Introduction

The normal activities of daily life carry the risk of huge financial loss. Many persons are willing
to pay a small amount for protection against certain risks because that protection provides
valuable peace of mind. The term insurance describes any measure taken for protection against
risks. When insurance takes the form of a contract in an insurance policy, it is subject to
requirements in statutes, Administrative Agency regulations, and court decisions.

Insurance law is the practice of law surrounding insurance, including insurance policies and
claims. It can be broadly broken into three categories - regulation of the business of insurance;
regulation of the content of insurance policies, especially with regard to consumer policies; and
regulation of claim handling.

In an insurance contract, one party pays a specified amount of money which is called as premium
to another party. The second party agrees to compensate the first party for specific future losses.
The losses covered are listed in the contract, and the contract is called a policy.

When an insured (First party) suffers a loss or damage that is covered in the policy, the insured
can collect on the proceeds of the policy by filing a claim, or request for coverage, with the
insurance company. The company then decides whether or not to pay the claim. The recipient of
any proceeds from the policy is called the beneficiary. The beneficiary can be the insured person
or other persons designated by the insured.

A contract is considered to be insurance if it distributes risk among a large number of persons

through an enterprise that is engaged primarily in the business of insurance. Warranties or service
contracts for merchandise, for example, do not constitute insurance. They are not issued by
insurance companies, and the risk distribution in the transaction is incidental to the purchase of
the merchandise. Warranties and service contracts are thus exempt from strict insurance laws and
regulations.

The business of insurance is sustained by a complex system of risk analysis. Generally, this
analysis involves anticipating the likelihood of a particular loss and charging enough in
premiums to guarantee that insured losses can be paid. Insurance companies collect the
premiums for a certain type of insurance policy and use them to pay the few individuals who
suffer losses that are insured by that type of policy.

Most insurance is provided by private corporations, but some is provided by the government. For
example, the Federal Deposit Insurance Corporation (FDIC) was established by Congress to
insure bank deposits. The federal government provides life insurance to military service
personnel. Congress and the states jointly fund Medicaid and Medicare, which are Health
Insurance programs for persons who are disabled or elderly. Most states offer health insurance to
qualified persons who are indigent.

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Government-issued insurance is regulated like private insurance, but the two are very different.
Most recipients of government insurance do not have to pay premiums, but they also do not
receive the same level of coverage available under private insurance policies. Government-issued
insurance is granted by the legislature, not bargained for with a private insurance company, and it
can be taken away by an act of the legislature. However, if a legislature issues insurance, it
cannot refuse it to a person who qualifies for it.

History of Insurance Law in BD

Insurance is not new in this territory, right after the partition in 1947, the industry gets its
momentum and 49 Companies conducted business during the Pakistan period (1947-1971). After
the Independence, the Insurance sector Nationalized by Bangladesh Insurance Order 1972

As a result of it, on 14 May 1973, a restructuring was made under the Insurance Corporations
Act 1973. Following the Act, in place of five corporations the government formed two: the
Sadharan Bima Corporation for general business, and Jiban Bima Corporation for life business.

Since then the Industry is growing steadily despite many backlogs, several amendments were
made in the Insurance Law since 1973. This year a New Insurance Act passed by Parliament
to replace the old Act

The Insurance business has developed in proportion to the development of the economic growth
in Bangladesh. There are 62 insurance companies in the country, including two state-owned
enterprises, the Jiban Bima Corporation (JBC) for life insurance, and the Sadharan Bima
Corporation (SBC) for general insurance.

Nevertheless, BD remains behind its neighbors, both in terms of premium income and
penetration. Only 1.5 percent of the population has life insurance coverage in Bangladesh, as
compared to 4.5 percent in Pakistan and 7.5 percent in India.

