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Letter of Transmittal
10th November, 2017

Md. Bokhtiar Hasan

Assistant Professor

Department of Finance and Banking

Faculty of Business Administration

Islamic University, Kushtia

Subject: Submission of Report

Sir

With due respect, we would like to inform you that, it is a great pleasure for us to submit the report on ‘

“Why is the insurance sector not flourished in Bangladesh” .We tried our best to make the report
a better one within the given time. We earnestly thank you for your guidance during the preparation of the
report. Any sort of suggestion regarding the report will be greatly acknowledged and we will be gratified
if our report serves its purpose.

We, therefore, request you to accept this report and give us proper suggestion to work in our professional
life and we pray and hope that the mistakes will be kindly excused.

Lastly, we beg your kind consideration for evaluating this report.

Yours faithfully

Session: 2014-2015

Department of Finance and Banking

Faculty of Business Administration

Islamic University, Kushtia.

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Acknowledgement
Our endeavor will come true if the actual purpose of this report becomes fulfilled. First of all we
would like to express our gratitude to almighty Allah. Then we would like to special thanks to
our honorable course instructor, Mr. Bokhtiar Hasan, Assistant Professor, Department of Finance
and Banking, Islamic University, Kushtia, for assigning us such type of challenging task and
guiding and instructing us continuously to complete the task. We cordially remember all the
individuals providing us necessary data to prepare the report.

Finally, we would like to thank our signor batch students and all other person whose influence
and inspiration has enabled us to complete this report.

ABSTRACT
This is the law of nature that people have to live and play with hazards and to some extent
insurance policy can free people from those frustrations. Even if this is true, people of
Bangladesh still don’t prefer to insure themselves. One may think that the people of Bangladesh
are risk lover; on the other hand other may contradict by saying that their low purchasing
power doesn’t permit them to avail insurance policy. This paper will highlight those issues
relating to non-popularity of insurance companies in Bangladesh. To find marketing side
problems, Gap-model of service marketing will be fitted to the insurance industry of
Bangladesh.
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Table of Content
Contents Page no.

Introduction 5

Literature 8

Data & Methodology 11

Analysis and Result 11

Questionnaires 15

Conclusion 16

References 17
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Introduction:
Insurance is a system of spreading the risk among several. It is a contract whereby the insurer on
receipt of a consideration known as a premium, agree to indemnify the insured against the losses
arising out of certain specified unforeseen contingencies or perils insured against. Bangladesh is
mainly an agricultural country where agriculture is the greatest contributor in the economy. Most
of the Bangladeshis are living on agriculture. About 85% of the total population is living in the
rural areas. They are directly or indirectly related with agricultural production (Rabbani, M., et al,
p.17). On the other hand, a significant component of the national GDP is the rural economy.
Agriculture (including crops, livestock, fisheries and forestry) has a contribution of 21 percent to
national GDP. Besides that, non-farm sector is also directed initially by agriculture, for another
33 percent. In Bangladesh, poverty is in the rural and remote areas, accounting 53 percent of its
rural population is identified as poor, totaling 85 percent of the country’s poor. However, the
realities of economy and institutions, demographic and geographic characteristics as well as
vulnerability to natural disaster, creates a challenging environment in Bangladesh. The other
challenge is to maintain pressure on the land. As population is increasing at a rate of 1.6 percent
per year, demographic pressures as well as urbanization have caused cultivated area to reduce at
a rate of 1 percent per year.
Bangladesh is a country of rivers. It is a terminal flood plain delta of three large rivers like
Brahmaputra, Ganges and Meghna. This country is experiencing and suffering from flood and
flood is affected 20 to 30 percent in every year even every few years about 40 percent of the
country. This is one of the main causes of damages to infrastructure, crops and the entire
economy (The World Bank). Climate change drastically affecting agricultural sector in
Bangladesh. Over the years, farmers are losing their expected production as well as becoming
reluctant to cultivate their land. Thus production is becoming less which is an alarming sign for
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survival of the economy and people. The deficit of the production could create severe problems
in the normal life of the mass people. Agriculture is only sector to provide basic food to
Bangladeshi people. For saving a huge agricultural production, weather index insurance could
play a significant role. Due to high damage of the production, farmer faces extreme poverty.
Besides that farmers don’t want to take risk for producing products for the changing nature of the
climate. From protecting the multiple problems, index insurance could be a useful tool. Though
there are some challenges to implement this insurance but there is no way to escape from the
opportunity of implementing too. Different insurance companies should come out with
innovative strategies to implement this index insurance. Bangladesh government has a major role
to provide all sorts of assistance to multiple stakeholders to implement this. Providing support is
not enough but government could also work together to bring positive win-win situation for
both-insurance companies and policy holders.

