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Insurance Industry in Bangladesh: Opportunities and Challenges
Insurance Industry in Bangladesh: Opportunities and Challenges
human life and trade and commerce. The insurance businesses are of two
types, namely, life insurance and property-casualty (general) insurance. Life
insurance provides protection against the possibility of untimely death, illness,
and retirement. Property insurance protects against personal injury and
liability such as accidents, theft and fire.
A well-planned, well-organized, efficient and viable insurance industry is a
necessary condition for the economic and financial infrastructural
development in a country. Insurance is one of the most important financial
institutions in the sense that besides covering losses of individual policy
holders for death and accidents or damages of properties, it serves as an
important national purpose of channeling the savings of the general mass or
special group of people to investment. Bangladesh economy is beset with
pressure of over population, frequency of natural calamities, low per capita
income and lack of technical know-how. Insurance has the potential to make a
significant overall impact on the economy of Bangladesh where capital is
relatively in short supply, the rate of savings is very low, investment
opportunities are few and far between, inflation is the norm, and provisions of
social security for the people are almost non-existent (Roy, 2008, Mandal,
1988). This (insurance) action would be conducive to raise per capita income
and play a positive role in the economy. Consequently, the per capita
insurance premium is also found very low and the market did not grow much,
compared to the other Asian countries. For this reason the industry is under-
capitalized; hence most insurance companies found it extremely difficult to
retain a reasonable percentage of large risk undertaken by them. It is true that
people must live with hazards and to some extent insurance can free people
from those hazards. But the people of Bangladesh still do not prefer to insure
themselves as their low purchasing power does not permit them to avail
insurance policy. The main constraint in the development of insurance
industry in Bangladesh is the lack of risk awareness, financial inability etc. In
Bangladesh, there is a greater degree of risk but the insurance market is not so
large as compared to the degree of risk. The insurance products are not sold
spontaneously but sold just for meeting legal obligations.
For better functioning of insurance industry and for a suitable growth of this
sector there is a paramount importance to know the factors which are
responsible for less than the desired growth of insurance industry in
Bangladesh. It is high time to assess the industry and how the insurance
market in Bangladesh can be made more efficient and sound to prepare it for
intense global competition in the upcoming year. The fact is that many
important aspects of Bangladesh insurance industry with respect to different
dimensions are yet to be understood. All these aspects of Bangladesh
Thoughts on Economics 57
Reflecting the rapid growth of the national economy, Bangladesh insurance (both life
and general) market continues to make steady growth both in depth and dimension
despite reduction in business activities due to global recession coupled with drastic
fall in commodity prices. The premium income of all types of insurance companies in
Thoughts on Economics 59
1999 was Tk.9492.60 million and went up to Tk.51635.60 million in 2008 (Table-2).
43 general private insurance companies and one state owned corporation earned
premium around Tk.12583 million in 2008, an increase of 18.12% from Tk.10653
million in 2007. The 17 private life insurers and one state owned life corporation
earned premium amounting to Tk.39053 million in 2008, an increase of 22% from
Tk.31815 million in 2007. Table-2 also shows that during the last decade the average
net premium of Bangladesh insurance companies was about Tk.24811.49 million. Of
this figure life insurance premiums constituted Tk.17685.12 million and general
insurance constituted Tk.7126.37 million (Table -3).
Table-2: Total Asset, Total Investment, and Gross Premium of Insurance
Companies and National GDP of Bangladesh (in Million TK.)
