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INDIA, Pakistan and subsequently Bangladesh inherited
Insurance Act, 1938. While India and Pakistan and even Srilanlka
have replaced and modernised this Act long before, it has long been
felt in Bangladesh that many provisions of the Insurance Act, 1938

require amendments to suit the modern development in the insurance

sector worldwide. Sporadic attempts were made and voices were
raised on different occasions but no tangible results were achieved
until a Committee was formed in 2005 headed by the Chief Controller
of Insurance. The committee consisted of experts on insurance-related
fields. After several deliberations it recommended appropriate
amendments to the present Insurance Act. Those recommendations
a) Establishment of Insurance Regulatory Authority in place of
Department of Insurance;
b) Draft Insurance Act;
c) Draft Takaful Act.
After thorough scrutiny, Government has promulgated two
ordinances-one relating to amendment of Insurance Act, 1938 for
regulating the insurance business and other concerning the power and
functions of the new Regulatory Authority replacing the erstwhile
Department of Insurance. The new laws have been made effective
following publication thereof in the form of a Gazette Notification,
dated October 13, 2008. Government has not approved the Draft
Takaful Act but incorporated a provision in the Insurance Ordinance,
2008, for regulating the Islamic insurance business in the country.
Now the salient features of the two Ordinances are discussed
a) Insurance Regulatory Authority (IRA) Ordinance -2008. In
Bangladesh, insurance business has since long been regulated by the
Department of Insurance, headed by the Chief Controller of Insurance
under the Ministry of Commerce. In modern world insurance, both
life and general, has attained significant development to suit the

changed scenario of life style, commerce and industry. Besides

establishment of a large number of private insurance companies in
Bangladesh during the last two decades (from 1985 until now) has
greatly widened the activities of the office of the Chief Controller of
But the Department of Insurance in its present form is incapable of
performing its assigned role due to lack of independence as well as
shortage of adequate manpower needed to deal with the delicacy and
technicalities of modern development in the international arena.
Therefore, the present practice worldwide is that the supervisory
authority should be independent to carry out its role of regulating the
activities of the insurers as well as developing a stable and efficient
insurance market. Although the structural arrangements for the
supervision of insurance vary from country to country, yet the need
for operational independence is well recognised in developed as well
In view of the above, it has been strongly felt that with a view to
salvaging the insurance industry from present anomalies and also to
protect policyholder's and shareholder's fund from insecurity, enforce
rules and regulators meticulously, ensure transparency and
accountability, an independent regulatory authority should be
established in Bangladesh. It is expected that with the promulgation of
Insurance Regulatory Authority(IRA) Ordinance-2008, these
Salient features of the IRA Ordinance 2008: The Insurance
Regulatory Authority (IRA) Ordinance provides for the composition
of the Authority, terms and conditions of the appointment of the
chairperson and members including their tenure and removal,
appointment of employees including advisers and consultants of the

Authority, duties, power and functions of the Authority including

power of making regulation and delegation of powers, establishment
of the Insurance Regulatory Fund, establishment of Insurance
Advisory Committee, power of the Government to make rules, issue
directions to the Authority and to supersede the Authority under
certain circumstances and other provisions including abolition of the
Department of Insurance, indemnity, conflict of interest and bar on
future employment of the members of Insurance Regulatory Authority
(IRA) in the insurance sector for a limited period etc.
The main features of some important provisions are summarised
below: 1) Composition etc. of IRA:
a) Chairman and four other members shall constitute the Authority;
b) The Government shall appoint Chairman and members and fix up
their terms and conditions, provided, however, subject to provision
(7), one member should be experienced in life Insurance and another
Qualifications and Disqualification of Chairman and Members: a)
Persons having at least 20 (twenty) years of experience in the fields of
Insurance, Finance, Banking, Statistics, Accountancy, Management,
Administration or law shall be eligible for appointment as chairman
b) No person shall be eligible or remain as chairman or member who
i) is not a citizen of Bangladesh; ii) is Director, officer or an employee
of Insurance intermediaries or any organisation or allied organisation
under the control of Authority; iii) is or at any time has been
adjudicated insolvent by any court of law; iv) is or has been declared
loan defaulters by any bank or financial institute; v) is or at anytime