History of Insurance in Bangladesh:

The origin of insurance is lost in antiquity. However, there is no evidence that insurance in its
present form was practice prior to the twelfth century. A brief chronological historical
development of the various branches of insurance is given below:

*Marine Insurance:
Marine is the oldest form of insurance and came first in the list. This type of insurance probably
began in northern Italy sometime during the 12th& 13thcentury and gradually the concept was
rather transferred to or taken over by the United Kingdom. During the 13th/ 14thcentury the
Italian merchants went to UK and along with the merchandise carried with them the trading
customs including the concept of marine insurance.

*Fire insurance:

After marine insurance fire insurance developed in present form. It had been observed in Anglo-
section Guild form for the first time where the victims of the fire hazards were given personal
assistance by providing necessaries of life. It15 had been originated in Germany in the beginning
of sixteenth century. The fire insurance got momentum in England after the great fire in 1666
when the fire losses were tremendous.
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*Life insurance:

The third in the list of development is the life insurance business. The earliest policy of which
there is a record dates back to 1583. During this period only short term polices were used be
issued meaning that only at the death of the life assured during the term period the money was to
be paid. On survival nothing was payable. In 1693 Halley introduced the mortality table giving a
definite value to risk of death. In 1974, the life Assurance Act was passed in the British
parliament requiring the presence of insurable interest before one could effect a life policy on the
life of another. All these gradually gave life assurance a sound, systematic and scientific basis as
we see in the present day.2.3 Development of Insurance in Bangladesh Insurance is not a new
idea or proposition to the people of Bangladesh

Types of insurance in Bangladesh

Private individuals and businesses need different types of 'general insurance', so we can split
general insurance into two areas. One: personal insurances (or 'personal lines') where the
policyholder is a private individual. And two: commercial insurances (or 'commercial lines')
where the policyholder is a firm or some other kind of organization. Within general insurance
there are a number of different categories.
* Property insurance
Property insurance includes a range of covers, which may be needed by businesses to protect
their physical property, such as buildings, machinery and stock. Private individuals need
property insurance too, but this is typically provided in a home insurance policy.
* Life assurance
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where
the insurer promises to pay a designated beneficiary a sum of money (the benefit) in exchange
for a premium, upon the death of an insured person (often the policy holder). The policy holder
typically pays a premium, either regularly or as one lump sum. Other expenses (such as funeral
expenses) can also be included in the benefits.
*Marine and aviation insurance
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Marine policies cover the property or 'interest' insured against perils of the sea such as bad
weather, stranding, collision, fire and seizure, while aviation insurance covers damage on the
ground or in the air, and liabilities for cargo and passengers.
* Pecuniary insurance
'Pecuniary' means relating to money and pecuniary insurance covers businesses against purely
financial losses (e.g. from fraud, legal expenses or business interruption) rather than physical
damage to property
* Motor insurance
Available for private cars, motorcycles, commercial vehicles and fleet insurance. Motor is one of
the compulsory insurance classes and anyone using a motor vehicle on the public highway must
have it.
*Liability insurance
We all have a legal duty to behave reasonably to others. If we injure someone or damage their
property through negligence, we are legally obliged to pay compensation. Liability insurance is
there to insure individuals and businesses against this risk.
*Health and protection insurance
Personal accident and sickness cover pays out in the event of death, permanent disablement or
loss of eyes or limbs due to accident or if the insured is unable to work due to accident (or
sickness). Private Medical insurance (PMI) pays for inpatient and outpatient treatment outside
the NHS. Creditor insurance covers credit repayments (e.g. on mortgage and credit card loans) in
the event of unemployment, accident or sickness
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Literature Review:
Bangladesh’s, insurance market is not very large compared to the degree of risk. For a better
functioning of the insurance industry and to attain good growth of this sector, it is worthwhile to
know the factors which are responsible for low growth of the insurance industry in Bangladesh.
This report presents the results of an empirical survey highlighting the past and present scenario
of insurance industry in Bangladesh. In this study, many problems have been identified such as
lack of trust, illiteracy, improper claim settlement, lack of product diversification, lack of
information, poor risk management, absence of research and development (R&D) cell,
reinsurance problems etc. The study offers recommendations to make the insurance market in
Bangladesh vibrant and useful for the economy. Many of the existing literatures reviewed above
clearly indicate that the insurance in Bangladesh has not yet stood on a solid footing. Many
reasons are there for the backwardness and underdevelopment of insurance in Bangladesh