Year Total Asset Total Premium Income Total Investment GDP
1999 28059.11 9492.60 14433.57 2370900
2000 27949.27 11222.61 15454.01 2535500
2001 37596.44 13260.73 22839.57 2732000
2002 42999.63 15391.73 26861.83 3005800
2003 50095.13 18406.35 29444.63 3329700
2004 59896.28 21918.96 40913.73 3707100
2005 73411.27 28462.49 47836.28 4157300
2006 89053.63 35825.78 58894.63 4724800
2007 115237.22 42498.07 65093.86 5458200
2008 142205.64 51635.60 90412.92 6149400
Mean 66650.36 24811.49 41218.50 3817070
Source: Economic Survey of Bangladesh and Bangladesh Insurance Association
The total asset of insurance companies in 1999 was Tk.28059.1 million and went up
to Tk.142205.64 million in 2008 (Table-2). Table-2 also shows that during the last
decade the average total asset of Bangladesh insurance companies about Tk.66650.36
60 Insurance Industry in Bangladesh: ……………..
million. Of this figure life insurance assets constituted Tk.47324.10 million and
general insurance constituted Tk.19326.26 million (Table-4). The aggregate total
assets at the end of 2008 were about 5 times those in 1999.
Table-4: Assets by Different Types of Insurance Companies in Bangladesh
(in Million TK.)
Year Private SBC Total Private JBC Total Total
General General life life Asset
1999 7848.59 5353.20 13201.79 9935.37 4921.95 14857.32 28059.11
2000 9178.11 526.81 9704.92 12629.27 5615.08 18244.35 27949.27
2001 9868.34 5671.88 15540.22 15868.87 6187.35 22056.22 37596.44
2002 10326.73 5663.33 15990.06 20318.93 6690.64 27009.57 42999.63
2003 11145.68 5942.04 17087.72 25599.95 7407.46 33007.41 50095.13
2004 12666.70 6359.72 19026.42 32821.21 8048.65 40869.86 59896.28
2005 14199.72 6051.90 20251.62 44248.51 8911.14 53159.65 73411.27
2006 15815.53 6666.18 22481.71 56888.88 9683.04 66571.92 89053.63
2007 19829.68 7768.14 27597.82 71651.40 15988.00 87639.4 115237.22
2008 22756.46 9623.84 32380.3 91367.73 18457.61 109825.34 142205.64
Mean 13363.55 5962.70 19326.26 38133.01 9191.09 47324.10 66650.36
Source: Bangladesh Insurance Association
experience, number of employees, premium income and total asset etc. It was
decided to allocate a sample of 2 branches to each of the insurance companies.
Branches have been chosen as large, medium and small sizes in terms of their
employees, customers, premium income etc. From each branch, branch
manager, and an executive officer have been selected for the purpose. So, 2
insurance officers from each branch of the sample insurance companies have
been interviewed. The total number of 80 insurance officials taking 4 from
each selected insurance companies has been considered for collecting data.
Again, 5 policyholders have been selected from each branch. To this end, first
of all, a list of customers has been collected from all selected branches. Simple
random sampling method has been used for selecting respondents. Thus, a
total number of 200 respondents have been selected for collecting primary
data. Our selected study areas are concentrated in Dhaka and Chittagong
purposively. 20 academicians, policy-makers and insurance experts are also
selected purposively from Dhaka and Chittagong for collecting information
related to primary data.
Secondary data relevant to this study have been collected from available
publications including different text books, journals, magazines, websites etc.
Data relating to the insurance of Bangladesh Insurance Association (BIA),
Ministry of Finance, Bangladesh Planning Commission, IMF Reports, World
Bank Reports, Economic Survey of Bangladesh, Statistical Pocket Book,
Annual Reports of the sample insurance companies under study period etc.
have been consulted for the theoretical development of the study.
The data and information thus collected have been processed manually as well
as through personal computer. Statistical tools, namely, average; percentage,
5-point Likert- type-scale, rank etc. have been used in the study. The data and
results of the study have been analyzed critically in order to make the study
more informative, useful and acceptable to the readers, academicians,
policymakers, and those people who are devoted to the development of
insurance industry in Bangladesh.
5. Findings and Analysis:
The major findings of the study and their analyses have been summarized
below:
5.1. Demographic Profile and Insurance Types Preference
In the questionnaire, there was a section concerning respondents’ profile to get
a general idea about the respondents’ age, education, designation, as various
factors might also influence their perception. A profile of respondents’ is
presented in Table 6.
