Factors Influencing Entrepreneurship Development In Barisal Metropolitan City: Problems And Prospect

A REPORT ON LIFE INSURANCE IN BANGLADESH: PROBLEMS AND PROSPECT

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY Problems and Prospect of Life Insurance in Bangladesh

12

LIFE INSURANCE IN BANGLADESH: PROBLEMS AND PROSPECT

Prepared For: Muhammad Mizanoor Rahman Howlader Lecturer Department of Marketing Faculty of Business Administration and Management

Prepared By: Group: 06(Warrior) Level- 3, Semester- II Faculty of Business Administration and Management

Name of the students

Position

Roll No.

Reg. No.

Group Leader

001

00660

Abu Zafour

Member

021

00680

K.M. Asaduzzaman

Member

006

00665

Md. Kamruzzaman

Insurance and Risk Management Course Code: FBK 324

Date of Submission: November 10, 2008

PATUAKHALI SCIENCE AND TECHNOLOGY UNIVERSITY Problems and Prospect of Life Insurance in Bangladesh

12

Letter of Transmittal

Date: 10 November 2008

To Muhammad Mizanoor Rahman Howlader Lecturer Department of Marketing Faculty of Business Administration and Management

Subject: Submission of Report on Life Insurance In Bangladesh: Problems and Prospect

Dear Sir, Here we are submitting our report on “Life Insurance in Bangladesh: Problems and Prospect” prescribed by you in your course Insurance and Risk Management. For this Purpose, we have gone through internet, different books, articles, journals, interview of authorities and employees of the respective organizations and class lecture sheets for the relevant information of the assigned topic.

Please call me for any further information at your convenient time and place.

Yours truly,

Group: 06(Warrior) Level-3, Semester-II Faculty of Business Administration and Management Patuakhali Science and Technology University

Problems and Prospect of Life Insurance in Bangladesh

12

Table of Contents

Introduction ► Abstract

01

► Introduction

01

► Literature Review

02

► The Research Gap

03

► Rationale of the Study

03

► Objective of the Study

03

► Methodology of the Report

04

► Limitations of the reports

04

Problems and Prospect of Life Insurance in Bangladesh

12

Description ► Definition of life insurance

04

► Feature of life insurance

05

► Essential elements of life insurance contracts

05

► Role and importance of life insurance

07

► Classification of life insurance

10

► Rules regarding life insurance business in Bangladesh

13

► Jiban Bima Corporation (JBC)

16

► Delta Life Insurance Co. Ltd.

20

Problems and Suggesting Actions ► Problems of life insurance in Bangladesh

22

► Suggestions for resolving the problems

25

Conclusions

26

References

27

LIFE INSURANCE IN BANGLADESH: PROBLEMS AND PROSPECT Abstract: Insurance is one of the major risk-handling mechanisms. Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity. Over the year’s large section of people have become acquainted with the concept of life insurance. But, the amount of life insurance per individual in Bangladesh is still extremely low, which is only less than one U.S. Dollar. On the other hand, per capita insurance premium of life insurance is approximately U.S. $ 4000 in Japan. Low level of paying capacity is the main reason for insignificant growth of life insurance in Bangladesh. Religion also plays a negative role in respect of life insurance in our country. Insurance especially life insurance is considered as inconsistent with religious faith. The entry of private companies and the significant number of players, in Bangladesh, bulk of life and non-life business continues to remain in the hands of public sector units. This is true for life insurance where Jiban Bima in Bangladesh continue as market leaders by varying wide margins. This report highlighted the problems regarding the life insurance in Bangladesh and some remedies to solve the problems and also the prospect of life insurance in Bangladesh. Problems and Prospect of Life Insurance in Bangladesh

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Introduction Insurance is essentially a collective endeavor under which a large number of individuals agree to share the loss which a few of them would incur in future. This means insurance protects those unfortunates who suffer heavy financial impact of anticipated misfortunes by distributing the loss among many who are exposed to the risk of similar misfortunes. Life insurance is a type of insurance in which one person makes regular payments so that he receives a sum of money when he is a particular age, or so that his family will receive a sum of money when he dies. The process of life insurance has been evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. The insurance principle comes to be more and more used and useful in modern affairs. Not only does it serve the ends of individuals, or of special groups of individuals, it tends to pervade and to transform our modern social order, too. The main function of life insurance is to provide protection against the possible uncertainties of loss. It also contributes for the economic development of a country. Life insurance promises a compensation of monetary loss sustained by a particular person due to premature death. There are so many problems in life insurance in our country, although this is true that for life insurance where Jiban Bima in Bangladesh continues as market leaders by varying wide margins. There are obvious reasons for this situation. These state-owned units are wellentrenched monoliths with huge infrastructures and elaborate marketing networks. They welcome rural and small business although it is both labor and cost-intensive, an area that the private sector is hesitant to enter at this juncture. The private sector has, therefore, by choice and ground realities, opted for high- wealth clientele, special products and niche marketing focused on the larger urban centers, where growth must necessarily be slower.

