Chapter # 1
1.1 Introduction
Insurance is a system of spreading the risk of one to the shoulders of many and which is a legal contract whereby the insurers, on receipt of a consideration known as premium, agree to indemnify the insured against losses arising out of certain specified unforeseen contingencies or perils insured against.
Insurance is a written contract, taken with the insuring company that transfers the risk of loss to the insurer according to the terms of the contract. However, not all risks are insurable. If an insurance company would have difficulty calculating the likelihood that a loss would occur because of some risk, it is reluctant to insure against that risk. Risks of this type are generally called uninsurable risks. TYPES OF INSURANCE • Home insurance • Health • Disability • Casualty • Life • Property • Liability • Credit • Insurance financing vehicles
Marine is the oldest form of insurance, which was introduced in Northern Italy sometime between the 12th and 13th century. But the insurance business got an institutional shape in the United Kingdom after establishment of Lloyds Insurance Company in late 17th century. The coffee houses of London played a vital role in developing trade and commerce in the UK. The merchants and traders used to gather in these coffee houses for their business transactions. Edward Lloyd opened one such coffee house in 1680. In late 17th century this coffee house virtually turned into the most famous Lloyds Insurance Company of the UK. During the British rule, some insurance companies started functioning in India. These companies were of various origins including British, Australian and also Indian. After independence, Bangladesh government nationalized the insurance industry in 1972 by the Presidential Order No 95, known as the Bangladesh Insurance (Nationalization) Order 1972. A total of 60 insurance companies are operating in Bangladesh till date. Of these companies, 57 are private, two state-owned and one is foreign. Insurance Directorate, under the Ministry of Commerce, is the regulatory-body of the country's insurance sector.
1.2 Background of the Report
This report has been prepared as a requirement of the Principal of Insurance course. The report was based upon the overall insurance activities in Bangladesh, I was duly approved by our Course Teacher Tazrina Floora. This report will help us know about the overall insurance business in Bangladesh.
Insurance is a system of spreading the risk of one to the shoulders of many. It can be defined as a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to ensure themselves against that risk. It is a contract whereby the insurers, on receipt of a consideration known as premium, agree to indemnify the insured against losses arising out of certain specified unforeseen contingencies or perils insured against. It can play an important role in a country’s economy. It is an old form of financial practice of sharing risk, which was introduced in this area in mid-18th century.
1.3 OBJECTIVES OF THE STUDY
The objective of the report is to make us known the practical situation of Peoples Insurance Company overall activities and prepare us to face the complex situation of insurance industry in this country and international. The objectives also represents here chronologically:
To know about insurance business.
Generating an overview of the current insurance scnario in Bangladesh
To know the financial and money market business like insurance.
How it maintain the insurance all over Bangladesh.
To know about the money and credit policies in Bangladesh.
To know the strategy of making relationship with internal and external customer.
To develop our skill about insurance policy.
To survive with the current market situation.
To observe the practice of modern technology in business organization.
Practical knowledge about transaction.
To know about the inflow.
1.4 SCOPE OF THE STUDY
Since Peoples Insurance Company Limited perform various tasks in the insurance business. The survey of the study has been conducted on overall insurance activities. Most of the information is collected from direct questionnaires and other techniques. The analyzing and interpretations of the report have been done with the help of academic teacher in the University Campus.
The scope of the project report is given below:
The back ground of the organization (Peoples Insurance Company Limited)
The different insurance activities and other efforts.
The organization structure and organizing process for effectiveness.
And the other areas of operation in organization.
1.5 Methodology
The project report has been written on the basis of information collected from primary as well as secondary sources. The primary information has been collected from the personnel, in this case WE have used physical attendance to get positive, negative both sides of the project. Then WE got the relevant data for the required project. To carry out the proposed study, data have been collected from two sources: Primary and secondary sources.
Primary data: Primary data for this study have been collected through a well-prepared questionnaire, which contains both open and close-ended questions. Several ways of collecting data have been used like, face-to-face interviews with the respondents, questionnaire surveyed.
Secondary data: Secondary data again are of two kinds, internal and external. Internal secondary data has been collected from the organization Peoples Insurance Company Limited (PICL) and from its brochures and annual reports of different years. External secondary data gathered from various outlets, research reports, and literature’s /magazines, and the internet and internship reports of other organizations.