Thoughts on Economics 63
Table-6 indicates that 95 percent of the respondents were male and 5 percent
were female. Out of the total respondents, 7 percent of the respondents were
below 30, 56 percent of respondents were between 30 and 45, and 37 percent
of respondents were between 45 and 60 years range. 13 percent of respondents
were single, while the married accounted for 87 percent. A large number of
respondents (80%) were jobholders. The table also revealed that a significant
number of respondents (89%) was highly educated. Respondents were also
asked to indicate what type of insurance company they prefer. Three types of
insurance companies were given for their choice and the choice preferences
are shown in Table-6. Some 85% of respondents preferred private local
companies.
5.2. Factors in Selecting Insurance Companies and Policies
Respondents were asked to indicate factors that influence their selection of
particular types of insurance company. Ten major reasons influenced their
choices as shown in Table-7.
Table-7: Factors in Selecting Particular Types of Insurance Company and Factors
Influencing Buying Policies
Factors in Selecting Particular Types of Insurance Factors Influencing Buying Policies
Company
Factors Mean Rank Factors Mean Rank
Motivated by family ∕friends ∕ 3.10 Providing financial benefits to 3.83
5 3
relatives dependents
2.74 Pension benefits and retirement 3.60
Regulation of the government 7 5
Capital
Reputation of the company 3.73 3 Future savings for uncertainty in 3.58 6
64 Insurance Industry in Bangladesh: ……………..
future
2.67 Meeting expenditure of marriage 2.43
Low service processing cost 8 9
ceremonial program
Influence of the sales people 3.93 2 Meeting the expenditure of 2.28 10
children education
No other options available 2.62 9 For execution of future plan 2.80 8
Higher return on investment 2.79 6 High return on investment 3.15 7
Reference by workplace 3.31 4 Life security and accidental loss 3.67 4
coverage
Political and legal situations 2.17 10 Buying policy for legal 3.92 2
requirements
Risk coverage and future savings 3.99 1 Risk coverage and future savings 4.33 1
(Note: Percentage exceeds 100 because respondents mentioned more than one factor)
Table- 8 indicates that the Sample companies were typically facing some
common risk presented as political, commercial, liquidity, credit risk. Out of
total respondents, 79%, 67%, 61% and 58 % of the Sample companies faced
Thoughts on Economics 65
Note: Percentage exceeds 100 because respondents mentioned more than one
factor.
Every respondent was asked to respond to the questions related to the
existence of R&D cell, the investment made (i.e. non-recurring expenditure
for R&D cell) in the last five years, availability of computer facility etc.
Results are reported in Table-9. The Table shows 85% of the companies do
not have proper research or R & D facilities, and 82% of the companies did
not invest in R & D and did not witness any product innovation.
5.5. Reasons of Non-popularity of Insurance in Bangladesh
Table 10: Reasons for not popularizing the Insurance in Bangladesh (Rank Analysis)
Reasons Mean Rank
Lack of government patronizing 4.04 5
Lack of strong legal frame work 4.00 6
Lack of separate regulatory body 3.10 11
Lack of trustworthiness 4.74 1
Lack of awareness 4.68 2
Low income of the people 4.62 3
Lack of attractive offerings 4.62 3
Lack of sufficient information 3.12 10
Delaying in claim settlement 4.74 1
High service/processing cost 3.18 8
Lack of marketing Research 3.44 7
Lack of product diversification 4.62 3
Lack of efficient workforce 4.08 4
Lack of updated system and technology 3.16 9
that insurance industry is way behind the expected level in terms of innovation
of new products. Low savings rate and unattractive offerings are also
responsible for not purchasing insurance policies by the respondents.
Among other reasons for not popularizing the insurance are ‘ Lack of efficient
workforce’, ‘Lack of government patronizing’, ‘Lack of strong legal frame work’,
‘Lack of marketing research’ and ‘High service/processing cost’, which are ranked
as 4th, 5th, 6th, 7th and 8th respectively.