has been convicted of an offence involving moral turpitude for at least

6(six) months or more and has not crossed 5(five) year after release
from that conviction; and vi) is 67 (sixty-seven) years of age.
Establishment of the Insurance Regulatory Authority Fund:
A fund called IRA Fund shall be established for carrying out the
objectives of this Ordinance. The fund shall consist of the following:
a) All grants received from Government;
b) Donations and grants received from any local organisation or
from any individual or institution;
c) Loans received by the Authority;
d) Money received as fees for registration and renewal thereof of
the insurance companies;
e) Penalties and other charges imposed by the Authority on the
insurance companies;
f) Levies imposed on the premium income of insurance
g) Fees received for issuing licenses to the brokers, surveyors and
h) Donations and grants from any foreign governments,
organisations and international agencies with the prior approval
of the government;
i) Money received from sale of Authority's properties; and
j) Money received from any other sources,
IRA fund shall be kept deposited with any commercial bank and shall
be managed and operated according to the regulations made under the
The Authority shall meet any expenditure incurred by the Authority
including salaries and other remuneration of full and part-time
officers and employers of IRA. But government rules and regulations

should be complied with spending the fund. The Authority shall

deposit a prescribed percentage of the excess of annual income over
expenditure to the government exchequer. The Authority shall invest
the fund or part thereof in any government approved sector.

Life Insurance In India

Life insurance made its debut in India well over 100 years ago. Its
salient features are not as widely understood in our country as they
ought to be. What follows is an attempt to acquaint readers with some
of the concepts of life insurance, with special reference to life
insurance. It should, however, be clearly understood that the
following narration is by no means an exhaustive description of the
terms and conditions of a life insurance policy or its benefits or
privileges. For more details, please contact our Branch or Divisional
Office. Any life insurance Agent will be glad to help you choose the
life insurance plan to meet your needs and render policy servicing.
Life Insurance sector is the fastest growing sector in India since 2000
when the Government allowed Private players and FDI [Foreign
Direct Investment] up to 26%. Life Insurance in India was
nationalized by incorporating Life Insurance Corporation (LIC) in
1956. All private life insurance companies at that time were taken
over by LIC.
In 2000, the legislation amending the Insurance Act of 1938 and
legislating the Insurance Regulatory and Development Authority Act
of 2000 was passed, where in the newly appointed insurance regulator
- Insurance Regulatory and Development Authority [IRDA] started to
issue licenses to private life insurers.
What is Life Insurance?


Life Insurance is a contract for payment of a sum of money to the

person assured (or failing him/her, to the person entitled to receive the
same) on the happening of the event insured against. Usually the
contract provides for the payment of an amount on the date of
maturity or at specified dates at periodic intervals or at unfortunate
death, if it occurs earlier. Among other things, the contract also
provides for the payment of premium periodically to the Corporation
by the assured. Life insurance is universally acknowledged to be an
institution which eliminates 'risk', substituting certainty for
uncertainty and comes to the timely aid of the family in the
unfortunate event of death of the breadwinner. By and large, life
insurance is civilisation's partial solution to the problems caused by
death. Life insurance, in short, is concerned with two hazards that
stand across the life-path of every person: that of dying prematurely
leaving a dependent family to fend for itself and that of living to old
age without visible means of support.

Why is it superior to other forms of Savings?