Literature Review Individuals unwilling or unable to handle their own funds have been pleased to find and outlet for their investment in life insurance policies. Endowment policies, multipurpose policies, deferred annuities are certain better form of investment. The elements of investment i.e. regular saving, capital formation, and return of the capital along with certain additional return are perfectly observed in life insurance. An individual from his own capacity cannot invest regularly with enough of security and profitability. The life insurance fulfils all these requirements with a lower cost. The beneficiary of the policyholder can get a regular income from the life insurer, if the insured amount is left with him. Foreign exchange regulations governing insurance business entered into and completed in Bangladesh are set out in this chapter. Branches and agencies in Bangladesh of insurance companies whose head offices are situated abroad are, from Problems and Prospect of Life Insurance in Bangladesh

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foreign exchange regulations viewpoint, regarded as resident in Bangladesh and are subject to the-same instructions as insurance companies registered in Bangladesh.

To help people improve their standard of livings with a saving content and create funds for nation’s economic development Jiban Bima Corporation (JBC) is the lone stateowned life Insurance company in Bangladesh, which started its maiden journey on May 14, 1973 with assets and liabilities worth TK. 157 million of defunct 37 life Insurance companies. Since its inception, JBC is working among the people of Bangladesh with two basic objectives: firstly, to cover the risks and raise savings habits among the people and secondly, create funds for the country’s economic development through innovative life insurance schemes.

Delta Life Insurance Co. Ltd. established mainly through the initiative of a group of Bangladeshi professionals then working abroad along with a few enthusiastic local entrepreneurs, started its operation in December, 1986 after the Government of Bangladesh allowed the private sector to operate in the insurance sector in 1984 to carry on the business of insurance in the Private Sector. A brief explanation as to the growth of life insurance business in Bangladesh is in order here. Bangladesh declared independence from the Pakistani rules on March 26, 1971 following which she had to witness a bloody liberation struggle with the occupation forces lasting for 9 months before they were defeated. Insurance business which was exclusively carried on in private sector before independence was nationalized after liberation in 1972 primarily to address the emerging situation of eroding public confidence in the industry that was left staggeringly short of resources in the face of huge losses caused by the war of liberation. Many of the existing literatures reviewed above clearly indicate that the life insurance in Bangladesh has not yet stood on a solid footing. Many reasons are there for the backwardness and underdevelopment of life insurance in Bangladesh.

Research Gap Life insurance is one of the largest and most important institutions for collecting and distributing the nation’s savings. Therefore, insurance has grown rapidly throughout the world. It is regarded as essential to a highly industrialized nation. But in our country like Bangladesh where premature death is very severe, natural calamities are very common; insurance is of great importance. The literatures reviewed above clearly indicate that a relatively little attention has been given by the professionals and researchers to the study of life insurance. Thus the issues of life insurance products have been largely unexplored. Problems and Prospect of Life Insurance in Bangladesh

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As such, literatures on marketing of life insurance products throughout the world have grown rapidly. It is a vital sector of our economy and its role in our national life is indispensable. It has a good prospect for our country, although there are so many problems in life insurance in Bangladesh. So smooth functioning of this sector is utmost necessary. If we want to ensure proper operation of insurance business, the constraints behind this field are to be identified and resolved.

Rationale of the Study Life insurance is a very significant risk handling mechanism and it contributes a key part of financial infrastructure of a country. It not only indemnifies the policyholders at the occurrence of an insured event but also plays a pivotal role in saving and investment. Therefore, a sound environment of insurance business is indispensible for a country like Bangladesh where the rate of saving and investing are very scanty. To guarantee a sound field of insurance business, the problems retarding the growth of insurance business should be identified and solved. In recent time there is no mentionable study on the growth and development in the life insurance of Bangladesh. Although this has a bright prospect for our country. To considering this situation it is our right attempt in the present context. This will help identify the problems of life insurance in Bangladesh, as well as the remedial measure for the problems.

Objective of the Study The main objectives of this study are to unveil the problems that inhibit the growth and development of life insurance business in Bangladesh. The other objectives of this study are to generate some suggestions to overcome the problems identified so as to ensure smooth functioning and growth of insurance. To know about the prospect of life insurance of Bangladesh is also another objective of this study.

Methodology of the Study The data of this study were collected from both primary and secondary sources. The primary data were collected through interview with aid of an interview schedule. A total number of 20 respondents randomly selected were interviewed. The sample respondents comprised of 5 insurers from life insurance, 10 policyholders and 5 non-policyholders. Problems and Prospect of Life Insurance in Bangladesh

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The secondary sources of information include related published journals, books, newspaper, internet, and so on.

Limitations of the Study This study faced a number of problem and complexity during the operation that ultimately limited its purposes thoroughly. The limitations of the study were as follow: The time frame for this study was one of the major limitations. This kind of studies essentially needs a secondary data collecting team for the survey. Moreover such time frame doesn’t allow the collection of all necessary data from all the respondents. It becomes too hard for us to collect necessary information and prepare a standard report. Without enough funds, these types of studies research cannot reach up to the desired standard. Lack of experience in this field Lack of proper authority to conduct the interview program Lack of adequate information availability.

