influence of the sales people
3.93
2
No other options available
2.62
9
Future savings for uncertainty in
future
Meeting expenditure of marriage
ceremonial program
Meeting the expenditure of
children education
For execution of future plan
Higher return on investment
2.79
6
High return on investment
Reference by workplace
3.31
4
Political and legal situations
2.17
10
Risk coverage and future savings
3.99
1
Life security and accidental loss
coverage
Buying
policy
for
legal
requirements
Risk coverage and future savings
Reputation of the company
Low service processing cost
3.73
2.67
3
8
3.58
6
2.43
9
2.28
10
2.80
8
3.15
7
3.67
4
3.92
2
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
Pattern of Risk
No of
Respondents
(in percent)
Credit risk
58%
Liquidity risk
61%
Interest risk
12%
Commercial risk
67%
Legal risk
12%
Insolvency risk
Political risk
Country risk
6%
79%
3%
Technological/operational
risk
55%
Foreign exchange risk
Off balance sheet risk
Others
21%
0%
3%
Techniques for Managing
Techniques
No of
Respondents
(in Percent)
Risk
18%
Avoidance
Risk
100%
Transfer
Risk
27%
Reduction
Risk
76%
Retention
Hedging
9%
Others
0%
Measuring of risk
Tools of
No of
Measurement Respondents
(in Percent)
Credit Rating
30%
Gap Analysis
3%
Duration
Analysis
Maturity
Matching
Earning at
Risk
Value at Risk
Simulation
Estimates of
Worst Case
Risk Adjusted
Return on
Capital
3%
3%
27%
73%
3%
9%
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
Thoughts on Economics
65
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
Programs
No of Respondents
(in percent)
Case Method
0%
Seminar
76%
Special Course
73%
Workshop
85%
Job orientation
Job rotation
Understudy method
Others
24%
6%
0%
0%
R&D Scenario in Insurance Companies
Queries
Response
R &D exists
Investment
Having any
Marketing Research
Product Innovation
Source: Field investigation.
Yes
15%
18%
15%
No
85%
82%
85%
18%
82%
Insurance Industry in Bangladesh: ……………..
66
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
Lack of government patronizing
Mean
4.04
Rank
Lack of strong legal frame work
4.00
6
Lack of separate regulatory body
3.10
11
Lack of trustworthiness
4.74
Lack of awareness
Low income of the people
4.68
1
2
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
Lack of updated system and technology
4.08
4
3.16
9
5
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’,
Thoughts on Economics
67
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.
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Insurance Industry in Bangladesh: ……………..
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 longrun.
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.
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69
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
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Insurance Industry in Bangladesh: ……………..
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
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71
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 reinsurers 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
72
Insurance Industry in Bangladesh: ……………..
deteriorated over the years, which has adversely affected the operation of the
private sector insurance companies.
7. Prospects of Insurance Business in Bangladesh:
There are many good signs for the insurance business in Bangladesh. The
factors that can facilitate the insurance business in our country are discussed
below.
Large Population: There is a big opportunity for the insurance companies as
the population of our country is increasing day by day. The growth of
population opens greater scope for every kind of insurance business.
Higher GDP: The GDP of our country is increasing which results in the
increase of per capita income. With the growth in the income more, people are
now willing to take an insurance policy for safeguarding themselves against
any danger.
Micro Insurance for Poor and Rural People: Insurance services need to be
redesigned to meet the needs of different classes of people. We should have
consistent product development to meet emerging needs of the poorer class
and the rural class. Distinctive product innovation relevant to indigenous
conditions of the poor and especially for the borrowers of micro-credit is the
need of the time. Micro insurance can be a great prospective area for the
insurance business in Bangladesh. Most of the people of the country are
unable to have costly and long term insurance policies. Micro insurance can be
provided to individual persons or to small business owners against low
insurance premiums and with easy terms and conditions. When people will
afford to minimize their risks at a lower price, more and more people will take
that opportunity. A huge portion of the society can thus be a prospective target
market for this business.
Investment Scope: Bangladesh has large scope of investment in trade,
commerce and industry. The insurance fund is now invested in government
bonds, ICB projects, marketable securities, and FDR which are not much
profitable. The private insurance companies are realizing this fact. There are
opportunities to enhance profit through effective and efficient money
management by employing capable and experienced personnel. There is scope
of investment expansion in the areas leasing, housing, health and money
market.
New Business’s Individual Insurance: There are so many new businesses
starting every day with a booming global demand. Every business is insured
under an insurance company to protect itself from any kind of accident.
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73
Therefore the growth of industry, mills, and factories is creating better scope
for the insurance companies to flourish their business.
Extent of Market: There is a great scope of facility to explore the insurance
market. The market is big but a large part of it is still unexplored. The
insurance sector should take step to introduce innovative and diversified
products to cover risk in the unexplored areas of the economy.
Government Aid: Government is the key player of all development. In order
to boost the growth of the insurance sector, the government should frame a
liberal tax policy, reform the legal structure and set up a strong regulatory
body. Since the government is liable to ensure the safety and security of
people, it can obligate the people to take policy in some cases and also attract
investors in this sector.
Developing Mass Awareness: People are now much more conscious about
their safety and security. Government and the industry can easily draw their
attention regarding the significance of insurance in their life so that they can
be encouraged to take an insurance policy for making their life free from any
unexpected situation. The increase in literacy rate is also helping to create
awareness among the people regarding taking insurance policy. Besides,
insurance companies are also trying to alter the negative attitude of people
towards insurance by organizing various programs such as seminars, programs
including social responsibilities etc.
Furnish Modern Services: The technology should be used in operating
system to reach services promptly to the customer. These comfortable and soft
services attract the customers and enhance the volume of sales. The insurance
sector till now does not use modern tools providing services. So the insurance
sector should introduce e-insurance, online insurance, e-mail, Web and ATM
booth that facilitate transactions in withdrawing their claim, depositing their
premium and knowing the balance sheet etc.
Strict Application of Rules and Regulations: Due to strict application of
rules and regulations, anarchy is prevailing in this sector. The regulations
should be aimed to reduce, not increase, the problems of the insured and to
protect them from any kind of deception. The Controller of Insurance should
closely monitor the insurance company’s functions and obligate them to
follow the current Insurance Act 2010. By enforcing law, this sector can come
back in a systematic manner.
Developing New Insurance Products: In course of time, there is a great
change in climate and atmosphere over the world that adds new pattern of risk
in trade and commerce. The insurance should add new products to cover the
74
Insurance Industry in Bangladesh: ……………..
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.
Thoughts on Economics
75
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.
76
Insurance Industry in Bangladesh: ……………..
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
Thoughts on Economics
77
expected that it will continue to march forward at an accelerated speed and
bring economic benefits to the economy.
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