Professional Documents
Culture Documents
Impact and Consequences of Globalization in Bangladesh Insurance Industry
Impact and Consequences of Globalization in Bangladesh Insurance Industry
44
May be the quality of our life will improve, may be we will earn more pay.
But we will be servants of foreigners. It will be worse when super-giants will
control our economy and eventually our governments. Therefore, the real
challenge for us is to get benefits of globalization and at the same time to
protect ourselves from being exploited.
We shall have to reduce the chances of destroying our economy and
independence. We shall have to make rules, regulations, laws and policies to
guard ourselves. If we have to regulate trade and services, in order to get
benefit from globalization, we must do it. We need to change the concept
of globalization for our existence, so that it poses less danger or no harm.
Globalization and free trade is not synonymous. Liberalization and
deregulation is also not synonymous. What we need now is re-regulations. We
need new sets of rules and regulations to face the opportunities and
challenges of globalization.
In this respect, the poor countries need to work together. They should plan
and execute those for the betterment of their people. We need to
interpret the concept of globalization for the benefit of their common
people and for that matter we must insist on the rights of our people
to cross into the rich countries. We do not have capital to invest in
abroad, but we have human resources which should be allowed to move
freely around the world. By exporting manpower, we must try to have
our due share in the free market economy. If this is not done, we will be
faced with tremendous challenge. Globalization in the form that it takes
now is a threat against us, and we must help ourselves to get the
Devine help from our Creator.
What Strategies We Need to Adopt?
First of all, the developing countries must realize, that it is high time
we must be free to decide our future for ourselves. It is extremely
important for us to empower ourselves, to think for ourselves to ensure
that we have the will and wit to decide our own destiny. Our planners
and policy makers should be bold enough to reject those prescriptions of
IMF and World Bank, which are not conducive to our own environment
and strategies of mass development. We can not allow our economy to
grow in a fashion, which will create few hundred or thousand billionere
at the cost of the common people.
Thoughts on Economics
45
46
equitable world order. If it is badly interpreted, it can destroy the poor. For
example, if globalization implies integration of all countries (rich and
poor) into one single global entity, then workers, specially the
unemployed poor people should be allowed to move freely across the
borders. The advocates of globalization must understand that if money is
capital for the rich, labour is the capital for poor countries. If this is
allowed, cost of production and living of the rich countries would be
lower, and will also ensure more remittances to poor countries. The west
must realize that globalization must be for the good of everyone and it
must be proven to be good for everyone.
Finally, in order to ensure justice and to prevent interference in local
affairs, we need regulation. This is necessary because competition is not
between equals. Foreign owners are not interested in the social problems
of poor countries. They want to maximize profits. For that matter in
subtle ways or overtly they will try to interfere in local affairs to protect
their unabated right of making profit unless they are regulated. The
making of profit should not be regarded as a sin. But profiteering, the
exploitation of the poor should be made punishable. We need to be
pragmatic and flexible. Globalization should not be viewed as an end in
itself, but as a means to an end i.e. better life of our common people
and continued freedom from foreign domination.
Facing the Challenge
It is being argued repeatedly that the concept of free market should be
accepted by all religiously. However, we observe that the free market is
no more than a new name of capitalism. The free market is about
maximizing profits. It is not a social organization intended to cure social ills.
In the unregulated free market, the weaker and smaller groups will lose
and be destroyed by the stronger. Eventually, there can be only one player
in one industry. It must be realized that capital inflow can create wealth,
but at the same time it can bring about economic and financial disasters
as demonstrated by the Asian financial crisis of nineties. Therefore,
Globalization be regulated to minimize abuses of the system. A level
playing field is a term invented by the rich to employ fair competition.
But, what is forgotten is that the players on the field must also be
evenly matched.
Thoughts on Economics
47
It seems that globalization is irresistible. But, this does not mean we should
just sit by and watch what is happening. All of us be prepared to accept it.
Globalization of course can bring about a better world, if we are ready
for it and ready to face the consequences prudently as well as
patriotically. We should always be on the lookout for adverse consequences.
We must be prepared to take corrective measures in order to ensure that
these adverse consequences will not befall us. We must proceed cautiously
with globalization. We should not reject globalization altogether.
The world is indeed getting smaller and we are all getting closer to one
a other. Nothing happens in one part of the world that does not affect
other parts. We can no longer isolate ourselves. No man, no nation, is an
island. Globalization is the inevitable consequence of information technology.
What is needed now is its careful management. We must now face the
challenge of globalization. No one is going to wait for us to get ready
for the challenge. So whether we like it or not, we have to face the
challenge. The only way that the weak can face any challenge is to
present a united front. Through smart partnerships, the poor countries can
strengthen each other. We are not without resources. By exchanging our
experiences with the other developing countries, we can learn to do
what is right and avoid the mistakes that any one of us may have made.
