1.01: Background of PICL
is nothing but a system of accepting risk of the insured by the insurer having
consideration in the form of premium to safeguard his interest from any
accident. In case of big risk the insurer needs to transfer the risk to
re-insurer. Re-insurance means spreading of risk of one onto the shoulder of
many. In brief, Re-insurance means insurance of insurance. Whilst it becomes
somewhat impossible for a man to bear by himself 100% loss to his own property
or interest arising out of an unforeseen contingency, Insurance is a method or
process which distributes the burden of loss on a number of persons within the
group framed for this particular purpose. The concept of grouping together or
risk sharing was in existence in very ancient times but gradually developed in
its present state through a process of evolution to meet the growing needs of
the people in the field of General business and Industries.
a view to catering to the growing demands of this type of service Provati
Insurance Company was incorporated in Bangladesh as Public Limited Company by
Shares on the 31st January, 1996 under the Companies Act, 1994 and
its commencement of business was started from the 25th March, 1996
and the registration from the Controller of Insurance on 31st day of
March, 1996 to start general insurance business. The company carries out general insurance business under the
Insurance Act 1938 and other applicable rules.
company has its headquarters at Dhaka and in 2001, it had 52 branches. Its
management team is led by a managing director, who is also the member secretary
of its 14-member board of directors.
It has already occupied a strong position
amongst its competitors and has made significant contribution in the field of
Insurance Industry in the economy .The Chairman and Members of the Board of
Directors are well-reputed business personalities and leading industrialists of
Nature of Business Undertaken By PICL
of Insurance business done by the Provati Insurance Company Limited can be made
into two parts viz. Marine & Non- Marine.
The policies primarily aim at providing protection in respect of loss, damage
or destruction to the subject matter of insurance i.e. hull, cargo and freight
caused by perils of the seas or maritime perils like fire, theft, jettison,
collision, contact, heavy weather, stranding/ foundering, sinking, war perils
and other perils.
Hull: This refers to the ship, that is
to say, hull and machinery of the vessel. The ship is always at the risk of the
perils of the seas and, therefore, the ship owner can insure it against
probable loss as such.
Cargo: This refers to goods or
merchandises that are being carried from one place to another or are being
imported or exported. Such goods or merchandise may be lost, damaged or
destroyed by perils of the seas whilst in course of transit and therefore, the
owner of goods can always insure against the probable losses.
Freight: This consideration payable to
the ship owner in respect of carriage of goods by owner’s ship. Sometimes the
freight is prepaid when it is at the risk of the cargo owner and sometimes the
freight is after-paid when it is at the risk owner. Therefore, depending on
circumstances either the cargo owner or the ship owner will stand to lose the
freight if the goods cannot reach destination safe and sound because of the
operation of maritime perils. Insurance can be taken by having insurable
interest i.e. by the party at whose risk it would be at the material time.
Non- Marine: Non Marine Insurance can be
classified into three parts viz.,
Fire Insurance: All policies issued under the
heading of fire insurance primarily aim at providing protection against
financial losses arising out of the operation fir or certain other specified
perils. The subject matters of insurance are usually:
of all kinds.
The policy provides cover in
respect of material loss or damage. However, policies are issued in the fire
department in respect of consequential losses or loss of profits arising out of
material loss. These policies are known as consequential loss insurance or loss
of profit insurance. Thus the scope of fire insurance may be considered under
two broad headings viz.,
loss insurance and
Motor Insurance: Different types or policies may
be issued for different types of motor vehicles. Motor vehicles are usually
classified in the following manner:
Private Cars, Commercial
Vehicles, Agricultural Vehicles, Motor Traders’ Vehicles. Policies issued are
usually of the following types irrespective of the class of vehicles:
1. Comprehensive Policy: This policy provides protection in
damage or loss of the vehicle.
of the insured in respect of death or bodily injury to the third party arising
out of the use of motor vehicle on the road.
liability only policy i.e. legal liability of the insured in respect of death
and bodily injury to third party arising out of the motor vehicles use on a
Third Party only Policy: This policy provides cover only
in respect of the legal liability of the insured arising out of the death and
bodily injury to third party and damage to the property of third part in
connection with the use of motor vehicle.
was established with an authorized capital of Tk 200 million divided into 2
million ordinary shares of Tk 100 each, and a paid up capital of Tk 60 million.