Protection: Savings through life insurance guarantee full protection
against risk of death of the saver. In life insurance, on death, the full
sum assured is payable (with bonuses wherever applicable) whereas
in other savings schemes, only the amount saved (with interest) is
Aid To Thrift: Life insurance encourages 'thrift'. Long term saving
can be made in a relatively 'painless' manner because of the 'easy
instalment' facility built into the scheme (method of paying premium
either monthly, quarterly, half yearly or yearly). Take, for example,
our Salary Saving Scheme popularly known as SSS. This scheme
provides a convenient method of paying premium each month by
deduction from one's salary. The deducted premium is remitted by the

employer to the LIC. The Salary Saving Scheme can be introduced in

an institution or establishment subject to specified terms and
Liquidity: Loans can be raised on the sole security of a policy which
has acquired loan value. Besides, a life insurance policy is also
generally accepted as security for even a commercial loan.
Tax Relief: Tax relief in Income Tax and Wealth Tax is available for
amounts paid by way of premium for life insurance subject to Income
Tax rates in force. Assessees can avail themselves of provisions in the
law for tax relief. In such cases the assured in effect pays a lower
premium for his insurance than he would have to pay otherwise.
Money When You Need It: A suitable insurance plan or a
combination of different plans can be taken out to meet specific needs
that are likely to arise in future, such as children's education, start-inlife or marriage provision or even periodical needs for cash over a
stretch of time. Alternatively, policy moneys can be so arranged to be
made available at the time of one's retirement from service to be used
for any specific purpose, such as for the purchase of a house or for
other investments. Subject to certain conditions, loans are granted to
policyholders for house building or for purchase of flats.
Who Can Buy A Life Insurance Policy?
Any person who has attained majority and is eligible to enter into a
valid contract can take out a life insurance policy for himself and on
those in whom he has insurable interest. Policies can also be taken
out, subject to certain conditions, on the life of one's spouse or
children. While underwriting proposals, factors such as the state of
health of the life to be assured, the proponent's income and other
relevant factors are considered by the Corporation.


Insurance On Women: Prior to nationalization (1956), many of the

private insurance companies used to offer insurance to female lives
with some extra premium or on restrictive conditions. After
nationalization of life insurance, the terms under which life insurance
is granted to female lives have been reviewed from time to time. At
present, women with earned income are treated on par with male
lives. In other cases, a restrictive clause is imposed and that too only
if age of the female is up to 30 years and if she does not have an
income attracting Income Tax.
Medical And Non-Medical Schemes.
Life insurance is normally offered after a medical examination of the
life to be assured. However, to facilitate greater spread of insurance
and also as a measure of relaxation, LIC has been extending insurance
cover without any medical examination, subject to certain conditions.

With Profit And Without Profit Plans.

An insurance policy can be 'with' or 'without' profit. In the former,
bonuses disclosed, if any, after periodical valuations are allotted to the
policy and are payable alongwith the contracted amount. In 'without'
profit plan the contracted amount is paid without any addition. The
premium rate charged for a 'with' profit policy is therefore higher than
for a 'without' profit policy.
Keyman Insurance.
Keyman Insurance is taken by a business firm on the life of key
employee(s) to project the firm against the finance loss which may
occur due to the premature demise of the Keyman.

Rule of law
The single point which we should emphasise through this episode is:
the rule of law. All of us must aspire to have an India which is
governed by the rule of law. The letter of the law must drive the
behaviour of every government agency. Government agencies must
act in the public domain with full reasoning - as has been done by
SEBI in the order which shows the full rationale of what is being
done, and was immediately posted on the SEBI website. And it should
be possible to appeal the order in an environment where the judges
are competent and the appeals process gets handled swiftly.
But do the laws make sense?
The second order issue that needs to be addressed is: Does it make
sense for the laws to be constructed in the present fashion? Should we
have this combination of the Insurance Act, the IRDA Act, the SEBI
Act and the SC(R) Act which imply that the production of ULIPs
requires compliance with both SEBI and IRDA rules? This is a good
question and merits a deeper examination.
Financial laws in India are a ramshackle mess and urgently require a
comprehensive rewrite. The broad economic thinking for rewriting
these laws has been done through three expert committee reports in
the last three years -- the Percy Mistry report (on Bombay as an
international financial centre), the Raghuram Rajan report (which
focused on domestic aspects of finance) and the Jahangir Aziz report
(which focused on debt management). In order to implement these
plans for rewriting the laws, the budget speech this year announced
the creation of the Financial Sector Law Reforms Commission
(FSLRC) which should rewrite a host of these laws into a small,
modern, internally consistent set.
Regulatory coordination
Even if the work of FSLRC goes well, putting these new laws into
place will take a few years. Even after these laws are in place, a