Impact of Globalization on Insurance
The main arguments for liberalization of insurance is that the new order
of free trade and services would speed up development and improve
the living standard and quality of life in the developing world. On the
other hand globalization is viewed as a new form of colonization by the
big multinationals and corporations because their home markets are
offering little for growth. Many may think that the impact of liberalization
in the insurance market will be positive as it means more choices for
consumers, who can chose from the different service providers. However,
the die hards argue that insurance being so fundamental to keeping the
wheels of the economy, it can not be fully liberalized to the foreign
sector.
The WTO rules for insurance do not lay down minimum capital
requirements, solvency margins, or if there should be a tariff. What is
required under market opening measures is that the rules should treat
local and foreign insurers uniformly. It further requires that foreign
48
Thoughts on Economics
49
considerations i.e. price and quality of the service. High level of services
are required. At the same time, for the buyers price is important. Customers
are keen to understand what they are buying, why they are buying and
just what they are getting for their money. This growth in customer
sophistication poses problems for insurers. The profit margin if any, will
be squeezed as we shall have to provide more services. Therefore, local
insurers must become more efficient and one way of attaining this, it is
thought, is to achieve economies of scale through merger and
acquisition.
Information technology is transforming our industry more than anything
else. It will do so at an accelerating pace. We can have now access to plenty
of information data, statistics. But it does not help us unless we know
how to analyze it. It is the analytical power of computers that can lead
us to the creation of new products. The internet, presents us with a
remarkable ability to communicate and to exploit the results of our
information gathering. But communication is not all one-way. Our customers
can take the initiative and communicate with our competitors and with
each other. They have in their finger tips, information from neighboring
countries and from the world at large.
Insurance business is completely driven by knowledge and technology. The
business of selling insurance products requires assessing the profile of
the customer and designing the right policy. The process is facilitated by
data base and data warehousing. The emergence of information and
communication technology can capture and disseminate large quantities
of data and information for managerial judgment in insurance and
learning about customer needs and behavior. Therefore, upgrading the
computer technology can help the local insurers more sound and
sustainable.
Insurance agents and brokers provide a very vital links between the
insurers and insureds. It is essential that the agents be professionally trained.
They must be trained prior to their appointment and continuous training
be given to them in order to make them competent and with the changes
in the market dynamics. Unethical practices now prevailing in the Insurance
industry can be minimized if the market players follow the code of
conduct. It is necessary to appoint professional brokers. Developing
technically qualified person is very important. Chief executives should also
have a recognized professional qualification in insurance or related areas,
50
Thoughts on Economics
51
Perhaps the best strategic options for local insurers lie in working
among themselves and others in the region and even outside of the
subcontinent/continent. Local insurers are small and in many cases under
capitalized. Often they could find partners with their peers both locally
and regionally. Should they decide to follow the path of
mergers
nationally and regionally, there is a great chance that they could create
mutually beneficial alliances. From a solid national position they will
also be better placed to choose international partners that would add
value to their operations.
Pros and Cons of Mergers and Acquisitions
The bigger players in the larger markets want to be the biggest players
in all markets. As a result of their entry, insurers in the domestic market
will be facing competition from new international insurers. Pursuit of
globalization leads to pressure for liberalization and to open domestic
insurance markets to foreign competition. The pressure seems to be
ultimately irresistible. So, there will be intense competition between
insurers, both domestic and foreign. Moreover, there is also increasing
competition from other, new competitors such as banks and nongovernment micro finance institutions. Therefore, the pertinent question is
how the local small insurers will survive in this environment.
It is generally believed that merger and acquisition is a panacea to face
the impact of globalization. As the world becomes unavoidably more
globalised, where mergers, acquisitions and alliances become more the norm
rather than the exception. This is simply because, size is a competitive
advantage. The pursuit of growth through acquisition is evident everywhere.
However, pursuing growth through acquisition can be a dangerous strategy,
if the acquirer does not have the skills to manage the integration of the
existing and acquired businesses. It has been experienced that many of
the acquisitions fail to deliver increased shareholder value. If growth
through acquisition is not possible, or desirable for some reason, similar
cost ratio advantage may be possible through a joint venture with an
insurer, who is not a competitor.
Mergers and acquisitions are one of the most important growth options
available to local insurers. They tend to provide the quickest way to
grow, to compete in the market place and allow the company to acquire new
skills, customers and products. Among the most difficult task in the process
of M&A is assessing the market value and finding the partner. Once we find a
52
b)
c)
d)
e)
Thoughts on Economics
53
insurers with non-viable business basis. For most of the insurers, mergers
and acquisitions can be a means of gaining instant access to market share. The
merged entity will be able to enjoy substantial cost saving by shedding
duplicates in Head Office functions as well as reducing branches. With lower
expenses and a larger revenue base spread, insurance companies will be
able to drive their cost/income ratio down and achieve greater efficiency.