Total assets of the company stood at Tk.485.00 million in 2008 compared to
Tk.443.00 million in 2007. This includes the book value of the 12 storied
building of the company at Tk.89.00 million, the present market value of which
is much higher. Seven floors measuring 15,750 sft of the building have been
leased out to different parties including 2 Life Insurance Companies who
started their functioning recently. The financial position of the company has
been reflected in the yearly Annual Report of the Company the copy of which is
1.04: Gross Premium
Income of the year 2008
Progress at a Glance in Last 5 Years
Re- Insurance Arrangement
portfolio of Provati Insurance Company limited is fully protected under the
re-insurance arrangement made with the Sadharan Bima Corporation a state-owned
organization. It has extensive re-insurance arrangement up to any amount with Sadharan
Bima Corporation through Surplus treaty, XL, CAT-Xl and Facultative
Re-Insurance to meet the need of our valued clients.
means insurance of insurance. The original insurer gets the risk assumed from
the original insured (primary insured), covered (Re-insured) with another
insurer (Known as Re-Insurer) for the same reasons as the primary insured does.
The primary insurer, here infect becomes the insured (Known as Re-Insured) and
the person or body or Company giving him the Re-insurance protection becomes
the insure (Known as Re-Insurer).
Types of Re-insurance
there are two main ways through which Re-insuranc3e may be affected. These are:
is the original form of Re-insurance, one of several types of Re-insurance
contracts. Participation by Re-insurer in a risk is not pre-arranged through a
standing treaty contract. A Re-insurer retains the right of rejection any
business ceded to it but this rejection must be notified to the ceding company
promptly. Re-insurers are not bound to accept a risk when approached.
- Treaty Re-insurance
is a pre-arrangement whereby the direct insurer cedes and the Re-insurer
accepts cession within a pre-determined limit. The important feature here is
that if sessions are made as per-terms of the treaty, the Re-insurer cannot
refuse to accept. The Re-insurer is bound to accept a risk when approached
within treaty limit. The Re-insurance arrangement is inevitable for private
sector insurance business. The Re-insurance arrangement is made with the
Sadharan Bima Corporation. The financial foundation of a company depends upon
the Re-insurance arrangement. We may call the Re-insurance arrangement as risk
insurance company has got a limit of Retention ceiling. No. private sector
insurance company is supposed to go beyond this Retention ceiling. The amount
of own retention is fixed depending upon paid up capital, reserve fund and
premium income which is generally 5% of Paid up Capital.
the private sector insurance companies transfer the risk through Re-insurance
arrangement with Sadharan Bima Corporation also transfers the additional risk
through retro-cession arrangement with some international insurance companies
outside the country like Lloyds, Swiss Re-insurance, Singapore Re-insurance,
German Re-insurance, Munich Re-insurance. In this way one company transfers its
additional risk to another and makes the financial base of its own sound.
Therefore, Re-insurance arrangement is the principal and inevitable organ of
insurance business. This Re-insurance arrangement is made in two-ways;
Facultative Re-insurance and Treaty Re-insurance which are also subdivide into
various parts. Generally, in our country different insurance companies adopt
different types of arrangement as per their requirement. In recent years
various kinds of natural calamities are taking place in the world which causes
loss to innumerable lives, endless destruction of wealth and financial
catastrophes. Generally storms, flood, earth-quake, land-slide etc. are the
main causes of this type of great losses. To meet the great losses of this type
a term named “Catastrophiloss or cat-cover” has been introduced. Sometimes it
is observed that a company has tom face the losses the value of which is
several thousand times higher than that of its own Retention limit. In this
circumstance the company will not have to pay any more amounts over and above
the retention limit under the system of cat-cover.