Secondary sources of data will be used for data requirements of the report.
Secondary sources of data: Use Internet and different articles published in the journals & magazines have been used.
Secondary Sources are:
Textbooks on insurance
Insurance Journals.
Reference books on insurance.
Annual Reports of BGIC.
Internet Books.
Annual report of insurance companies
1.6 Limitations of the Report (Assignment)
Every Assignment (Project and Thesis) has some limitation. In these thesis paper there are lot of limitation are discuss below:
Due to time and cost restriction, the study in concentrated in selected areas.
Difficulty in collecting information
Lack of experience of the researcher and luck of cooperation from the respondents.
This project paper is submitted on theoretical prospective.
The study completely depends on official records, question answer, observation, face to face viva and annual reports.
Peoples Insurance Company Limited, they are busy and they could not give us enough time for discussion about various topes.
Lack of proper information in the websites of the insurance company.
Lack of necessary information in the journals and official publications of insurance companies.
Inexperience and time constraint is the limitation restricting this report from being more detailed.
Secondary data has been collected from the hand books, magazines, which may biased to the insurance business.
Chapter # 02
Insurance Industry Overview
2.Background of insurance business in Bangladesh
2.1 Origin of insurance in Bangladesh
Resistance against colonial or autocratic regimes in the third world has often been led by educated intelligentsia inspired by western ideas of nationalism and democracy has played a dominant role. Most victorious nationalist movements have been in later years reneged from their earlier commitments and few developing countries to day are nationalist, socialist or democratic. But that is a different story.
When the Awami League cane to power in Bangladesh and the peoples party in Pakistan in 1972.It was inevitable that nationalization a wide scale would take place, for both parties had flaunted socialism as part of their political rhetoric. In Pakistan the administrative mechanism for nationalization of banking, insurance and some industries was carefully worked out by the bureaucracy under political leadership, and the takeover in a feel swoop passed of smoothly. Heads of insurance companies, for instance, where invited to tea at a Karachi Hotel. Where they told that while they were having teas the head offices of their companies were being sealed and Government appointed administrators were being put in charge. This was done to ensure that the assets of the companies remained intact and no tempering with accounts, records and documents was possible.
In Bangladesh an effective government machinery did no exist in the chaotic conditions obtaining an independence following a bitter and brutal war industries was taken over without any inventory, and erstwhile owners ,who were being dispossessed, were allowed to administer their mills and factories till statutory corporations were established.
3.2 Historical Background of insurance Industry in Bangladesh
Insurance is not new business in Bangladesh. Almost a century back, during British rule in India, some insurance companies started transacting business, both life and general, in Bangal.Insurance business gained momentum in East Pakistan during 1947-1971, when 49 insurance companies transacted both life and general insurance schemes. These companies were of various origins like British, Australian, Indian, West Pakistan and local. Ten insurance companies had their head offices in East Pakistan, 27 in West Pakistan, and rest elsewhere in the world. These were mostly limited liability companies. Some of these companies were specialized on dealing in a particular class of business, while others were composite companies that dealt in more than one class of business.
The Government of Bangladesh nationalized insurance industry in 1972 by the Bangladesh Insurance (Nationalization) Order 1972.By virtue of this order, saves and except postal life insurance and foreign life insurance companies, all 49insurance companies and organizations transacting insurance business in the country were placed in the sector under fie operations. These operations were :the Jatiya Bima Corporation,Tista Bima Corporation,Karnafuli Bima Corporation,Rupsa Jibon Bima Corporation and Surma Jibon Bima Corpporation.The Jatiya Bima Corporation was an apex corporation only to supervise and control the activities of the other insurance corporations which were responsible for underwriting.Tista and Karnafuli Bima Corporation were for general insurance and Rupsa and Surma for life insuance.The specialist life insurance companies or for a life portion of a composite company joined the Rupsa and Surma corporations while specialist general insurance companies or the general portion of a composite company joined The Tista and Karnafuli corporations.
The basic idea behind the formation of four underwriting corporations, two in each main branch of life and general, was to encourage competition even under a nationalized system. But the burden of administrative expenses incurred in maintaining two corporations in each front of life and general and an apex institution at the top outweighed the advantages of limited competition. consequently, 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.