Concluding Remarks
Globalization has profound implications for Bangladesh. It creates new
opportunities and threats. The increased competition that is driving
globalization will always produce both winners and losers. For some people,
it is a great threat, and others view it is an opportunity. It is no denying
of the hard truth that liberalization of insurance makes it a game of
survival of the fittest. It is clear that those who are able to add capital,
underwriting and management strengths to their arsenal are in a stronger
position than those who do not. Therefore, it is very essential that the
local insurers should strengthen their competitiveness in order to survive
in the liberalization process.
We must not forget the fact that local insurers are lagging behind in
terms of information technology, financial resources and human resource
development. The process of liberalization is a challenge and stimulus to
local insurers to reach international standard. However, it must be
remembered that reckless opening of unsound insurance business to
foreign competition can lead to costly failures in the domestic insurance
sector. In order to have an equal footing, the insurance industry of
Bangladesh need to be protected from foreign competition until the
local insurers develop sufficient financial capacity and insurance expertise
to compete with foreign insurers.
In a liberalized market, local insurers must take measurers to compete more
effectively. The pertinent question is how quick we can prepare ourselves
and how effectively we handle the situation. In case, we fail to move fast,
the market is likely to be threatened with more fierce and unethical
competition. On the other hand, if we move too fast, it is likely that some
of the insurance companies will lead to insolvency. It is, therefore, prudent
to choose a mid way.
Much of the developments in our market will depend on how insurance
is being regulated. For this matter, we need to build regulations in tune with
54
the changing times. The new regulations ought to be formed for sound
growth of the industry as a whole. This places the regulatory authority in a
position of immense responsibility. It is necessary to devote attention to
professionalise the regulatory body and to ensure a broad form of continuity in
terms of skilled personnel. This would ensure the continued good health of the
insurance sector.
The most important in this respect is cooperation between the industry
and the regulator. The development of regulation should be advanced through
an open and enjoying dialogue between industry and regulator with input from
consumers, intellectuals, and legislators. We need an alliance between the
regulator and the industry to examine in a constructive and transparent
way those areas where regulation is necessary. We need to adopt a culture of
cooperation and free communication. There is the need for partnership in the
planning of regulation. If the supervisory authority and the market jointly
develop a regulation there is a much greater probability that it will achieve
the purpose. Dialogue is also important for identifying the true and real
problems of the industry.
The industry people ought to be sincere to dig out the problems. Liberal
regulation gives increased freedom and independent decision making
power to the players in the market. The players, therefore, must be prepared
to act in a responsible way. Responsible freedom includes knowing the
technical options for dealing with a business problem and the proper way
of dealing fairly with clients, agents, regulators and competitors in the
market. This is possible only when we are keen to follow good business
ethics along with useful knowledge and technology. The Regulatory authority
therefore, must promote professional education and training, and the industry
must get ready to face the challenges only by developing themselves
professionally. For this we need a positive shift in attitudes of the
insurance industry and the regulator.
Thoughts on Economics
55
REFERENCES
1. Ali Mortuza K.M. Growing Insurance Industry of Bangladesh &
Requirements for Sustainable H.R.D programs; Paper presented in the third
Annual Conference of APRIA, July 1999 at Hong Kong.
2. Camerdella and Watson Introduction to International Business, Insurance
and Risk Management, in The Global Environment of Insurance (GEI 203);
McGraw Hill Higher Education 1999.
3. Cloney Gordon J. The impact of Trade liberalization on Emerging
Insurance Markets Paper Presented in M.I.I. Conference on New Direction
in Insurance and Risk Management July 1997, KualaLumpur.
4. Davison, Jenkins & Watson Industry Convergence (Chapter 7 in GEI 203),
McGraw Hill 1999.
5. Dickinson G - Challenges and Opportunities Facing Insurance Enterprises
and Governments in Emerging Markets; Paper presently in International
Conference for Emerging Insurance Market in a Globalizing Economy,
Kuala Lumpur, 2001.
6. Don Ball and McCulloch Wendell The Challenge of Global competition;
(7th Edition), McGraw Hill Companies 1999.
7. Insurance Institute of India- Insurance Business Environment; First Edition
1999.
8. Irukwa, J.O. Risk Management in Developing Countries; Witherby &
Company Ltd., 1991.
9. Kawai Yoshihiro Globalization: Regulation & Supervisory Tools which can
be implemented to Address Deficiencies at Direct- Market, Reinsurance &
Crossborder Levels; Paper presented in international conference for
Emerging Market in a Globalizing Economy, July 1999, KualaLumpur.
10. Mahathir Mohammad- Globalization and the New Realities; Pelanduk
Publications Malaysia, 2002.
11. Malaysian Insurance Institute- An International Perspective on Corporate
Boards and Governance; 1999.
12. OECD Insurance Solvency Supervision: OECD Country Profiles, 2001.
13. Skipper Harold. D International Risk and Insurance, an Environmental
Managerial Approach- McGraw Hall Companies 1999.
14. Watson, Leonard J.- The Global Environment of Insurance; The McGraw Hill
Companies Inc. First Edition-1999.