Daffodil International University
Definition of Insurance
In legal terms, insurance is a contract of uberrima fidei, i.e. a contract of utmost god faith. Here both the parties namely insurer (insurance company) and insured (policy holder) must be honest and disclose all material facts about the insurable interest. Here the insurance company undertakes to indemnify the insured against any loss in lieu of a small charge known as premium. Such as insurance policies except life insurance allows a policy-holder to transfer all risk to the insurance company in exchange of paying a certain amount of premium. The insurance company then transfers the same risk to a large number of other policy-holders who also pay the premium agreed among them. In reality, a small fraction of the policy-holders suffer loss and hence the insurance company pays them for the losses suffered while retaining the premium income from others.
The same principle of risk transfer is also applicable to life insurance policy but in a different form. Here the person insured may or may not be alive to become the beneficiary of a life insurance policy on maturity. This is, however, not applicable in case of a term or endowment policy. A life insurance policy is mostly adopted by a person who gives high priority to protection of family, economic security in the event of his death and deep emotional factor.
There should be vigorous campaign throughout the country to make the people aware of the utility and prospects of buying insurance. Bangladesh is a densely populated country and most of the people in our country are poor. They would definitively go for insurance for the security and the risks covered by the insurance. Therefore, the prospects of Insurance are very high in Bangladesh if the following measures can be adopted.
First of all, there is no alternative of quality service. Insurance being a service rendering entity must provide quick services. Policyholders are highly dissatisfied with service of JBC and SBC. Due to poor quality services, public corporations are losing market. In order to ensure their continuity, such corporation must pay adequate attention on their quality of service. Private companies also need put their all out efforts to improve quality of service so as to strengthen their position.
Secondly, the government should eliminate the difficulty in licensing procedure and should not delay in the approval of new companies if all the requirements are fulfilled. It will help not only to increase volume of business but also solve the problems of unemployment.
Finally, the policy holders are very much worried about the settlement of claims. Ordinary people also consider it main constraint. Therefore, instance companies should settle the claims as quickly as possible to create a healthy public image. For this purpose the claim settlement procedure can be simplified and the insurers can provide proper written guidelines of claim settlement to the policyholders.
If the above steps can be taken, more and more people in Bangladesh will be interested in buying insurance.
1. [LOW PER CAPITA INCOME] Poor economic condition is considered to be the main reason for poor life insurance penetration in Bangladesh. The country has a very low per capita income and over 50% of our total population lives below the poverty line. Inability to save or negligible savings by a vast majority of population kept them away from the horizon of life insurance.
2. [POOR KNOWLEDGE OF AGENTS] The marketing of insurance is greatly hampered in the remote village of Bangladesh where the agents are appointed from respected locality. This is because; educated young people are seemed to be reluctant to become insurance agents. Therefore, persons finding no job or persons having lesser knowledge become insurance agents whom cannot acquaint themselves fully with the whereabouts of insurance. Such agents cannot play efficient role in convincing a prospective policyholder.
3. [ILLETERACY] 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 leads one to think that the insurance is deception; it is no value in life. They cannot think rationality because they do not know what is insurance and what its importance as security for future.
4. [RELIGIOUS SUPERSTITION] Religious attitude of the people also stands against efficient 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 life insurance policy for them.
5. [LOW AWARENESS] Insurance awareness is poor. Agents are not skilled enough. These agents cannot perform their job properly to make the people aware of life insurance.
6. [LOW SAVINGS] People of Bangladesh have a very small saving potentially and thus have less or no disposable income. Almost the whole of the income is exhausted in the process of maintaining the day-to-day life. Thus they are left with little amount, which may not deemed to sufficient for the payment of premiums. This factor discourages many to buy life insurance policy.
7. [LACK OF CONTINUITY] Discontinuation of insurance policy is found higher. This also adversely affects the market efficiency of insurance business.
8. [SHORTAGE OF FUND] Most of the policyholders cannot continue their policies owing to price spiral and shortage of fund.