the Re-insurance arrangement is the important key of a company. The company
which has got a strong Re-insurance arrangement is financially sound and strong
in the market. Provati insurance Company limited is a company which fulfils the
requirement in this respect
types of natural disasters, flood, cyclone and Sidr have taken economic
condition of our country in an adverse direction. The price hike of fuel and
daily necessaries has made economic condition worse. This affected the
insurance industry adversely. Insurance companies have to work in adverse
situation and unequal competition. Unrealistic premium undercut, difficult
formalities for registration in bank and for other reasons the whole insurance
industry is facing great problem. Instead of this, Provati Insurance Company
Limited has earned its premium income Tk. 20.17 crore in 2008 which was Tk.
18.13 in 2007. Company’s profit before tax is Tk. 1.37 crore in 2008 which was
Tk. 1.25 crore in 2007. Company has provided VAT of Tk. 1.61 crore in 2008.
Company has bought Stamp of Tk. 1.52 crore in 2008 which was Tk. 0.99 crore in
2007. Company has new FDR of Tk. 1.15 crore. The summary is that the business
of Provati Insurance Company Limited is in a favorable condition.
Insurance Company limited has created a good reputation in respect of
expeditious settlement of claims during the past years for any risk covered.
Claim is a financial demand against the losses of insured amount cause by
accident, incident, natural calamities etc. When an accident occurs, the
insured approaches the insurance company black & white for the compensation
of the losses caused as per terms & conditions of insurance policy. The
company appoints a surveyor to assess the loss of the case and place before the
authority for approval of the amount as per assignment. It the management is
not satisfied with the assessment of first surveyor, then the company may
appoint second surveyor for re-assessment. In case of dissatisfaction of the
insured with the first assessment he may also approach the controller of
insurance for 2nd surveyor for re-assessment. After getting all the
formalities completed the claim department places the proposal for settlement
to the proper authority. When the assessment of surveyor along with the
relevant papers is approved the claim department issues a loss voucher to the
insured concerned for acceptance. If the insured accepts the loss voucher and
confirms, an account payee cheque for the said amount is issued by the company
which is collected through the Bank Account of the insured. Thus the claim
settlement plays a vital role in insurance business. As such the business
reputation of an insurance company depends upon the way of settling the claim.
Provati Insurance Company Limited has met up claims
of Tk. 5.27 crore in 2008. For increasing company’s goodwill and its welfare
the payment of claims was done in a very short time.
company which is expeditious and spontaneous in settling the claim will earn
goodwill in the market in comparison to others. Provati insurance Company
limited believes in prompt and expeditious settlement of claim which is the
best way to rendering services to the insured.
Provati insurance Company limited through dedicated services to its client is
one of the country’s leading and successful companies with country-wide
Rate Fixation of Fire Insurance by PICL
rate fixation in fire insurance is not as scientific as in life insurance. While
calculating the premium, various relevant factors of physical and moral hazards
are properly estimated and evaluated in Provati Insurance Company Ltd.The
premium must be adequate enough to provide for full payment of claims including
catastrophic losses, expenses of management and a margin of profit.
System of Rate Fixation
actual process of rating consists of three steps:
3. Schedule Rating
is fixed in relation to the class of risk, the properties are classified accordingly.
Properties are generally divided into three main classes:
- Common or Ordinary.
- Hazardous and
- Doubly hazardous
Different premium rates are fixed
for each class.
in Provati Insurance Company Ltd. the risk are classified into various classes
according to factors affecting fire risk.
Construction or structure: The construction of the building
has always been of great importances in rating. The height of the building, the
area, the number of unprotected floor openings, construction of walls, floors,
roof etc is considered in calculating the fire hazard.
Occupancy: The risk considerably varies
according to the nature of occupancy. The building may have different risks
because of the different substances and processes which they contain. It is
essential for companies to change their rates to meet changing business
Nature of Flooring: The nature of flooring influences
the risk to a greater extent. Existence of wooden floors in the building
introduces an additional physical hazard. It may collapse easily causing damage
Height: The height adds difficulty in
fighting a fire on the upper floors. There may be risk of water damage to
property on the lower floors when water is used to extinguish a fire on the
Floor and wall openings: Openings in the floor for lifts
and belts constitute higher physical hazard. It may cause greater chances of
ignition of fire.