In an interview with daily sun, Hossain said in reply to the question about insurance sector
that “The insurance sector can play an important role in the growth of the economy of the
country as it can accelerate the development process. The sector in other countries is much
stronger with policy supports as it can ensure a sustainable development of the economy. The
industry in our country lacks attention of the policy makers and the previous governments
neglected the sector, but the present government under the leadership of Prime Minister Sheikh
Hasina has given much attention to the insurance sector.” He said mentioned various thing to
reply the question of it current condition of the insurance business and highlighted some
problems “There are several problems in the sector. Many of the companies are facing problems
in issuing initial public offerings (IPOs) as the paid-up capital of the companies has been raised
under the new Insurance Act.” He also said that In the past, the paid-up capital for the general
insurance companies was Tk 150 million, which has now been increased to Tk 400 million,
while that for life insurance companies has been raised to Tk 300 million from Tk 75 million. It
is not possible for some of the new companies to raise their paid-up capital to the set level and so
they will face setback for going public. But the provision is not applicable for the previously
registered (SEC) have agreed to consider the case on condition. As per the consent of the
authorities, the insurance companies with previous level of paid-up capital would be able to
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release IPO with the condition that they will only offer stock dividends and bonus shares but not
any cash dividends, so that their paid-up capital can increase. The companies would be able to
offer cash dividends after their paid-up capital is increased to Tk 400 million for general insurers
and Tk 300 million for life insurers.

Mr Kabir Hossain said about its size and its growth that:

”The size of the market for life insurance as of December 31, 2009 amounts to Tk 105.153
billion while that for general insurance to Tk 12.764 million. The investment of the sector market
in life insurance marked a 24 percent growth in 2009 compared to that in 2008, while 12 percent
in general insurance. The premium of 17 life insurance companies totaled to Tk 45.957 billion in
2009 while the amount was Tk 35.97 in 2008, reflecting a 27 per cent increase. The premium of
43 general insurance was Tk 13.80 billion in 2009, compared with Tk 12.58 in the previous year.
Here daily sun asked about the reason of people’s reluctance of insurance business and its claim,
in reply he mentioned that the insurance sector still lacks of people’s confidence. Although there
are guidelines for clearing the claims, but still people face sufferings as the process is much
lengthy and require more time. This is because of the procedure, as most of the insurance
company re-insures with public sector companies and as per the provision, the re-insurance
companies conduct monitoring of the accidents and surveyors of the re-insurance company
prepare the report. But, in most cases, the people do not inform the company on time and, for
example for car insurance, while the accident takes place, the owner of the car brings the vehicle
to the garage and inform the insurance company. But the surveyors are supposed to visit the
damages in the spots, which create problems with the claim. Delay in paying claims happens as
the surveyors need time to complete the procedure and the report needs to be approved by the
SBC. We are trying to simplify the procedure and it would be possible through digitizing the
system.