Definition of Life Insurance Life insurance is a type of insurance in which one person makes regular payments so that he receives a sum of money when he is a particular age, or so that his family will receive a sum of money when he dies.

According to M.N. Sharma— Life insurance may be defined as a contract, where by the insurer, in consideration of a premium, paid either in a lump-sump or in periodical installments, undertakes to pay, an annuity or a certain sum of money, either on the death of the insured or on the expiry of a certain number of years.

About the definition of life insurance Sir Judge Jesel said that it is a purchase of a reversionary sum in consideration of a present payment of money or as is generally the case of the payment of an annuity during the life of the party insuring.

Problems and Prospect of Life Insurance in Bangladesh

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Features of Life Insurance Contract It is recognized that every things must have some own features or characters. Every contract must also have some features; in the same way life insurance have some features. The features of life insurance contract are described as follows— 1. Formal as well as specialty contract Generally a contract may be three types, such as— a. General contract b. Specialty contract, and c. Contracts of record Life insurance contract is formal or specialty contract in terms of their characteristics. The formalities of the specialty contract is that the contract must be—

1. Specialty contract i. Written ii. It must be signed by the proper authority iii. Necessarily or traditionally register iv. If necessary stamp provided v. If necessary seal provided vi. Transferability 2. Subject-matter 3. Objective

4. Contract of utmost good 5. Acceptance of the offer 6. Amount of claim 7. Nomination 8. Assignment 9. One-sided contract 10. Conditional contract 11. Contract to be executed

Essential Elements of a Life Insurance Contract

There are some common elements for any contract, life insurance is also a contract so the common elements of life insurance — a. There must have two parties b. Offer of one party and acceptance of that offer by another party. Problems and Prospect of Life Insurance in Bangladesh

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c. Free consent of the parties d. Competencies of the parties e. Person of sound mind f. Legal consideration g. Legal object Following are the essential elements those are too much necessary for the life insurance contract. The elements are shown in the following figure (Next page)–

1. Insurable Interest

Insurable Interest

The insurable interest is the pecuniary interest whereby the policy- holder is benefited by the existence of the subject matter and is prejudiced by the death or Utmost Proximate damage of the subject matter. Good Faith

Cause

According to Dabit L. Bickelhaupt – Essentials an insurable interest is a right or relationship in Elements of a regard to the subject-matter of an insurance contract such that the insured can duffer Life Insurance Contract to it. financial loss from damage, loss or destruction Return of

The classification of Premium Insurable interest in life insurance are shown in the following — Warranties Nomination INSURABLE INTEREST and Assignment

Own Life

Others

Proof is not required

Proof is required

Business relation

Family relation

Figure: Classification of Insurable Interest 2. Utmost Good Faith Problems and Prospect of Life Insurance in Bangladesh

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Since insurance shifts risk from one party to another, it is essential that there must be utmost good faith and mutual confidence between the insured and the insurer. In a contract of insurance the insured knows more about the subject matter of the contract than the insurer. Consequently, he is duty bound to disclose accurately all material facts and nothing should be withheld or concealed. There should not be any misrepresentations, non-disclosure, or fraud concerning the material facts. 3. Assignment and Nomination The policy is freely assignable in case of life insurance for a legal consideration, love and affection. 4. Return on Premium Ordinarily, the premium once paid cannot be refunded. However in the following case the paid are returnable— For reason of equity: Equity implies a condition that the insurer shall not receive the price of running a risk he runs. Thus, there the contract does not come into effect or it is held to be void ab initio. 5. Proximate Cause The efficient and effective cause which causes the loss is called proximate cause. It is real and actual cause of loss. If the cause of loss is insured, the insurer will pay; otherwise the insurer will not compensate. But in case of life insurance proximate cause is not essential because the insurer is bound to pay the amount of insurance whatever may be the reason of death. It may be natural or unnatural. But in the following cases proximate cause is essential for life insurance contract. These are – 1. War-risk 2. Suicide 3. Accident benefit.

Role and Importance of Life Insurance

The process of life insurance has been evolved to safeguard the interests of people from uncertainty by providing certainty of payment at a given contingency. The insurance principle comes to be more and more used and useful in modern affairs. Not only does it serve the ends of individuals, or of special groups of individuals, it tends to pervade and to transform our modern social order, too. The role and importance of life insurance are discussed in the next page. Problems and Prospect of Life Insurance in Bangladesh

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Life insurance provides safety and security in case of death The life insurance provides safety and security to the individual or the family against the loss on life or death of the insurer, because life insurance payment is made when death occurs or the term of insurance is expired. The loss to the family at a premature death and payment in old age are adequately provided by insurance. In other words, security against premature death, and old age sufferings are provided by life insurance.