6. Problems of Insurance Industry in Bangladesh:
The following problems of the insurance industry in Bangladesh are identified
in the present study:
Lack of Public Faith: Insurance agents are responsible for creating negative
image of insurance to the public. It shrinks the scope of insurance business.
Poor public image is mainly responsible for not expanding the sector. This
opinion is held by 94.80 percent respondents in the study.
Lack of Public Awareness: Mass illiteracy hinders the growth of the
insurance sector. A vast majority of people especially in rural areas are left
outside the insurance coverage. This mainly results from the look of awareness
among the people. This problem is supported by 93.60% in the study. Even a
large portion of people in the country have no minimum idea about insurance.
People are not aware of the benefits from the insurance policy and a good
number of people believe that insurance business is nothing but cheating and
they assume that insurance policy is quite unnecessary.
Centralization Policy: Most of the insurance companies in our country are
located in urban areas and there are few branches in rural areas. They think that
they might have better opportunities for their business in cites because the
economic condition of the urban areas is better than in the rural areas. They
forget that the large number of our population reside in rural areas. Thus this
centralization policy acts as an obstruction to the growth of insurance business
in our country.
Poor Economic Conditions: Bangladesh is one of the poorest countries in the
world and most of the people in this country live under extreme poverty. All
of these people fight hard to earn their livelihood. It is quite impossible for
them to save some money for future need. Therefore, they are quite unable to
give the amount to the insurer which is called premium and regarded as safety
or precautionary measure against any accident. This problem is mentioned by
74.80% people in the study.
68 Insurance Industry in Bangladesh: ……………..
Lack of Exposure: Another main problem in the country is that the media is
unconcerned to send the right message regarding insurance to the people. As a
result, a large segment of the population is completely unaware about the
insurance policy. Another problem is that the insurance company does not
provide adequate information in the company’s websites which can meet the
queries of their potential customers and encourage them to buy insurance
policy.
Absence of Business Ethics: In a competitive market, some insurance
companies use some business tactics that violate the business standard and the
provision of insurance acts. Some insurance companies create harassment to
the policy holders when they want back their money after death or maturity.
The insurance companies show different causes for not settling the claim
timely. Besides this, some field officials also often try to give false
information to the people for buying a policy. Such kinds of illegal acts create
bad reputation to the insurance companies and hinder the development of the
overall insurance business in the country. Those customers that are harassed
by the insurance companies normally try to discourage other people to buy any
insurance policy.
Lack of Motivational Program towards Public: According to our survey,
the people of the country are not much motivated by the company to take
insurance policy for safeguarding themselves against any kind of risk. They
fail to understand that insurance policy makes their life risk free. For lack of
motivation among the people, insurance companies are always lagging behind
their expected target.
Lack of Information Technology: Automation facilities prompt service and
paves the way of cost and time savings but the insurance sector in Bangladesh
is still conducting its operations manually (or on conventional method). They
do not use any web address, which is essential for an insurance company.
They can provide more information to its client by using web site. But still the
operations of insurance companies are not automated. The clients of insurance
sector are deprived of the convenient use of e-insurance, online business,
internet, Web and computerized system. This problem is cited by 78.40%
people of the study.
Insufficient Service: Insurance people failed to provide better services to the
mass people of the country. That’s why the people who want to take the
insurance policy they lose their interest from insurance. This problem is
mentioned by 66.60% people of the study. As can be seen in a foreign country,
insurance workers go to customer’s house and offices regularly to influence
70 Insurance Industry in Bangladesh: ……………..
deteriorated over the years, which has adversely affected the operation of the
private sector insurance companies.
7. Prospects of Insurance Business in Bangladesh:
There are many good signs for the insurance business in Bangladesh. The
factors that can facilitate the insurance business in our country are discussed
below.
Large Population: There is a big opportunity for the insurance companies as
the population of our country is increasing day by day. The growth of
population opens greater scope for every kind of insurance business.