The postal life insurance business and the life insurance business by foreign companies were still allowed to continue as before .In reality, however, only the AMERICAN LIFE INSURANCE COMPANY continued to operate in the life sector for both new business and servicing, while three other foreign life insurance continued to operate only for servicing their old policies issued during Pakistan days. Postal life maintained its business as before.
After1973, general insurance business became the sole responsibility of the Sadharan Bima Corporation. Life insurance business was carried out by the Jibon Bima Corporation, the American Life insurance Company, and the Postal Life Insurance Department until 1994, when a change was made in the structure arrangement to keep place with the new economic trend of liberalization.
The insurance corporations Act1973 were amended in 1984 to allow insurance companies in the private sector to operate side by with Sadharan Bima Corporation and Jiban Bima Corporation. The Insurance Corporations Amendment Act 1984 allowed floating of insurance companies, both life and general, in the private sector subject to certain restrictions regarding business operations and reinsurance. Under the new act, all general insurance business emanating from the public sector were reserved for the state owned Sadharan Bima Corporation, which could also underwrite insurance business emanating from the private sector. The Act of 1984 made it a requirement for the private sector insurance companies o obtain 100% reinsurance protection from the Sadharan Bima Corporation.This virtually turned Sadharan Bima Corporation into a reinsurance organization, in addition to its usual activities as direct insurer.Sadharan Bima Corporation itself had the right to reinsure its surplus elsewhere outside the country out after exhausting the retention capacity of the domestic market. Such restrictions aimed at preventing outflow of foreign exchange in the shape of reinsurance premium and developing are insurance market within Bangladesh. The restriction regarding business placement affected the interests of the private insurance companies in many ways. The restrictions were considered not congenial to the development of private sector business in insurance. Two strong arguments were put forward to articulate feelings:
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. In this context, Sadharan Bima Corporation should not have been allowed to compute with the private sector insurance companies for the meager premium (20%) emanating from the private sector;
Being a competitor in the insurance market, Sadharan Bima Corporation was hardly acceptable as an agency to protect the interest of the private sector insurance companies and should not have retained the exclusive right to reinsure policies of these companies. The arrangement was in fact, against the principle of laissez faire.
Private sector insurance companies demanded withdrawal of the above restrictions so that they could:
Underwrite both public and private sector insurance business in competition with the Sadharan Bima Corporation, and
The government modified the system through promulgation of the Insurance Corporation (Amendment) Act1990.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 reinsure of their choice, at home or aboard, keeping the remaining for placement with the Sadharan Bima corporation.
4. Present position of insurance business in Bangladesh
In Bangladesh, the Insurance business, after and early stage of dislocation, adventure and experimentation through half a century has now being established as a nascent industry distributed between the public and private sectors. Insurance business evolved in the Indian subcontinent late in nineteenth century when several business companies started their business and a few Christian missionaries began to operate mutual funds to serve their own community members. From Bangladesh perspective insurance business was not a promising sector in its early age but it is getting it’s pace day by day with the growth of overall economic condition of the country.
The privatization policy adopted in the 1980s paved the way for a number of insurers to emerge in the private sector. This resulted in a substantial growth of premium incomes, competition, improvement in services, and introduction of newer types of business in wider fields hitherto untapped.
Up to 2000, the government has given permission to 19 general insurance companies and 10 life insurance companies in the private sector. Insurers of the country now conduct almost all types of general and life insurance, except crop insurance and export credit guarantee insurance, which are available only with the Shadharan Bima Corporation. Numerous institutions, associations and professional groups work to promote the development of insurance business in Bangladesh. Prominent among them is the Bangladesh Insurance Association (formed on 25 May 1988) having 30 members. It aims at promoting, supporting and protecting the interests and welfare of the member companies. Another example is Bangladesh insurance academy.
Surveyors and insurance agents occupy a prominent position in the insurance market of Bangladesh. The system of professional brokers has not yet developed in Bangladesh. A total of 60 insurance companies are operating in Bangladesh till date. Of these companies, 57 are private, two state-owned and one is foreign. Insurance Directorate, under the Ministry of Commerce, is the regulatory-body of the country's insurance sector. At present there are 44 general insurance companies running in Bangladesh. Many other private companies are about to commence business.