9. [LACK OF REMAINDER] Increase in liability, lack of reminder notice from the insurance company causes for discontinuation of policy.
10. [NEGLIGENCE OF POLICY HOLDERS] Many of the policyholders have expressed that; their policies lapsed for their own negligence to pay premium in time.
11. [RESTRICTION] Another important reason for discontinuation is restriction investment allowance by the government relating to income tax.
12. [POOR SERVICES TO CONSUMERS] An important reason for the dismal performance of insurance business in Bangladesh is poor client services provided by the insurance companies. The public image of service from life insurance institutions is very poor.
13. [IMAGE] High lapses of life insurance policies do much to harm insurance image.
14. [RED TAPISM TO OBTAIN COMPENSATION] When an accident takes place, a claimant faces many difficulties to obtain money from the insurance company. This also discourages people for being a policyholder.
15. [LACK OF NEW PRODUCT] In a dynamic life insurance market, one can expect to see new product coming out every now and then. But still today one can hardly see any new product in the insurance market in Bangladesh.
16. [LOW RETURN] Partly for reasons of drastic fall in money value and partly for reason of nil or low bonus addition resulting from a combination of high management expenses and low investment return, life insurance has ceased to look as an attractive savings medium.
17. [TRADITIONAL MARKETING] Both as a medium of savings and as a provider of financial security in the event of premature death of a bread winner and in old age, life insurance has relatively greater appeal among the mid-income people having steady income. For various reasons poor monetary benefit, poor services, no tax incentive to government employees etc.-the traditional marketer of insurance have drastically shrunk. So, insurers force to sell policies among different classes, such as business people, well-to-do farmers, traders etc. These peoples interest for life insurance is rather lukewarm. Soliciting business from them is harder. Procuration costs, as a result, have to be raised and at the same time quality of business falls.
18. [TRADITIONAL INSURANCE ACT] The present insurance act was enacted more than half a century back. Many amendments have been made though since then but the basic character of the act has remained virtually unchanged. This act does not suit the needs of life insurance in the present day in Bangladesh. The all pervasive stringent regulatory functions carried and exercised by the office of the controller of Insurance (CI) are not consisted with the market liberalization policy of the government. In its present form, the act is obstructing, rather than helping, healthy growth of life insurance in the company.
19. [RESTRICTIVE INSURANCE ACT] one would find it difficult not to admit that the Insurance Act is too restrictive in the matter of investment. The inflexible rigid rules put obstacles in the way of earning high profits for the life fund.
20. [NATURE OF INTANGIBILITY] The current practice is that every company tries to promote its own products, but the benefits of insurance as such are not highlighted. In other words, the publicity is itemized, not general.
21. [INADEQUATE TRAINING] ] In life insurance, for the sales personnel particularly, importance of training cannot be overemphasized. But unfortunately the present facilities for training, despite what the Insurance academy is doing, are meager.
22. [ADVNTAGES OF PSC] whatever may be in theory, in reality a public sector corporation (PSC) engaged in insurance business is not accountable to anyone. The controller of insurance (CI) cannot enforce its authority over the PSC, since the latter can easily disregard the CI without fear and any positive action. This gives the PSC, compared to private companies, many advantages. Of course, these so-called advantages are truly of an illusory nature since in the long run they will do much harm not only to the PSC itself but also to the life insurance industry as a whole.
23. [DISCRIMINATORY ATTIRUDE] The private insurance companies are noticing that in any dispute arising between the PSC and the private companies, the authority, for some reasons is always found to take a position against the companies in favor of the PSC. This kind of discriminatory attitude does not indicate a sincere belief in free market concept.
24. [LACK OF RELIABILTY] Peoples have lacking of reliability on the insurance company, because many insurance companies do not make payment they agree to pay in time of selling policy to the people.
25. [LOW ATTRACTIVENESS OF OFFERINGS] The offerings of much of the insurance companies are not so much attractive that they can allure people to buy a life policy.
26. [LACK OF ADVERTISEMENT] The lacking of proper advertisement and information about life insurance package are also important factor for poor life insurance business.
