A financial institution that gives a range of insurance policies to safeguard individuals and businesses against the uncertainty of financial losses in return for regular payments of stock is known as an insurance company. An insurance company serves by merging risks amidst a large number of policyholders. From its past claims record, the company accountant can determine the possibility of a specific event happening and can determine the average financial loss related to each event. Using this information, he seeks to calculate relevant premiums for policyholders and from the collective pool of premium income to meet outstanding financial claims.
Many companies in Bangladesh are providing insurance policies to the people, companies, etc. As Bangladesh is a developing country, insurance companies are an important ingredient of the finance sector of Bangladesh. The insurance sector can undoubtedly contribute to the social and economic development of Bangladesh because it strengthens the capital base by collecting funds and investing in these for various purposes.
After the independence from Pakistan in 1971, the insurance sector was inaugurated in Bangladesh through the founding of two nationalized insurance companies. One of them was the life insurance company and another was the general insurance company along with another foreign insurance company. At present, under the Insurance act 2010, 62 companies are operating. 18 of them are life insurance companies where one of them is a foreign company and another one is a state-owned company. The rest of them are general insurance companies including one state-owned company. From 2011 IDRA (Insurance Development And Regulatory Authority) started controlling all of these insurance companies. The market share of this sector consists of 73.5% for life insurance companies and 26.5% for non-life insurance companies although Micro-insurance and Islamic-Insurance are also included.
Though this sector is helping a lot in developing the economy of Bangladesh there are a lot of challenges.
Lack Of Public Faith: Those people who are associated with the fieldwork of insurance companies are creating a negative image to the public. It is the first way for shrinking the scope of the insurance business. Most of the people who do not know this sector hinders the growth of this sector.
Centralization Policy: If we keep our eyes outside, we can find that most of the insurance companies are located in the urban areas of Bangladesh. There are few branches in the rural areas. The insurance company’s owner/managing body thinks that they have better opportunities in working in the cities because the financial conditions of the city are better than in the rural area. But they have forgotten that most of the people of Bangladesh live in rural areas. So the centralization process hampers the growth of this sector.
Poor Economic Conditions: The economic condition of the Bangladeshi people is very poor. Because Bangladesh is one of the poorest countries in this world. Most of the people earn their livelihood by fighting hard. They can’t even save money. They are quite unable to pay the amount of the insurer.
Lack Of Supervision From The Government: If the surveillance of the IDRA lacks, these insurance companies can easily choose the unethical way. They can harass the policyholder and even show fake statements. If this happens, these companies not only destroy reputation but also create a negative impact on the mind of the people.
Lack Of Qualified Officials: Insurance companies perform their activities by engaging marketing agents. But the problem is most of them are not well trained or they don’t have any idea about the work. They can’t convince the public. As a result, the growth of this sector hampers.
Absence Of Business Ethics: Today’s business market is competitive. In this competitive market, those companies who have already gained the respect of the people will survive. But other companies choose the unethical way. Even some field workers create fake policies and defalcate. This creates the worst image in the mind of the people.
Lack Of Information Technology: While the insurance companies of other countries are using automation technology, Bangladeshi companies are still operating manually. So people face a lot of difficulties in creating a policy or having all the documents.
Poor Risk Management: Most insurance companies use traditional methods to evaluate all the risks. But the shortage of experienced professionals creates a big problem. There are a lot of conditions when anyone creates a policy. If the conditions break the company will not repay that money. People who are unable to understand those create a risk and make a lot of problems.
If we keep these aside, we can find that the insurance sector has many good signs. Those factors that can facilitate the insurance sector in Bangladesh are discussed below.
Large Population: About 180 million people live in Bangladesh. So it is a big chance for the insurance companies.
Higher GDP: GDP means gross national products. The GDP of Bangladesh is increasing day by day. As it is the source of national income, the income of the people is increasing. So the people are willing to buy the insurance policy.
Micro Insurance For Poor And Rural People: The poor people are unable to buy that high-paid insurance. So insurance companies are creating micro-insurance for the poor people. Microinsurance can also help rural people because people can buy this at a lower price.
Investment Scope: Insurance companies can invest in the trade, commerce, and industries in Bangladesh. Though Bangladesh is an agricultural country, many industries are growing up. As a result, these insurance companies have a high opportunity for investing.
Government Aid: If any development happens, we can take the government as the key player. So boosting the growth of the insurance sector, the government should create a liberal tax policy, reform the legal structure and create a strong regulatory body.
Developing New Insurance Products: It is sure that, in the future, there will be climate change. This will impact all the trade, commerce as well as industry. The insurance company will make new insurance products.
Strict Application Of Rules And Regulations: If the application of rules and regulations are strict, anarchy is prevailing in this sector. These regulations should be used to reduce not increase. The IDRA should monitor all the activities of the insurance companies.
Agriculture Sector: We know that Bangladesh is an agricultural country. Every year drought, flood, cyclones hamper production. Creating insurance can help the farmers. But most of the farmers of Bangladesh have no idea about insurance. So the field workers must help them ethically make insurance policies.
So we can say that the insurance sector in Bangladesh is in a promising place. If these companies can win over those challenges, they will surely make a change in the economy of Bangladesh.
Md. Istiak Ahmed
Faculty Of Business Studies 10th Batch
Department Of Management
Mawlana Bhashani Science And Technology University, Santosh, Tangail.
I like to play different types of outdoor games like football and cricket. I love music a lot. I also like to watch movies and tv series. Romantic movies, Thriller movies, Action Movies are my favourite. I have read a lot of detective books. When I feel bored with these. I make memes, trolls etc to make my mind fresh. Biriyani is my favourite. I want to work in a multinational company in future.