Meaning and Principles of Insurance

It is a contract in which one party known as the insured or assured, insure with another person,
known as the insurer, assures or underwrites his property or life, or the life of another person in
whom he has a pecuniary interest, or property in which he is interested, or against some risk or
liability, by paying a sum of money as the premium. Under the contract, the insurer agrees to
indemnify the insured against a loss which may accrue to the other on the happening of some
event. There are two types of principles law. They are:

Common law jurisdictions in former members of the British Empire, including the United
States, Canada, India, South Africa, and Australia ultimately originate with the law of England
and Wales. What distinguish common law jurisdictions from their civil law counterparts are the

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concept of judge-made law and the principle of stare decisis - the idea, at its simplest, that courts
are bound by the previous decisions of courts of the same or higher status. In the insurance law
context, this meant that the decisions of early commercial judges such as Mansfield, Lord Eldon
and Buller bound, or, outside England and Wales were at the least highly persuasive to, their
successors considering similar questions of law.

At common law, the defining concept of a contract of commercial insurance is of a transfer of

risk freely negotiated between counterparties of similar bargaining power, equally deserving of
the courts' protection. The underwriter has the advantage, by dint of drafting the policy terms, of
delineating the precise boundaries of cover. The prospective insured has the equal and opposite
advantage of knowing the precise risk proposed to be insured in better detail than the underwriter
can ever achieve. Central to English commercial insurance decisions, therefore, are the linked
principles that the underwriter is bound to the terms of his policy; and that the risk is as it has
been described to him, and that nothing material to his decision to insure it has been concealed or
misrepresented to him.

In Civil law maintained countries, insurance has typically been more closely linked to the
protection of the vulnerable, rather than as a device to encourage entrepreneurialism by the
spreading of risk. Civil law jurisdictions - in very general terms - tend to regulate the content of
the insurance agreement more closely, and more in the favor of the insured, than in common law
jurisdictions, where the insurer is rather better protected from the possibility that the risk for
which it has accepted a premium may be greater than that for which it had bargained. As a result,
most legal systems worldwide apply common-law principles to the adjudication of commercial
insurance disputes, whereby it is accepted that the insurer and the insured are more-or-less equal
partners in the division of the economic burden of risk.

Features of Insurance:
There are some features of insurance. They are:

Shifting or transferring risk of loss or damage

Sharing of losses by members of the group

One party undertakes to make good the loss of the other party

The risk is for a consideration of money called as Premium (No risk to be assumed unless
premium is received in advance)

The amount will be paid on happening of the specified act or event. E.g.. Death, Fire
Accident, Motor Accident, Any peril in Sea.

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Parties of Insurance Contract
Insurer
The person who undertakes the risk under the contract

Insured
The person to whom the undertaking is given

The Insurer can be any of the following mentioned below:

An individual

Unincorporated body of individuals,

Body corporate ( established by the Companies Act)

An Association of partnership firm Registered,

Any other agency permitted under any other Law in Bangladesh

Terms of Insurance Law:

Policy: The contract which outlines what the insurance company will pay in case of loss.

Benefi t: The money or services an insurance company provides in case of loss.

Insured: The person who receives the insurance benefit is called Insured. However, in the
case of life insurance, the "insured" is the person whose life is insured, and the person who
receives the benefit is called the "beneficiary."

Premium: The money the insured pays the insurance company.

Claim: A request for benefits when loss occurs.

Coverage: The types of losses which the insurance company will reimburse.

Insurance Agent: A person who is licensed to sell insurance in a particular state.

The Objectives of Insurance Law

Every day we face uncertainty and risk. Insurance offers individuals and organizations protection
from potential losses as well as peace of mind in exchange for periodic payments known as
premiums. Today, insurance companies offer a variety of insurance products in areas such as

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property, casualty and life insurance. To function effectively, insurance must satisfy a number of
objectives including pooling risk, paying out claims, ensuring the solvency of insurers and
incentivizing safe behavior.