Insurance protects mortgaged property At the death of the owner of the mortgaged property, the property is taken over by the lender of money and the family will be deprived of the uses of the property. On the other hand, the mortgagee wishes to get the property insured because at the damage or destruction of the property he will lose his right to get the loan repaid. The life insurance will provide adequate amount to the dependents at the early death of the property-owner to pay off the unpaid loans. Similarly, the mortgagee gets adequate amount at the destruction of the property.

Life insurance eliminates dependency At the death of the husband or father, the destruction of family needs no elaboration. Similarly, at destruction of property and goods, the family would suffer a lot. It brings Problems and Prospect of Life Insurance in Bangladesh

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reduced standards of living and the suffering may go to any extent of begging from the relatives, neighbors, or friends. The economic independence of the family is reduced or, sometimes, lost totally. What can be more pitiable condition than this that the wife and children are looking others more benevolent than the husband and father, in absence of protection against such dependency. The insurance is here to assist them and provides adequate amount at the time of sufferings.

Life insurance encourages saving The elements of protection and investment are present only in case of life insurance. In property insurance, only protection element exists. In most of the life policies elements of saving predominates. These policies combine the programs of insurance and savings.

The saving with insurance has certain extra advantages — i. Systematic saving is possible because regular premiums are required to be compulsory paid. The saving with a bank is voluntary and one can easily omit a month or two and then abandon the program entirely. ii. In insurance the deposited premium cannot be withdrawn easily before the expiry of the term of the policy. As contrast to this, the saving which can be withdrawn at any moment will finish within no time. iii. The insurance will pay the policy money irrespective of the premium deposited while in case of bank-deposit; only the deposited amount along with the interest is paid. The insurance, thus, provides the wished amount of insurance and the bank provides only the deposited amount. iv. The compulsion or force to premium in insurance is so high that if the policy-holder fails to pay premiums within the days of grace, he subjects his policy to lapsation and may get back only a very nominal portion of the total premiums paid on the policy. For the preservation of the policy, he has to try his level vest to pay the premium. After a certain period, it would be a part of necessary expenditure of the insured. In absence of such forceful compulsion elsewhere life insurance is the vest media of saving.

Problems and Prospect of Life Insurance in Bangladesh

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Life insurance provides profitable investment Individuals unwilling or unable to handle their own funds have been pleased to find and outlet for their investment in life insurance policies. Endowment policies, multipurpose policies, deferred annuities are certain better form of investment. The elements of investment i.e. regular saving, capital formation, and return of the capital along with certain additional return are perfectly observed in life insurance. An individual from his own capacity cannot invest regularly with enough of security and profitability. The life insurance fulfils all these requirements with a lower cost. The beneficiary of the policyholder can get a regular income from the life insurer, if the insured amount is left with him.

Life insurance fulfils the needs of the person

Life insurance fulfills the needs of the human beings. It helps the human beings in case of following fields—

 Family needs  Old-age needs  Re-adjustment needs  Special needs and  The clean-up needs

Classification of Life Insurance According to M.N. Mishra life insurance policies can be divided in the basis of following way— 1. On the basis of duration of policy 2. In accordance with the premium payment 3. In accordance with participation in profit 4. In accordance to the number of persons insured 5. In accordance to the method of payment Problems and Prospect of Life Insurance in Bangladesh

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1. Life insurance on the basis of duration of policy The life insurance policies according to the duration may be in the four forms. Which are as follows— i. Whole life policy ii. Term policy iii. Endowment policy iv. Survivorship policy i. Whole life policy Whole life policies are issued for life. It means that the policy amount will be paid at the death of the life assured. The life assures, thus, he can not get the policy amount during his life time; only his dependents will get the advantages of this policy. The whole life policies can be affected by either by payment of single premium, continuous premium, or limited premium. The limited premium is most popular form of premium for the whole life policies, because it is convenient to the policy-holders to arrange the payment of premium during his income-earning period. In continuous premium payment, this benefit is not available because premium is payable up to the life of the policy-holder. This is loosing its importance because only the dependence of life assured is getting the benefit. ii. Term policy Term policy is for a short period of years ranging from three months to seven years. It is the cheapest policy. Term insurance policies are useful for those people who need extra-protection for a short duration, or who need protection for long duration but are unable to purchase for the time-being due to ill-health or lesser income, or a young businessman can take the policy to save the business-disaster during initial stage of the business, or key-men’s insurances are generally on term insurance basis, or a mortgagor of his child, and a father can take this policy during the period of education of his child, and any such persons who are willing to provide insurance for a shorter period. iii. Endowment policy Endowment policy is a type of life insurance policy in which a person regularly pays money to an insurance company, and receives a sum of money from them at the end of a particular period of time. The endowment policies can be several, of which important policies are—

