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Thoughts on Economics
Vol. 23, No. 04
56
Thoughts on Economics
57
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
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
58
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 1930s. 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$1779 billion.
The industrys paid-up capital shrank by 15-20 percent in non-life and 30-40 percent
in life. Life premiums declined by 3.5 percent, largely in the second half of the year
as a direct consequence of the financial crisis. Non-life premiums declined marginally
by 0.8 percent in 2008 due to lower demand for insurance cover and softening
premium rates. However, emerging markets grew at an impressive rate of 13.1% for
life and 10.2% for non-life insurance. The Chinese market registered a growth of
30.3% for life and 31.5% for non-life. The Indian life and non-life insurance markets
accelerated with an unprecedented growth rate of 36% and 26% respectively.
Table-1: Comparison of Asian Countries
Insurance Penetration: Premiums as % of GDP
2008
Country
Rank
Total Business Life
India
31
4.6
4.0
Malaysia
33
4.3
2.8
China
43
3.3
2.2
Sri Lanka
71
1.4
0.6
Philippines
73
1.4
0.9
Indonesia
75
1.3
0.9
Iran
78
1.1
0.1
Bangladesh
80
0.9
0.7
Pakistan
83
0.8
0.3
Saudi
85
0.6
0.0
Arabia
General
0.6
1.5
1.1
0.8
0.5
0.4
1.0
0.2
0.5
0.6
Premium Volume
(million US$)
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
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
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
Thoughts on Economics
59
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 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
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
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
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.
60
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
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
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61
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)
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Thoughts on Economics
N = 300
Gender
Age
Marital Status
Working Status
Education
Types of Insurance
Company
63
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%
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
Reputation of the company
Low service processing cost
3.73
2.67
3
8
Mean
3.83
3.60
3.58
2.43
Rank
3
5
6
9
64
3.93
2.62
ceremonial program
Meeting the expenditure of
children education
For execution of future plan
2.80
2.79
3.15
Reference by workplace
3.31
3.67
2.17
10
3.92
3.99
4.33
2.28
10
61%
Interest risk
12%
Commercial risk
67%
Legal risk
12%
Insolvency risk
Political risk
Country risk
6%
79%
3%
Technological/operational
risk
55%
21%
0%
3%
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%
(Note: Percentage exceeds 100 because respondents mentioned more than one factor)
Table- 8 indicates that the Sample companies were typically facing some
common risk presented as political, commercial, liquidity, credit risk. Out of
total respondents, 79%, 67%, 61% and 58 % of the Sample companies faced
political, commercial, liquidity and credit risk respectively. 55% of Sample
companies faced technological risk.
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65
24%
6%
0%
0%
Yes
15%
18%
15%
No
85%
82%
85%
18%
82%
Note: Percentage exceeds 100 because respondents mentioned more than one
factor.
66
Mean
4.04
Rank
4.00
3.10
11
Lack of trustworthiness
4.74
Lack of awareness
Low income of the people
4.68
1
2
4.62
4.62
3.12
10
4.74
3.18
3.44
4.62
4.08
3.16
Thoughts on Economics
67
of new products. Low savings rate and unattractive offerings are also
responsible for not purchasing insurance policies by the respondents.
Among other reasons for not popularizing the insurance are Lack of efficient
workforce, Lack of government patronizing, Lack of strong legal frame work,
Lack of marketing research and High service/processing cost, which are ranked
as 4th, 5th, 6th, 7th and 8th respectively.
6. Problems of Insurance Industry in Bangladesh:
The following problems of the insurance industry in Bangladesh are identified
in the present study:
Lack of Public Faith: Insurance agents are responsible for creating negative
image of insurance to the public. It shrinks the scope of insurance business.
Poor public image is mainly responsible for not expanding the sector. This
opinion is held by 94.80 percent respondents in the study.
Lack of Public Awareness: Mass illiteracy hinders the growth of the
insurance sector. A vast majority of people especially in rural areas are left
outside the insurance coverage. This mainly results from the look of awareness
among the people. This problem is supported by 93.60% in the study. Even a
large portion of people in the country have no minimum idea about insurance.
People are not aware of the benefits from the insurance policy and a good
number of people believe that insurance business is nothing but cheating and
they assume that insurance policy is quite unnecessary.
Centralization Policy: Most of the insurance companies in our country are
located in urban areas and there are few branches in rural areas. They think that
they might have better opportunities for their business in cites because the
economic condition of the urban areas is better than in the rural areas. They
forget that the large number of our population reside in rural areas. Thus this
centralization policy acts as an obstruction to the growth of insurance business
in our country.
Poor Economic Conditions: Bangladesh is one of the poorest countries in the
world and most of the people in this country live under extreme poverty. All of
these people fight hard to earn their livelihood. It is quite impossible for them
to save some money for future need. Therefore, they are quite unable to give
the amount to the insurer which is called premium and regarded as safety or
precautionary measure against any accident. This problem is mentioned by
74.80% people in the study.
Excessive Management Expense: Growing cost of business is a problem that
insurance companies are facing now a days. Most of the second and third
68
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70
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72
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 Businesss Individual Insurance: There are so many new businesses
starting every day with a booming global demand. Every business is insured
under an insurance company to protect itself from any kind of accident.
Therefore the growth of industry, mills, and factories is creating better scope
for the insurance companies to flourish their business.
Extent of Market: There is a great scope of facility to explore the insurance
market. The market is big but a large part of it is still unexplored. The
Thoughts on Economics
73
74
products. This action of generating new product and service will considerably
expand the demand for insurance products.
Service Diversification: Insurance is not just a tool of risk coverage. It is also
an attractive instrument of savings. The combination of risk coverage with
savings gives the opportunity for innovative product designing which means
service diversification. So far very little efforts have been taken to innovate
and introduce need oriented insurance services in response to existing threats.
The prospect of the insurance business in agriculture and business sectors
appears bright, as described blow:
Agriculture Sector: The economy of Bangladesh is predominantly agrarian,
with most people engaged in farming and fishing. The uncertainty of
agriculture due to crop failure is caused by climate variation, drought, cyclone,
and flood and pests, which affect farmer income as well as government
revenue. Furthermore, in the last few years commercialization has occurred in
some sections of the agricultural sector. Increasing investment in the
agricultural sector is creating a new opportunity for the insurance industry.
Various agricultural insurance services are becoming common these days.
Demand for insurance protection against crop loans, livestock loans, fisheries
loans and equipment loans are also increasing day by day.
Business Sector: Nowadays in Bangladesh the SME plays an important role
in the economic development. But they are deprived from taking loans from
bank for a large amount. If insurance business focuses this service in
Bangladesh they will able to contribute more in the economy. Thus, insurance
business has a bright prospect in business sector in Bangladesh.
8. Suggestions for Policy Implications:
The concerned policy makers of insurance sector should adopt the following
measures in order to make the best use of the opportunities and to tackle the
threats for ensuring the growth and development of the insurance industry in
Bangladesh.
Regain Popularity with Appropriate Marketing Strategy: To regain and
maintain a positive public image, the insurance companies should practice
appropriate marketing strategy and provide better service to its customers. To
create people awareness, insurance companies should also arrange on regular
basis seminar, symposium, road show etc in different parts of the country.
Product Innovation: Insurance Companies should diversify their product.
They should introduce new products to satisfy customers needs.
Thoughts on Economics
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