Pooling Risk
One of the objectives of insurance is to pool the risk of a sufficiently large number of
policyholders. By collecting premiums from many individuals or organizations, insurers can pay
out relatively few claims each year while collecting premiums from the majority of policyholders
who don't file claims over that same period. This conclusion follows the Law of Large Numbers.
(Reference 1: page titled "Insurance Helps People Manage Risks")

Loss Recovery
A second key objective of insurance is to compensate policyholders following predetermined
catastrophic events. For example, auto insurance policyholders are reimbursed for part or all of
the damages sustained by their vehicle in a collision. Other examples of assets covered by
property insurance include houses, inventory and personal possessions. (Reference 1: page
titled "Origins and Types")

Insurer Solvency
A third objective of insurance is to satisfy policyholders that insurers are financially stable and
solvent. This is important because if any policyholders weren't compensated for eligible losses it
would undermine society's confidence in the system. To ensure that insurers remain solvent at all
times, the United States government closely regulates and monitors the industry. (Reference 1:
page titled "Insurance Regulation")

Behavioral Influence
Yet another aim of insurance is to promote and reward responsible behavior. For example,
individuals with safe driving records are more likely to be quoted lower auto insurance premiums
than those with unsafe driving records. Such discriminatory pricing may cause some individuals
and organizations to behave with greater caution, thereby making society safer for everyone.

The Purpose of Insurance Law

Insurance is something that most people dont like to think about. Because insurance means
adding on an extra cost to something you have already paid for and then not knowing whether
you will ever benefit from that added expense. In all likelihood, you will not receive any benefit
from taking out insurance, as the only advantage of being insured is that you will be
compensated should your item become damaged, lost or stolen.

But this doesnt necessarily mean that you should never be insured, as you never know what
future holds. Its therefore up to you to decide to you are willing to take a risk on something, or
whether you want to protect yourself from that risk by being insured.

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The main purpose of insurance law is protecting you against large losses.

Listed below are some important things that you might want to consider taking out insurance for:

Your ability to work.

Your home
Your car
Your health.
Your life.

Types of Insurance:

Life Insurance
Life insurance provides for your family or some other named beneficiaries on your death. Two
general types are available: term insurance provides coverage only during the term of the policy
and pays off only on the insureds death; whole-life insurance provides savings as well as
insurance and can let the insured collect before death.
Types of life insurance
Term
Whole Life
Endowment
Joint Life

Marine Insurance
This insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by
which property is transferred, acquired, or held between the points of origin and final destination.
Types of Marine Insurance
Voyage Policy
Time Policy
Valued Policy
Unvalued policy
Wagering policy
Floating Policy by ship(s)

Fire insurance
This insurance covers damage or loss to a property because of fire. It is a specific form
of insurance in addition to homeowner's or property insurance, and it covers the cost of
replacement and repair or reconstruction above what the property insurance policy covers.
Types of Fire Insurance
Specific Policy

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 Valued Policy
Average Policy

Health Insurance
Health insurance covers the cost of hospitalization, visits to the doctors office, and prescription
medicines. The most useful policies, provided by many employers, are those that cover 100
percent of the costs of being hospitalized and 80 percent of the charges for medicine and a
doctors services. Usually, the policy will contain a deductible amount; the insurer will not make
payments until after the deductible amount has been reached. Twenty years ago, the deductible
might have been the first $100 or $250 of charges; today, it is often much higher.

Disability Insurance
A disability policy pays a certain percentage of an employees wages (or a fixed sum) weekly or
monthly if the employee becomes unable to work through illness or an accident. Premiums are
lower for policies with longer waiting periods before payments must be made: a policy that
begins to pay a disabled worker within thirty days might cost twice as much as one that defers
payment for six months.

Homeowners Insurance
A homeowners policy provides insurance for damages or losses due to fire, theft, and other
named perils. No policy routinely covers all perils. The homeowner must assess his needs by
looking to the likely risks in his areaearthquake, hailstorm, flooding, and so on. Homeowners
Policies provide for reduced coverage if the property is not insured for at least 80 percent of its
replacement costs. In inflationary times, this requirement means that the owner must adjust the
policy limits upward each year or purchase a rider that automatically adjusts for inflation. Where
property values have dropped substantially, the owner of a home (or a commercial building)
might find savings in lowering the policys insured amount.