Problems and Prospect of Life Insurance in Bangladesh

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Pure endowment policy

Educational endowment policy

Double endowment policy

Anticipated annuity policy

Ordinary endowment policy

Joint life endowment policy

Children anticipated policy with profits

Triple benefit policy

Progressive protection policy with profits

Fixed term endowment policy

Problems and Prospect of Life Insurance in Bangladesh

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Life Insurance on the Basis of Duration of Policy

Whole Life

Single premium payment

Term Insurance

Continuous premium payment

Straight term insurance

Endowment Insurance

Survivorship Policy

Limited premium payment

Convertible whole life policy

Renewable term insurance

Convertible term policies

Pure endowment policy

Ordinary endowment policy

Joint life endowment policy

Double endowment policy

Educational endowment policy

Triple benefit policy

Fixed endowment policy

Anticipated endowment policy

Children anticipated policy with profits

Progressive protection policy with profits

Figure: Life Insurance on the Basis of Duration of Policy Problems and Prospect of Life Insurance in Bangladesh

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Rules Regarding Life Insurance Business in Bangladesh Foreign exchange regulations governing insurance business entered into and completed in Bangladesh are set out in this chapter. Branches and agencies in Bangladesh of insurance companies whose head offices are situated abroad are, from foreign exchange regulations viewpoint, regarded as resident in Bangladesh and are subject to the-same instructions as insurance companies registered in Bangladesh.

Problems and Prospect of Life Insurance in Bangladesh

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1.

Life Insurance Insurance policies on the lives of residents of Bangladesh may be Types of issued only in Taka. policies which may be issued

i

ii

2.

i

ii

3.

Premia collected on Taka policies must be credited to the insurance Assignments company's resident account. The remittance of such collections by the branches of non-resident companies to their overseas head office or branches is not permitted. Policies may not be assigned by a resident in Bangladesh to a nonresident or by one non-resident to another non-resident in a different country without the prior approval of the Bangladesh Bank. There is, Bangladesh however, no nationals objection may to technical assignments life policies to buy life insurance of policies in foreign theexchange head offices of residing overseas abroad. insuranceOncompanies as security for to while their permanent return Taka loans granted the branch in Bangladesh. Bangladesh theybymay continue to pay the premia from foreign Thecurrency maturityaccounts proceedsmaintained or surrender of TakaRemittance policies willfacility be in value Bangladesh. paid in Taka only. may also be allowed for premia payments provided:

6.

4.

Existing Taka life policies may not be converted into foreign currency policies except with the prior approval of the Bangladesh Bank. Similarly, the records of an existing Taka policy may not be transferred to an office outside Bangladesh. Premia on Taka policies on the lives of non-residents may be Collection of accepted in Taka if made by cheques drawn on a non-resident Taka premium account with an AD or if made out of funds remitted from abroad by the policy-holder through an AD.

i

foreignatcurrency was taken while the policy-Payments of ii(a) TheThe proceeds maturity policy of Takaabroad endowment policies or annuities holder resident abroad; who are temporarily resident in claims held by was foreign nationals (b)Bangladesh Nominee or or who assignee of the policy is a resident; having been temporarily resident in Bangladesh (c) have Theleft holder furnishesmay under-taking that the for proceeds of the policy Bangladesh, not be transferred payment outside will be received in Bangladesh through banking Bangladesh without the prior approval of the normal Bangladesh Bank.channel; and (d) Declaration is furnished by the applicant as per proforma at Appendix 5/52. (e)

7.

The AD shall keep note of maturity date of the policy and inform Bangladesh Bank about non-repatriation if proceeds of the policy at maturity immediately in any such case.

Life and endowment policies which fall within the definition of Export of securities cannot be taken or sent out of Bangladesh without the policies prior approval of the Bangladesh Bank. Applications for export of Problems and Prospect of Life Insurance in Bangladesh life policies should be made to the Bangladesh Bank giving full description of the policy and reasons for its export.

12

Government allowed private Companies to undertake both Life and General Insurance business in the country. 58 Companies (16 for Life and 42 for General) have obtained registration. The Chief Controller of Insurance regulates the business by supervision, auditing and registration of the Insurance Companies, as per the Insurance Act, 1938. The names of the selected Insurance Companies are given below:

Life Insurance Company Jiban Bima Corporation (Public)

American Life Insurance Co. (Foreign)

(Private) Delta Life Insurance Co. Ltd.

Express Insurance Ltd.

Jiban Bima Bhaban 10, Dilkusha Commercial Area, Dhaka 1000 Tel: 9552047-9 Alico Building 18-20, Motijheel C/A, Dhaka Tel: 9561757, 9561791 Uttara Bank Bhaban 90-91 Motijheel C/A, Dhaka 1000 Tel:88-02-9565033-5 Fax: 88-02-956-2219 WASA Bhaban 78, Kazi Nazrul Islam Avenue Kawran Bazar C/A Dhaka.