In a journal Assistant professor of DIU mentioned some diversified problem and prospect of
insurance in Bangladesh, there he mentioned that our main problems of insurance are lower per
capita income , poor knowledge of agents , illiteracy , religious superstition , lower awareness ,
low savings , lack of continuity, shortage of fund , lack of remainder, negligence policy holder,
restriction , poor services to consumers, image , red tapism to obtain compensation , lack of new
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products , low return , traditional marketing ,traditional insurance act, restrictive insurance act ,
nature of intangibility , inadequate training, advantage of psc, discriminatory attitude, lack of
reliability, lack of advertisement, inability to solve the problems, low quality service, dearth of
underwriter, lack of confidence, inadequate government support, undue promotion , fabricated
information given by the agents, limited operational areas, licensing difficulty, rigid premium,
backwards of mentality.

If private companies come forward for re-insuring, then it would be possible to ease the process.
We are trying to encourage the private companies for re-insuring and they can do it in joint
venture. Some of the local insurance companies are re-insuring with foreign firms on a 50-50
basis.

Data and Methodology:

In order to generate this report some primary and secondary data has been used. Primary data
was collected through public interview regarding different class of people such as-

-› Educated and Non-educated

-› Businessman

-› Different Jobholder

-› Farmers

-› and Different level of worker

The secondary data was collected from-

-›Some of our information was collected from theinsured.com , bdresearch.org.bd and Wikipedia
-›We also reviewed some previous assignment on this topic on the web.
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Analysis and Result:

We met different classes of people and collected data. Now let’s take a look on the people who
commented on this topic:-

Occupation Number of Persons Have policy Don’t have policy

Housewife
Farmer
Shopkeeper
Rickshaw-puller
Businessman
Teacher
Employee
Worker
Total=

Bar chart: We got some public opinions about the causes of insurance why people in our
country are not so much involved with insurance. On the basis of their opinions we have made a
statistical comparison through a bar chart.
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59%
60%
50%
50%
41%
40% 36%
32%
27% 27%
Percentage

30%
23%
18%
20%

10% 5% 5% 5%

0%

Causes

Findings: We got information from 22 people from different classes. From the above chart, we
can see that the major problem of insurance according to 59% people is Lack of Promotional
Activities. 50% people thinks that Fraudulency is a major cause, 41% opines Lower income,
36% people commented on Lack of Belief, 32% thinks that Other Investment is more popular
than insurance, and the rests comments are; 27% Religious Superstition, 27% Withdrawal
Restriction, 23% Illiteracy, 18% High Premium, 5% Harassment, 5% Insufficient Branches, 5%
Lack of Government Support.
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These are the major lacking’s or causes of lower insurance cover in the country.

The major problems:

In this section we give a little details about the causes that people have given with their
opinion:-