Automobile Insurance
Automobile insurance is perhaps the most commonly held type of insurance. Automobile
policies are required in at least minimum amounts in all states. The typical automobile policy
covers liability for bodily injury and property damage, medical payments, damage to or loss of
the car itself, and attorneys fees in case of a lawsuit.

Other Liability Insurance

In this litigious society, a person can be sued for just about anything: a slip on the walk, a harsh
and untrue word spoken in anger, an accident on the ball field. A personal liability policy covers
many types of these risks and can give coverage in excess of that provided by homeowners and

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automobile insurance. Such umbrella coverage is usually fairly inexpensive, perhaps $250 a year
for $1 million in liability.

Business Insurance

Workers Compensation
Almost every business in every state must insure against injury to workers on the job. Some may
do this through self-insurancethat is, by setting aside certain reserves for this contingency.
Smaller businesses purchase workers compensation policies, available through commercial
insurers, trade associations, or state funds.

Builder's Risk Insurance

Builder's risk insurance covers buildings while they are being constructed. For example, a
Builder's risk policy would cover losses if a windstorm takes down your partially constructed
condominium complex.

Property Insurance
No business should take a chance of leaving unprotected its buildings, permanent fixtures,
machinery, inventory, and the like. Various property policies cover damage or loss to a
companys own property or to property of others stored on the premises.

Malpractice Insurance
Professionals such as doctors, lawyers, and accountants will often purchase malpractice
insurance to protect against claims made by disgruntled patients or clients. For doctors, the cost
of such insurance has been rising over the past thirty years, largely because of larger jury awards
against physicians who are negligent in the practice of their profession.

Business Interruption Insurance

Depending on the size of the business and its vulnerability to losses resulting from damage to
essential operating equipment or other property, a company may wish to purchase insurance that
will cover loss of earnings if the business operations are interrupted in some wayby a strike,
loss of power, loss of raw material supply, and so on.

Regulatory Framework in BD
The Regulatory Framework
The insurance sector is originally regulated by the Insurance Act, 1938 and after the
Independence in 1971; the industry was governed by the Insurance Act 1973. In 2010 a new
Insurance Act has been passed to modernize the sector.

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Major Insurance Acts
The Insurance Act, 1938

Insurance Rules of 1958

Bangladesh Insurance (Nationalization) Order 1972

The Insurance Corporations Act, 1973

Insurance (Amendment) Ordinances of 1984

The Insurance Act, 2010

Major Regulatory Conflicts

The Conflicts
There was restriction regarding business placement which affected the interests of the private
insurance companies in many ways. Since the public sector accounted for about 80% of the total
premium volume of the country, there was little premium left for the insurance companies in the
private sector to survive.

Private sector insurance companies demanded withdrawal of such restrictions so that they
could

underwrite both public and private sector insurance business in competition with the SBC

effect reinsurance to the choice of reinsures

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Resolutions Solving the Conflicts
The Resolutions
The Government modified the system through promulgation of the Insurance
Corporations (Amendment) Act 1990.

The changes allowed private sector insurance companies to underwrite 50% of the
insurance business emanating from the public-sector and to place up to 50% of their
reinsurance with any reinsures of their choice, at home or abroad, keeping the remaining
for placement with the SBC.

Many other changes were introduced such as privatization policy, which paved the way
for a number of insurers to emerge in the private sector.

The New Insurance Act, 2010

To create a vibrant insurance sector, the industry got its recognition from the government and a
new Insurance Act2010 has been passed to replacing the old Insurance Act of 1973.

Overview of the New Act, 2010:

Insurance Act 2010 and Insurance Development and Regulatory Authority Act 2010 were
passed to better regulate the industry and protect customers' interests. Insurance Bill 2010
said the bill was moved aiming at modernizing and updating the old Act and to reduce the
risks of investment in trade and commerce.

The laws update Insurance Ordinance 2008 and Insurance Regulatory Authority
Ordinance 2008 of the past caretaker government.