Problems and Prospect of Life Insurance in Bangladesh

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Homeland Life Insurance Co. Ltd

Eallal Chamber 11, Motijheel C/A, Dhaka 1000 Tel: 9666647

Meghna Life Insurance Co. Ltd

Biman Bhaban 100 Motijheel C/A, Dhaka 1000 Tel: 9558993 79, Motijheel C/A (1st floor), Dhaka 1000 Tel: 9550241

National Life Insurance Co. Ltd

Sandhani Life Insurance Co. Ltd

Taranga Complex (3dr floor) 19,Rajuk Avenue, Motijheel, Dhaka 1000

The Jiban Bima Corporation (JBC) is the lone state-owned life Insurance company in Bangladesh, which started its maiden journey on May 14,1973 with assets and liabilities worth TK. 15.70 crore (157 million) of defunct 37 life Insurance companies. Since its inception, JBC is working among the people of Bangladesh with two basic objectives: firstly, to cover the risks and raise savings habits among the people and secondly, create funds for the country’s economic development through innovative life insurance schemes. Meanwhile, the life fund of Jiban Bima Corporation has shot up to TK. 577.3 crore (5773 million), the highest in industry, which was only TK. 21.83 crore (218.3 million) in 1973. JBC has paid TK. 755.4 crore (7554 million) against various claims, the highest such payments in the country’s life Insurance business. The JBC’s investment has reached TK. 578.25 crore (5.78 billion) from only TK. 19.7 crore (197 million) in 1973. The JBC has the largest network all over the country with 6 regional, 10 zonal, 61 sales and 365 branch offices.

Problems and Prospect of Life Insurance in Bangladesh

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Jiban Bima Corporation (JBC) Tower

Objectives  Provide life insurance benefit to the people at a competitive cost.  Mobilize savings through various schemes and create funds for economic development of the country. Problems and Prospect of Life Insurance in Bangladesh

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 Offer products for maximum returns at minimum cost.  Create awareness among the people to develop savings habits.  Develop suitable schemes to meet the need of all classes of people.

Vision A business organization that covers risks and offers profits to make life a matter.

Mission

To help people improve their standard of livings with a saving content and create funds for nation’s economic development.

Head Office and its Concerned Divisions

The Head Office of Jiban Bima Corporation (JBC) is located at 24, Motijheel, Commercial Area, Dhaka, Bangladesh with twelve storied own premise. The activities of regional, zonal. Sales and branch offices of JBC is conducted through eight divisions. The following table shows the concerned divisions of Head Office.

Serial No. 1

Name of the Division Administration Division

2 3 4

Development Division Computer Division Accounts and Finance Division

5 6 7 8

Group Insurance Division Technical Affairs Division Assets and Engineering Division Internal Audit and Inspection Division

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Figure 1: Various Office Grades of Corporation

Policy Statistics Serial No. 1 2

Policy In force Individual Insurance i. No. of Policies:- 3,95,947 Group Insurance i. No. of Institutions: - 231 ii. No. of Members:- 1,72,110

Insurance Amount (TK. in Million) 30,985.20 17

Existing Schemes Problems and Prospect of Life Insurance in Bangladesh

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Serial No 1 2 3 4 5 6 7 8 9 10 11

Schemes Individual Schemes Anticipated Endowment Insurance With Profit Plan-05 Anticipated Endowment Insurance Without Profit Plan-25 Child Endowment Insurance Without Profit Plan-47 Child Protection Policy With Profits Plan-09 Double Protection Insurance With Profit Plan-10 Endowment Assurance With Profit Plan-03 Endowment Assurance Without Profit Plan-23 Grameen Jiban Bima With Profit Plan-91 Granted Bonus Endowment Insurance Plan-48 Group Schemes Group Endowment Assurance

12

Group Term Insurance Individual Schemes Joint Life Endowment Insurance With Profit Plan-08

13 14 15

Marriage Endowment Policy Plan-07 Money Back Term Insurance Policy Plan-50 (Without Profit) Multiple Payment Policy With Profit Plan-06

16 17 18

Pension Policy Plan-12 Progressive Premium Policy With ProfitPlan-04 Single Premium with Profit Plan-17

19 20 21 22

Swanirber Bima (Single Premium Policy) Plan-52 Term Insurance Without Profit Plan-51 Whole Life Assurance With Profits Plan-01 Whole Life Assurance Without Profits Plan-21

Delta Life Insurance Co. Ltd. established mainly through the initiative of a group of Bangladeshi professionals then working abroad along with a few enthusiastic local entrepreneurs, started its operation in December, 1986 after the Government of Bangladesh allowed the private sector to operate in the insurance sector in 1984 to carry on the business of insurance in the Private Sector. A brief explanation as to the growth of Problems and Prospect of Life Insurance in Bangladesh