Exposure: The chances of risk may differ
from property to property according to the degree of exposure. A building or
property may be situated in a congested conflagration locality involving
greater danger to the property.
Lighting ,Heating and Power :The fire may occur due to short
circuit .Combustion can also arise from faulty installation and dampness .The
lighting system e.g. by gas or oil, leakage of fuel and naked flames cause more
hazard to property.
Place or Situation: The location of the property , nature of adjoining premises, and
the distance from a fire brigade station also cause hazard to the property.
Protection: The protection facilities may be
public or private. When protection facilities are available the fire may be
extinguished in its incipiency. Smaller premium is charged where modern devices
for preventing and extinguishing fires are present.
Time: The time of loss must be kept into
consideration .The annual loss ratio is by no means uniform every year .So,
rate fixation must account for good or bad years to determine approximately the
differentiation of the rates for individual risks in a particular class is
known as discrimination .Each additional feature of risk is charged extra
premium in Provati Insurance Company Ltd .The better types of risks are
encouraged and attracted by the insurer. Lesser premium is charged where fire
extinguishing appliances or fire resisting construction are present. The tariff
system is based on the law of average and graded schedule is formulated where
different rates are ascertained for the different types of risks. Thus, the
different risks are put in a specified class, and are differentiated from each
other according to the merits and demerits of the individual risk. It aims at a
more equitable basis of rating.
- Schedule Rating
is a plan of Provati Insurance Company Ltd by which hazards with respect to any
particular risk are measured. It is defined as “….an empirical standard for the
measurement of relative quantity of fire hazard. Schedule rating takes into
consideration the various items influencing the peril of fire. It is based on
the theory that the aggregate fire hazard of any risk is capable of ultimate
analysis into its component factors to each of which could be assigned an
appropriate charge. A standard or
average premium is determined as a base for calculating the premium. A large number
of items, as far as possible, are taken so that the law of average may apply.
Larger the number, the more representative will be the rate of premium.
advantages of the schedule rating system are that it provides more equitable
treatment of all insured. Due to the systematic treatment of the risk, the
premium rates tend approximately the same.
second advantage is that it reduces friction between the company and the
insured because the insured is able to understand how his rate is made in every
third advantage is that it tends to reduce the Fire waste because it encourages
proper construction of buildings by intelligently charging for deficiencies
from standards and recognizing exceptionally good construction by deductions.
fourth advantage is that it secures more thorough inspection and rating.
:: Items to Be Insured Under Fire Policy
2.04: List of Hazardous Goods under
2.05 :: Inspection Service by PICL
On receiving the notice, the company appoints a surveyor
to act make necessary arrangement on behalf of the company. He goes to the site
of fire and examines the damaged property and collects all available
The following steps are taken to check that;
- The policy is in force on the date of occurrence of the loss or
- The loss or damage is by a peril insured by the policy;
- The property affected by the loss is the same as insured under the
- Notice of loss is received without undue delay.
After the initial check up, a claim form is issued to the
policyholder. The claim form requires the following information.
- Full description of circumstances of the loss such as date of loss
time, the place of fire.
- Cause of fire.
- Particulars of the property affected by the loss such as description,
value at the time of fire, value of salvage and the claim amount.
- Statement of other insurances on the property, name of the insurer,
the policy number and the sum insured.
- Sound value of all the property.
The company expert’s survey report contains following
- Whether the fire was caused by an excepted peril or was caused by the
negligence of a third party or there was any evidence of fraud. So, the
cause of fire is clearly obtained. Often the exact cause and origin of
fire cannot be accurately established. In such cases the available
evidence will have to be carefully examined to support a plausible cause.
- The amount recommended for payment which is determined on the basis of
current market value and under-insurance.
- Detail and value of salvage. The method to dispose it off.