modern financial system inevitably involves a constant process of

handling products and activities of financial firms which have either
no regulation or are covered by overlapping laws. The way to handle
this in a more graceful fashion is to have better inter-regulatory
The budget announcement of the Financial Stability and Development
Council (FSDC), which will foster better inter-regulatory
coordination, is key to improving the handling of these kinds of issues
in the future. Conflicts such as these are best resolved internally. In
recent years, two interesting inter-regulatory matters have worked out
well: the launch of exchange traded funds on gold (which required
cooperation of RBI, SEBI and FMC) and the launch of currency
futures (which required cooperation between RBI and FMC). Yet, the
existing method of regulatory coordination - the High Level
Coordination Committee (HLCC) - has not been strong enough to
solve myriad other such problems. The FSDC must be quickly put
into place so as to play a strong role in identifying and resolving these
inevitable frictions that will arise as finance becomes more
sophisticated and the laws are constantly out of touch with reality.
Section 38 of Insurance Act, 1938 has made provision for assignment
or transfer of rights under a life insurance policy.
A transfer or assignment of a policy of life insurance, may be made
only by an endorsement upon the policy bond itself or by a separate
instrument, signed in either case by the transferor or assignor or his
duly authorized agent and attested by at least one witness, specifically
setting forth the fact of transfer or assignment. Assignment can be
Where the assignment is made in favour of the Insurer against loan
granted under the policy, the right of the insurer is limited to the loan
amount with interest outstanding under the policy. In case of death of
the policy-holder during the term of the policy, the balance amount

under the policy, after deducting the loan, will be given to the
Assignment is of two types : Conditional Assignment
Absolute Assignment
Under Conditional Assignment, the policy may be transferred back to
the original policyholder, after happening of a specified event or
fulfilling the condition laid down at the time of assignment. Such
policy will be re-assigned in favour of the assignor by the assignee.
Under Absolute Assignment, the rights are transferred in favour of
assignee completely and it can not be reverted back. The payment
under the policy will be made to the assignee at the time or maturity
or earlier death of the life assured.
While assigning a policy, a notice in writing of the transfer or
assignment will be given to the Insurer to register such assignment.
Such notice is required to establish the priority of claim, if needed.
Assignment automatically cancels the nomination made earlier under
life insurance policy.

The life insurance industry was nationalized under the Life Insurance
Corporation (LIC) Act of India. In some ways, the LIC has become
very flourishing. Regardless of being a monopoly, it has some 60-70
million policyholders. Given that the Indian middle-class is around
250-300 million, the LIC has managed to capture some 30 odd
percent of it. Around 48% of the customers of the LIC are from rural
and semi-urban areas. This probably would not have happened had

the charter of the LIC not specifically set out the goal of serving the
rural areas. A high saving rate in India is one of the exogenous factors
that have helped the LIC to grow rapidly in recent years. Despite the
saving rate being high in India (compared with other countries with a
similar level of development), Indians display high degree of risk
aversion. Thus, nearly half of the investments are in physical assets
(like property and gold). Around twenty three percent are in (low
yielding but safe) bank deposits. In addition, some 1.3 percent of the
GDP are in life insurance related savings vehicles. This figure has
doubled between 1985 and 1995.

It seems cynical that the LIC and the GIC will wither and die within
the next decade or two. The IRDA has taken "at a snail's pace"
approach. It has been very cautious in granting licenses. It has set up
fairly strict standards for all aspects of the insurance business (with
the probable exception of the disclosure requirements). The regulators
always walk a fine line. Too many regulations kill the motivation of
the newcomers; too relaxed regulations may induce failure and fraud
that led to nationalization in the first place. India is not unique among
the developing countries where the insurance business has been
opened up to foreign competitors.
The insurance business is at a critical stage in India. Over the next
couple of decades we are likely to witness high growth in the
insurance sector for two reasons namely; financial deregulation
always speeds up the development of the insurance sector and growth
in per capita GDP also helps the insurance business to grow.