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life insurance business in Bangladesh is in order here. Bangladesh declared independence from the Pakistani rules on March 26, 1971 following which she had to witness a bloody liberation struggle with the occupation forces lasting for 9 months before they were defeated. Insurance business which was exclusively carried on in private sector before independence was nationalized after liberation in 1972 primarily to address the emerging situation of eroding public confidence in the industry that was left staggeringly short of resources in the face of huge losses caused by the war of liberation. After a series of experimentation, a state-owned body, namely Jiban Bima Corporation (JBC), established in May, 1973 for transacting the life insurance business, took over the assets and liabilities under life portfolios of all erstwhile private insurance companies and started business in its own name. However, things did not improve; rather, in many respects became more exacerbating and the Government then thought it better to allow private sector participation in insurance business. Since inception, Delta Life set before itself a high standard of all round performance coextensive with professional soundness and proficiency. It soon made a mark in the life insurance arena by not only being the leader among the private sector indigenous companies, but by undertaking and successfully implementing innovative and welfare oriented life insurance schemes. It introduced an array of conventional life and group insurance products - many of which were the first in Bangladesh. For the first time, health insurance products were also introduced by Delta Life. But more importantly, in fulfillment of the avowed commitment towards social development, Delta Life for the first time not only in Bangladesh but probably in the World, devised and introduced micro-life insurance-cum-savings products specially suited to the needs and pockets of poor people of the country who constitute more than 80% of the people of Bangladesh. Two projects of the company namely Grameen Bima for the rural people and Gono Bima for the poor and marginal savers of the urban areas were initiated to devote them slave exclusively to marketing and management of these innovative products. We are happy to report that we have achieved a good measure of success although there is a long way to go. These schemes that we have introduced have created great stir and enthusiasm among the general mass who, before these projects started functioning, could not even dream of owning a policy that provides the much needed life insurance coverage along with facility of regular savings on a long-term basis. At a later stage i.e. in the year 2002, the projects were merged into a division of Delta Life, namely, Gono Grameen Bima Division. The GNGRB Division has been growing at a first rate of more than 25% p.a. Problems and Prospect of Life Insurance in Bangladesh

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for the last couple of the years and is poised to maintain this growth rate at least in the next five years or so. Delta Life can take pride in moulding the saving habits of the lower and middle class people and transforming them into prospective policyholders. The potential is now so strongly perceived that all life insurance companies - old and new alike - operating in the country have started their own micro insurance products.

Cover Map

Figure 2: Districts covered by Delta Life Insurance Company

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There are so many problems of life insurance in Bangladesh. The significant problems of life insurance in Bangladesh are discussed in the following—

Lack of confidence Lack of confidence upon insurers in one of the fundamental reasons for which insurance business cannot a strong position in Bangladesh. Out of the total sample about 65% opined that insurance in Bangladesh could not achieve the fullest faith of people.

Non-settlement of claims It is a complementary problem of the preceding one, 40% respondents mentioned that the policyholders are suspicious about claim settlement at the maturity of their policies. It is an indication of little faith on insurers, while focusing on claim settlement.

Insignificant return on policy Life insurance is basically a business entity. Therefore, even though insurers give certainty of indemnification at the uncertainty of loss, profit earning is their prime motive. Return paid to the policyholders and profit of the owners is inversely related. A higher rate of return to the policyholders reduces the volume of profit and vice-versa.

Inability to continue premium Inability to continue acts as a deterrent particularly, for the lower income group. It is unfortunately true that majority of our countrymen live from hand to mouth. About 48% interviewee therefore, opined that people are worried and are discouraged to take insurance policy because they may fail to continue premiums.

Lack of interest about insurance Major problems of life insurance in our country are the lack of interest of people about insurance. About 45% respondents opinioned that they have no intention of buying insurance policy. The rest of the respondents 55% have opinion that they are not completely non-insurance minded, rather they are unaware about the utility of insurance. The emphasized that insurance provides certainty of payment against the Problems and Prospect of Life Insurance in Bangladesh

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uncertainty of losses. But this fundamental service of insurance is not clear to the mass people.

Economic adversity Our country’s economy is low investing economy; people have low income, so their saving is also poor. The per capita income is only USD-598 (2007). For this economic adversity is the most significant problem for life insurance for our country. Inconsistent rules for public and private companies Over the last few decades private sector has emerged as the key economic player. Growth and development of private sector is correlated with national development. As a result government of Bangladesh has allowed operation of private insurance companies in 1984. However, still the rules of insurance business are not congenial for the private owners. About 80% of the insurers blamed the government for inconsistent policy.

Insufficient investment opportunity Insurance is a financial institution. It collects premiums from the insured against the protection of risks. The aggregate premiums is not kept idle rather is invested in various productive channels to generate income. Profit earned by the insurer on their investment influences rate of dividend, bonus declared to policyholders and the financial soundness of investment. But 40% insurers opined that they don’t have attractive channels of investment. Thus, life insurers are at a great problem with huge amount of life fund in their hands.

Inadequate government support A good number of respondents about 80% held the government responsible for its little support for the enrichment of insurance company. Since the majority of people is uneducated and is unaware about the benefits of insurance, the government has to take the responsibility for wide publicity.