Higher GDP: The GDP of our country is increasing which results in the
increase of per capita income. With the growth in the income more, people are
now willing to take an insurance policy for safeguarding themselves against
any danger.
Micro Insurance for Poor and Rural People: Insurance services need to be
redesigned to meet the needs of different classes of people. We should have
consistent product development to meet emerging needs of the poorer class
and the rural class. Distinctive product innovation relevant to indigenous
conditions of the poor and especially for the borrowers of micro-credit is the
need of the time. Micro insurance can be a great prospective area for the
insurance business in Bangladesh. Most of the people of the country are
unable to have costly and long term insurance policies. Micro insurance can be
provided to individual persons or to small business owners against low
insurance premiums and with easy terms and conditions. When people will
afford to minimize their risks at a lower price, more and more people will take
that opportunity. A huge portion of the society can thus be a prospective target
market for this business.
Investment Scope: Bangladesh has large scope of investment in trade,
commerce and industry. The insurance fund is now invested in government
bonds, ICB projects, marketable securities, and FDR which are not much
profitable. The private insurance companies are realizing this fact. There are
opportunities to enhance profit through effective and efficient money
management by employing capable and experienced personnel. There is scope
of investment expansion in the areas leasing, housing, health and money
market.
New Business’s Individual Insurance: There are so many new businesses
starting every day with a booming global demand. Every business is insured
under an insurance company to protect itself from any kind of accident.
Thoughts on Economics 73
Therefore the growth of industry, mills, and factories is creating better scope
for the insurance companies to flourish their business.
Extent of Market: There is a great scope of facility to explore the insurance
market. The market is big but a large part of it is still unexplored. The
insurance sector should take step to introduce innovative and diversified
products to cover risk in the unexplored areas of the economy.
Government Aid: Government is the key player of all development. In order
to boost the growth of the insurance sector, the government should frame a
liberal tax policy, reform the legal structure and set up a strong regulatory
body. Since the government is liable to ensure the safety and security of
people, it can obligate the people to take policy in some cases and also attract
investors in this sector.
Developing Mass Awareness: People are now much more conscious about
their safety and security. Government and the industry can easily draw their
attention regarding the significance of insurance in their life so that they can
be encouraged to take an insurance policy for making their life free from any
unexpected situation. The increase in literacy rate is also helping to create
awareness among the people regarding taking insurance policy. Besides,
insurance companies are also trying to alter the negative attitude of people
towards insurance by organizing various programs such as seminars, programs
including social responsibilities etc.
Furnish Modern Services: The technology should be used in operating
system to reach services promptly to the customer. These comfortable and soft
services attract the customers and enhance the volume of sales. The insurance
sector till now does not use modern tools providing services. So the insurance
sector should introduce e-insurance, online insurance, e-mail, Web and ATM
booth that facilitate transactions in withdrawing their claim, depositing their
premium and knowing the balance sheet etc.
Strict Application of Rules and Regulations: Due to strict application of
rules and regulations, anarchy is prevailing in this sector. The regulations
should be aimed to reduce, not increase, the problems of the insured and to
protect them from any kind of deception. The Controller of Insurance should
closely monitor the insurance company’s functions and obligate them to
follow the current Insurance Act 2010. By enforcing law, this sector can come
back in a systematic manner.
Developing New Insurance Products: In course of time, there is a great
change in climate and atmosphere over the world that adds new pattern of risk
in trade and commerce. The insurance should add new products to cover the
74 Insurance Industry in Bangladesh: ……………..
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Solaiman, M. and Haque, M.A. (1999): “Developing of Insurance Industry in
Bangladesh: An Innovative Approach”, Insurance Journal, Bangladesh
Insurance Academy, pp.43-48.
Uddin, M.N. and Khan, M.S.U. (2005): “Performance Evaluation of Some
Private Sector General Insurance Companies in Bangladesh”, The Chittagong
University Journal of Business Administration, Vol.20, pp.349-366.
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