27. [INABILITY TO SOLVE PROBLEMS] Many of the life insurance companies are unable to solve the problems of the policyholders.
28. [LOW QUALITY SERVICE] Inability to maintain the quality of the services provided by the life insurance companies is also a problem.
29. [DEARTH OF UNDERWRITER] In Bangladesh, there is a serious dearth of life insurance underwriters and for that reason-underwriting decision is delayed to the detriment of the sales force and the proposed policyholders.
30. [LACK OF CONFIDENCE] Lack of faith upon insurers is one of the fundamental reasons for which insurance business cannot strong position in Bangladesh. Most of the respondents have said that insurance in Bangladesh could achieve the fullest faith of people. At one side, insurance business is not well known to the general people and on the other side; the known people are dubious about its service. Public image about services of insurance companies is very poor. Majority of the insurance concerns and almost all non policy-holders confessed this very frankly and counted it as a burning constraint behind the progression of insurance business in Bangladesh. This feeling of distrust is very intense in the case of life insurance as life insurance contract is usually made for a longer period of time. The non-policy holders argued that the motive of insurance companies is to be a millionaire over night.
31. [INADEQUATE GOVERNMENT SUPPORT] A good number of respondents held the government responsible for its little support for the enrichment of insurance industry. Since the majority of people is uneducated and is unaware about the benefits of insurance, the government has to take the responsibility for wide publicity. But the government hardly performs this responsibility.
32. [UNDUE PROMOTION] A very commonly noticed problem in every employment area of Bangladesh is the undue employment and promotion. Insurance sector is also not free from this infamy. A significant number of respondents answered in favor of undue practice with regard to promotion. Since majority of the insurance companies are in the hands of private owners, the promotions sometimes depend on their willful decision. The performance of the jobholders is not properly appraised.
33. [FABRICATED INFORMATION GIVEN BY THE AGENTS] A large number of agents act for different insurance companies in the remote areas of the country. The agents usually perform on a commission basis. The commission depends on the number of clients they can secure. Therefore, a common belief is that the agents always have the intention to increase their commission and sometimes furnish favorable information to sell a policy. But this popular belief is not found in reality at the extreme rate.
34. [LIMITED OPERATIONAL AREAS] Another clear problem of insurance business is that insurance companies operate only in big cities for their operational benefits. There was no single negative answer about this question. Majority of the companies has their agencies in Dhaka, Chittagong and in other few big cities.
35. [LICENSING DIFFICULTY] Almost all the insurers and policyholders criticized the licensing system for insurance companies. They identified it as a major constrain behind the commencement of new insurance business. Insurance companies opined that the government does not evaluate their documents of application with due consideration and unnecessarily delays of approval. In many cases the government in all regimes gives restriction to those applicants who have political relationship or maintain liaison. This dirty role of government not only encourages corruption but also hinders proper growth of insurance business.
36. [RIGID PREMIUM PAYMENT SYSTEM] The policyholders pay premiums on installment basis predetermined by the insurance companies. The companies follow a rigid system of installment adopted at the beginning of the business. But, sometimes the poor policyholders can consistently comply with the predetermined system for paying premiums on their policies. The premium rate appears higher to them and therefore, the policyholders face difficulty to continue their premiums that results in discontinuation of policies and potential insured are discouraged to buy policy.
37. [BACKWARDS OF MENTALITY] In spite of the worldwide acceptance of increased role of insurance, it has not been accepted as a satisfactory profession to the people of Bangladesh. In many cases the insurance officers and agents are disregarded in the society. However, this view is changing gradually.
38. [IGNORANCE ABOUT CLAIM SETTLEMENT PROCEDURE] Ignorance about claim settlement procedure creates a drastic problem for the insurance companies. Insurers viewed that many policyholders done knows the way of making the claim. The only abuse the insurer for instant claim settlement. They also have done know the requirements to be submitted to the insurers. But the insurers have to comply with the formalities before settling the claim. The process usually delays due to the ignorance of policyholders even though the policyholders hold the insurance companies responsible for this delay.