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Lack of qualified agent Usually insurance agents propose insurance policy to the mass people and persuade them to buy it. The agents therefore, must have insurance know-how. They need to be familiar with insurance functions and must know the art of convincing. The convincing art is the key element to allure people in a positive way. But about 80% of the respondents believe that the insurance agents are not capable enough to motivate the potential customer.

Incompetent insurance officers Another widely recognized problem of insurance business in Bangladesh is the incompetent officers. There is an acute shortage of qualified personnel in the public insurance corporations.

Undue promotion A very commonly noticed problem in every employment area of Bangladesh is the undue promotion. Life insurance sector is also not free from this infamy. 40% of the respondents answered in favor of undue practice with regard to promotion. Fabricated information given by the agents A large number of agents act for different insurance companies in the remote areas of the country. The agents usually perform on a commission basis. But sometimes the agents become successful in furnishing wrong information that ultimately brings drastic problem for the organization. Limited operational areas Another unambiguous problem of life insurance business is that insurance companies operate only in the big cities for their operational benefits. Inadequate legal constitution 25% of the respondent thought that the laws of insurance are inadequate in our country. According to this responded the provisions are old and fail to cope with the modern complex. There are so many other problems for life insurance in Bangladesh. Some of these are as follow— Problems and Prospect of Life Insurance in Bangladesh

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Lack of training, licensing difficulty, corruption, inadequate evaluation of performance by the government, inflation, rapid premium payment system, delay in claim settlement, illiteracy, work economic base, low rate of industrialization, backwardness of mentality, ignorance about claim settlement procedure, non-disclosure of material fact, and anti- religious.

Suggestions for Resolving the Problems The suggestions for resolving the problems are as follows — Increased role of government The government should monitor the functions of insurance companies, appraise their performance, and seize the license of companies that are engaged in corruption. In evaluating the performance it, is essential to consider the condition of reserve or life fund, premium on various policies, claims and outstanding claims, lapses and surrenders, profit and surplus, bonus, tax returns, workers’ benefit etc. the government must take controlling responsibility in its own hands and must ensure proper application of law. Problems and Prospect of Life Insurance in Bangladesh

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Training of officers Insurance companies lack skilled and qualified people. Therefore, training must be given to concerned offers and employees given to concerned officers and employees to impart insurance know-how to them and to enhance their efficiency. Adequate and effective efforts should be made by the insurance Academy to train-up all levels of employees of insurance industry. Introducing new insurance products Life insurer should adequately cover the health and disability insurance where as, the general insurers should intensity their efforts towards non-traditional business such as crop insurance, cattle insurance etc.

Expanding the operational location The benefits of insurance should not be concentrated only in the urban areas. For the sake of intergraded and balanced development, companies should wxpand their operations in the rural areas.

Improving the quality of service There is no alternative of quality service. Insurance being a service rendering entity must provide quick service.

Training to the policyholders Companies should step up its training program. The insurance academy is used for training the officers and insurance personnel but it has so far neglected the training of policyholders for which claim submission becomes complex and problematic resulting in delays in claim settlement.

Easy and transparent licensing procedure To government should eliminate the difficulty in licensing procedure and should not delay in the approval of new companies if all the requirements are fulfilled. It will help not only to increase volume of business but also solve the problems of unemployment.

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Quick settlement of claims The policyholders are very much worried about the settlement of claims. Therefore, life insurance companies should settle the claims as quickly as possible to create a healthy public image.

Clear opportunity The responsibility and authority of the employees should be made clear. In many cases the private owners locks the information and necessary documents in their own hands. Instead of this practice, the concerned officers should be given adequate freedom to discharge their duty.

Special attention should be given to the industrial workforce Since life insurance business is not among popular among low income groups, the life insurers should pay special attention to industrial labor force, which ultimately will have greater mobility among rural people.

Conclusion Insurance is a key mechanism to handle risk. This means insurance protects those unfortunates who suffer heavy financial impact of anticipated misfortunes by distributing the loss among many who are exposed to the risk of similar misfortunes. It is a core component of financial infrastructure of a country. As people are exposed to new type of risks in everyday life they increasingly feel the importance of life insurance. Life insurance in Bangladesh is facing multidimensional problems. As consequences of these problems, the pace of development of life insurance in our country is very slow. Therefore, currently identified problems should be solved to accelerate the growth of life insurance in our country. In this regard, proper, fair, and quick settlement of claims, wide publicity, and diversification of insurance products, customer responsiveness, and cost control trained personnel, dedication and honesty of employees and positive steps from the government are required.

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References N. Mishra M, Insurance-Principles and Practice, Thoroughly Revised Edition 2003, S. Chand & Company Ltd., Ram Nagar, New Delhi-110055, pp 49-147.

W. W. Cohen. Fast effective rule induction. In Life Insurance: Proceedings of the Twelfth In- ternational Conference (MLg5), 2006.

D.H. Fisher. Knowledge acquisition via incremental conceptual clustering. Insurance, 2(2):139- 172, 2007.

Life

www.deltalife.bd.com

www.jibanbima.org.bd.com

www.bia.org.com

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