HYPERLINK "http://www.daffodil-bd.com/index.php?option=com_content&view=article&id=227:insurance&catid=46:primary-data&Itemid=117" Insurance Companies in Bangladesh
Government
S/L
Client's Name
1
Jibon Bima Corporation
Non Government
S/L
Client's Name
1
National Life Insurance Company Ltd
2
Bangladesh Gen. Ins. Co. Ltd
3
Peoples Insurance Co. Ltd.
4
United Insurance Co. Ltd.
5
Green Delta Ins. Co. Ltd.
6
Progati Insurance Limited
7
Eastern Insurance Co. Ltd.
8
Eastland Insurance Co. Ltd.
9
Karnaphuli Insurance Co. Ltd.
10
Delta Life Insurance Co. Ltd.
11
Janata Insurance Co. Ltd
12
Phoenix Insurance Co. Ltd
13
American Life Insurance Co.
14
Federal Insurance Co. Ltd
15
Reliance Insurance Ltd.
16
Rupali Insurance Co. Ltd.
17
Purabi Gen. Insurance Co. Ltd.
18
Sandhani Life Ins. Co. Ltd.
19
Bangladesh Co-operative Ins. Ltd.
20
City Gen. Insurance Co. Ltd.
21
Provati Insurance Co. Ltd
22
Prime Insurance Co. Ltd
23
Meghna Insurance Co. Ltd.
24
Meghna Life Insurance Co. Ltd
25
Pioneer Insurance Co. Ltd
26
Mercantile Insurance Co. Ltd
27
Bangladesh National Ins. Co. Ltd.
28
Northern Gen. Ins. Co. Ltd.
29
Homeland Life Ins. Co. Ltd.
30
Golden Life Insurance Ltd.
31
Nitol Insurance Co. Ltd
32
Standard Insurance Ltd.
33
South Asia Ins. Co. Ltd.
34
Paramount Insurance Co. Ltd
35
Cotinental Insurance Limited
36
Agrani Insurance Co. Ltd
37
Islami Insurance Bangladesh Ltd
38
Islami Commercial Ins. Co. Ltd.
39
Global Insurance Ltd.
40
Sonar Bangla Insurance Ltd
41
Express Insurance Limited
42
Asia Insurance Ltd.
43
Republic Insurance Company Ltd.
44
Crystal Insurance Company Ltd.
45
The Loyeds Insurance Co. Ltd
46
Sunflower Insurance Co. Ltd.
47
Union Insurance Co. Ltd.
48
Asia Pacific Gen. Ins. Co. Ltd.
49
Progressive Life Ins. Co. Ltd.
50
Desh Gen. Ins. Co. Ltd.
51
Takaful Islami Insurance Ltd.
52
Fareast Islami Life Ins. Co. Ltd
53
Prime Islami life Insurance Co. Ltd
54
Popular Life Insurance Co. Ltd.
55
Padma Islami Life Insurance Ltd.
56
Pragati Life Insurance Ltd.
57
Rupali Life Insurance Co. Ltd.
58
Sun Life Insurance Co. Ltd.
59
Baira Life Insurance Co. Ltd.
Bangladesh Insurance Association
Bangladesh Insurance Association was formed on 25 May 1988 under the Companies Act 1913. It is registered with the Registrar of Joint Stock Companies and has 30 members. It aims at promoting, supporting and protecting the interests and welfare of the member companies. Surveyors and insurance agents occupy a prominent position in the insurance market of Bangladesh. The surveyors are mainly responsible for surveying and assessing general insurance losses and occasionally, for valuation of insurance properties, while the agents work to procure both life and general insurance business against commission. The system of professional brokers has not yet developed in Bangladesh. However, it is a common practice of the insurers to engage salaried development officers for promotion of their insurance business.
Bangladesh Insurance Academy
Bangladesh Insurance Academy (BIA) established in 1973 in Dhaka by the government of Bangladesh to impart training to insurance professionals and others taking up insurance as a career. It is an autonomous body attached to the ministry of commerce. The management of the academy is vested in a board of governors formed by the government. The academy conducts various training programmes for personnel in the insurance industry, arranges seminars, symposiums and conferences on issues relating to the insurance business. The academy started functioning in early 1974 with 12 employees.