 Lack of Promotional Activities: The lacking of proper promotional activities and

information about insurance package are also important factor for poor insurance
business which impact on the peoples mind and lower the insurance consumption.
 Fraudulency: Most of the people thinks that the insurance companies are fraud. The
major village people thinks that these companies or the agents of the companies flee
away after collecting their premium. This causes a great hindrance in the field of
insurance.
 Lower Income: 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
 Lack of Belief: People have lacking of belief on the insurance company, because
many insurance company do not make payment they agree to pay in time of selling
policy to the people.
 Other Investment sector: People prefer other investment sector more to insurance
policy. They think that the other investment sector offers more facility than the
insurance.
 Religious superstition: Religious attitude of the people also stands against efficient
marketing of insurance. The religious people believe that the future is uncertain, it is
in the hand of Allah and they do not think it necessary to buy insurance policy for
them.
 Withdrawal restriction: In case of insurance insured cannot withdraw their
deposited money before the maturity date but in case of other sector they can easily
withdraw their money.
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 Illiteracy: Mass illiteracy is another factor that adversely affects the marketing of
insurance. About 70% of the population is floating in the sea of ignorance. Illiteracy
lends one to think that the insurance is deception; it has no value in life. They cannot
think rationally because they do not know what is insurance and what its importance
as security for future is.
 High Premium: Most of the people thinks that the insurance company charges high
premium. For this they don’t want to purchase insurance policy.
 Harassment: when an accident takes place a claimant faces many difficulties to
obtain money from the insurance company. This also discourages for being
policyholder.
 Insufficient Branches: The insurance companies have inadequate branches in our
country, specially in the rural area. For this insufficient branches most of the rural
cannot involve themselves with insurance.
 Lack of Government Support: Lack of surveillance from controlling agency of
government encourages many insurance companies to follow some unethical
practices like delay in claim settlement, harassment to policy holders and showing
fake financial statement. This is not only destroying the reputation of the insurance
companies but also creates negative impact in the mind of the people about insurance.
This problem has been mentioned by 80.80% respondents of the study.
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Sample Questions for Interview:

Questions for Insurance-holder:

1. What types of insurance policy do you have?

□ Life insurance □ Marine Insurance □ Fire Insurance □ Others

2. Why are you involved with insurance policy?

□ Investment □ Protection □ Others/No Comments

3. Are you satisfied with insurance policy?
□ Yes □ No □ No Comments

4. What is the major problem or difficulty you face with insurance policy?
□ High Premium □ Harassment □ Withdrawal Restriction □ Insufficient
Branches

5. How can insurance be more attractive in our country?

□ Lower premium □ Withdrawal facility □ Increasing Public offerings

Questions for Non-insurance-holder

6. Do you have any knowledge about insurance policy?

□ yes □ No □ A little bit
7. Why are you not involved with insurance policy?
□ Higher Premium □ Lack of Belief □ Religious Superstition
8. Why is it not trustworthy?
□ Fraudulency □ Lack of Government Support □ Insufficient Branches
9. Do you feel any necessity of insurance policy?
□ Yes □ No □ No Comments
10. Do you think other investment sectors are more attractive?
□ Yes □ No □ No Comments
11. Do you think your lower income is the main reason?
□ Yes □ No □ No Comments
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12. Do you think withdrawal restriction is the main reason?

□ Yes □ No □ No Comments
13. Is religious superstition is a major reason?
□ Yes □ No □ No Comments
14. Did any agent of insurance company come to you?
□ yes □ No □ No Comments
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Conclusion:
From the above analyses considering the causes we can predict that main reasons are lack of
promotional activities, fraudulency, lower per capita income, trust worthlessness, religious
superstition, illiteracy and so on we described up there. Considering the causes we can
conclude that the insurance company cannot promote their activities better in our country
with this types of lacking’s. Finally if we decide on the insurance industry considering the
above lacking’s we can say that insurance companies can do better in Bangladesh and there
is huge possibility of success in absence of these lacking’s.
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References:
 Dr. Mohammed Shamim Uddin Khan, Thoughts of Economics, vol. 23, no. 04
 Kamrul Hassan Hridoy, Lecturer of Department of Finance, University of Dhaka
 Sadequl Islam, GM at Windy Group.
 Dr. Abul Kasem (BCS cadre, general education)
 Daffodil International University Journal of Business and Economics, Vol. 2, no. 2,
July 2007
 Mishra, M.N. Insurance- Principles and practice, S. Chand and Company, 1989 New
Delhi 110055
 Md. Ripon Ali, Representative of Moon Medical Diagnostic Centre, Kushtia.
 Dorfman, Mark s. Introduction to Risk Management and Insurance, Prentice Hall,
1991, New Jersey 07632
 Ahmed, Shahid Uddin: Insurance Business in Bangladesh, Bureau of Business
Research, 1975, Dhaka University.