Salient Features of

Insurance Law of Bangladesh

I n t r o d u c t i o n
T h e I n s u r a n c e b u s i n e s s h a s d e v e l
o p e d i n p r o p o r t i o n t o t h e d e v e l o p m e
n t o f t h e e c o n o m i c g r o w t h i n B a n g l a d e s h . T h e
r e a r e 6 2 i n s u r a n c e c o m p a n i e s i n t h e c
o u n t r y , i n c l u d i n g t w o s t a t e o w n e d e n t e r p r i s e s , t h e J i w a n B i m a C o r p
o r a t i o n ( J B C ) f o r l i f e i n s u r a n c e , a
n d t h e S a d h a r a n B i m a C o r p o r a
t i o n ( S B C ) f o r
generalinsurance.
Nevertheless,BDremainsbehinditsneighbors
,bothintermsof p r e m i u m i n c o m e a n
d p e n e t r a t i o n . O n l y 1 . 5 p e r c e
n t o f t h e p o p u l a t i o n h a s l i f e i n
s u r a n c e c o v e r a g e i n B a n g l a d e
s h , a s comparedto4.5percentinPakistanan
d7.5percentinIndia.
Meaning 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.
Features of Insurance
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 (Norisk 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.
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
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.
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
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
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:
(a) underwrite both public and private sector insurance business in
competition with the SBC
(b) effect reinsurance to the choice of reinsures
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.
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.
Overview of the New Act, 2010
The Ordinance has some notable new stipulations:
(1) Setting up of a Policyholders' Protection Fund(2) Greater capital requirements
for insurers(3) Creation of brokerage houses for insurance policies(4) Mandatory
solvency margins for insurers(5) Allowing foreign investment in the insurance
sector (6) Reduction of the number of directors from 20 to 15

New Additions by the Act, 2010

Creation of New Regulatory Authority
I n s u r a n c e R e g u l a t o r y Au t h o r i t y ( I R A ) w i l l b e e s t a b l i s h e d f o r t h e
Insurance sector.
T h e N e w I n s u r a n c e Ac t p r o v i d e s f o r t h e c o m p o s i t i o n o f s u c h
A u t h o r i t y, its terms & conditions. The IRA will have the power to:
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, etc
New Addition by the Act, 2010
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.
New Addition by the Act, 2010
Micro Insurance Business
New Act 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 stateowned Sadharan Bima Corporation (SBC) has been relaxed. An insurer may reinsure
with any other insurer or outside Bangladesh.
Changes Bought by the New Act
Penalty
Under the new insurance law, maximum penalty for any violation will be Tk 10
lakh in fine while the minimum fine will be Tk50,000. If the violation continues, an
additional fine of Tk 5,000per 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.

ConcludingRemarks
I n t h e e r a o f g l o b a l i z a t i o n , D o m e
s t i c m a r k e t s h o u l d b e w e l l o r g a n i
z e d w h i l e t h e l e g a l f r a m e w o r k s h o u
l d b e e f f e c t i v e t o a d d r e s s t h e c h a n g
e d c i r c u m s t a n c e s . I n o r d e r t o m e e t t h
e s e challenges,Theinsuranceordinance2010werekeptasflexible a s p r a c t i c a b l e s o t h a t a
n y c h a n g e i n t h e o p e r a t i o n a l p r o c e d u r e , Ac c o
u n t i n g , Ac t u a r i a l s t a n d a r d t h a t w o u l d b e n e e d e d
i n f u t u r e i n l i n e w i t h o u t c h a n g e
i n t h e i n t e r n a t i o n a l a n d d o
m e s t i c e n v i r o n m e n t c o u l d b e m a d e w i t
h o u t f u r t h e r a m e n d m e n t t o t h e o r d i n a n c e . T h
e n e w a c t p r o m i s e d t o b r i n g t h e p o s i t i v e c h a n g e s
a n d w e a r e l o o k i n g f o r w a r d f o r t
h e b e g i n n i n g o f a g l o b a l l y competi
tivemoderninsurancesectorinbangladesh