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 The overhaul would also include the establishment of an Insurance Regulatory Authority
(IRA), which would be autonomous, and have the power to regulate the state-owned JBC
and SBC as well as all private insurance companies on an equal footing under a uniform
regulatory framework.

Some Notable New Stipulations

Setting up of a Policyholders' Protection Fund

Greater capital requirements for insurers

Creation of brokerage houses for insurance policies

Mandatory solvency margins for insurers

Allowing foreign investment in the insurance sector

Reduction of the number of directors from 20 to 15

New Additions by the Act, 2010

Creation of New Regulatory Authority
Insurance Regulatory Authority (IRA) will be established for the Insurance sector. The New
Insurance Act provides for the composition of such Authority, its terms & conditions.

The IRA will have the power. Such as,

Making regulation for Insurance Industry and delegation of powers

Establishment of the Insurance Regulatory Fund

Establishment of Insurance Advisory Committee

Power to make any future rules or amendments

Legal Framework for Islami Insurance

Islamic Insurance was already in Bangladesh but it was now bought under legal
framework by this new Act 2010.

During 1999 & onward many insurance companies have been given license to
underwrite Islami insurance business without having proper law, rules and regulations to
guide them. It is not proper to allow Islami insurance business without having legal
backing and, therefore, this business has been brought under the ambit of new law.

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Micro Insurance Business
New Act is making way for the Micro Insurance Business.

Micro insurance can be a great prospective area for the insurance business in our country.
Most of the people of our country are unable to have costly and long term insurance
policies.

Micro insurance can be provided to individual personnel or to small business owners

against little insurance premiums and with easy terms and conditions. When they will
afford to minimize their risks at a lower price, they will take that opportunity and they
will become to get used to it. This can cover a huge portion of the society who can be a
prospective target market for this business.

Changes Bought by the New Act

Capital Requirements
An insurer transacting life insurance business would be required to have a minimum paid-up
capital of Tk. 300 million while the minimum paid-up capital for non-life insurer would be Tk.
400 million.

Spread of Business in Rural Areas

Provision has been made to induce insures to undertake such parentage of his business in the
rural areas or in social sectors as maybe specified by the Authority, This provision would
encourage saving in the rural areas and social sector on the one hand, and provide financial
security to the insurer, on the other.

Reinsurance Abroad
The present mandatory provision for reinsurance of general insurance with the state-owned
Sadharan Bima Corporation (SBC) has been relaxed. An insurer may reinsure with any other
insurer or outside Bangladesh.

Higher GDP

The GDP of our country is increasing than the previous years which results in increase of per
capita income. So this growing GDP and income holds bright prospects for insurance companies.
The major problem is the incapability of our people to pay the premium charged by the insurance
companies. . With the growth in the income more and more people are now willing to take an
insurance policy for safeguarding themselves from any danger.

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Penalty
Under the new insurance law, maximum penalty for any violation will be BDT 1,000,000 in fine
while the minimum fine will be BDT 50,000. If the violation continues, an additional fine of
BDT 5,000 per day will be imposed.

Provision for Foreign Investment

With a view to attracting foreign investment in insurance sector, foreign investors would be
allowed to hold or subscribe to the share of an insurance company up to a prescribed maximum.

Recommendations:
The new Insurance Act 2010 introduced many essential features that were missing but the
implementation process were too slow, the independent Insurance Regulatory Body (IRA) is not
yet fully functional. Was not yet established and many of features are yet to be implemented. To
bring a real change and in the Insurance Business Sector the proposed changes should be
implemented prudently and as soon as possible.

Conclusion:
In the era of globalization, domestic market should be well-organized while the legal frame work
should be effective to address the changed circumstances. In order to meet these challenges, the
Insurance Ordinance 2010 were kept as flexible as practicable so that any change in the
operational procedure, accounting, actuarial standard that would be needed in future in line with
out change in the international and domestic environment could be made without further
amendment to the Ordinance. The new Act promised to bring the positive changes and we are
looking forward for the beginning of a Globally Competitive Modern Insurance Sector in
Bangladesh.

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