- Details of expenses involved in extinguishing fire and salvage corps
- The position in respect of compliance with the warranties.
- Apportionment of the loss and expenses among the insurers where there
are more than one insurer.
- The expert can judge whether the fire has been started at more than
one place and whether it is a case of arson. He will inquire whether there
is a breach of warranty or negligence of the part of the insured.
- The exact amount of loss payable by the insurer. The presence of the
average clause in the policy will determine the amount of loss payable.
On receipt of the claim form duly completed and the
survey report, the claim is processed and, if it is in order, a discharge
voucher is to be signed by the insured. The amount of loss payable by the
insurer is usually settled by agreement between the insurer and the insured
otherwise the matter has to be referred to arbitration. Market value of the
damaged property is usually taken into account while calculating the amount of
loss. Sometimes, the cost of replacement is considered for the purpose. But, it
is prevalent only in advanced countries because the insurers have well-equipped
staff of replacement.
plus CNG Filling Station, a filling station situated in Anadapur, Savar, Dhaka
is a filling station which has almost all kinds of technical facilities that a
modern CNG filling station requires. It is running its business since 2004. It
is located 30 kilometers away from Dhaka by the highway near Aminbazar. It has
5000 square meters of space in total. It has its own CNG reserve plant which
can reserve 5 lac cubic feet of compressed natural gas (CNG) and it is needed
to mention that its size is unusually huge.
CNG is extremely flammable object, it is a must for Energy Plus CNG Filling
Station to take insurance policy against various risks regarding fire and other
risks. Besides, IFIC Bank, Dilkusha branch, Dhaka which is the loan provider
for the Energy Plus CNG Filling Station made it mandatory to take insurance
policy when they gave the loan to Energy Plus CNG Filling Station.
Properties of Energy Plus CNG Filling Station
plus CNG Filling Station has a combination four major properties worth Tk. 2,
32, 65,000 which includes building, premises and decoration, CNG reserve plant
and MIW dispensing machine. Separately their values are:
Assets or Subject matter of
Premises and decoration
CNG reserve plant
MIW dispensing machine (2
Risks faced by Energy Plus CNG Filling Station
Energy Plus CNG Filling Station deals with CNG, which is extremely flammable by
nature, its major peril is fire. Besides, it has some other perils like
earthquake, flood and malicious damages caused by political strike and other
chaos. They needed to insure these risks so they searched such a company that
will insure their risk. Then they found Provati Insurance Company Limited.
Policy for Energy Plus CNG Filling Station
Plus CNG Filling Station approached to Provati Insurance Company Limited for an
insurance policy that will cover the risks that they face. The underwriters of Provati
Insurance Company Limited found that insuring Energy Plus CNG Filling Station
will be profitable for them. So they showed interest about Energy Plus CNG
Filling Station. And then they made up a blanket policy for that company which
insures fire, malicious damage, earthquake and flood. The duration of the
policy will be valid for 1 year, from 31st July, 2007 to 31st
:: Premium Rate Determination for Energy Plus CNG Filling Station
underwriters of Provati Insurance Company Limited started working on Energy
Plus CNG Filling Station to determine the premium rate that the company should
charge for the policy from Energy Plus CNG Filling Station.
Premium for Fire Risk: First the underwriters evaluated
the fire risk of Energy Plus CNG Filling Station. The underwriters found that
Energy Plus CNG Filling Station is at high fire risk. As the company’s product
is CNG, which is extremely flammable. So they decided to charge a high premium
for fire risk. But there were some precautions that Energy Plus CNG Filling
Station had taken for safety of them. These precautions are:
- The CNG plant is inspected
every week to check if there is any problem.
- They had adequate number of
fire extinguisher in their premises.
- Smoking was totally
prohibited near the filling station.
- Wiring system of the station
- The staffs of the station
were trained about fire accident.
these precautions, Provati Insurance Company Limited determined premium for
fire risk at 0.79%.
Malicious Damage, Earthquake and Flood: Energy plus CNG Filling Station
is at high risk of malicious damage as because political strikes and other
chaos are happening every now and then. So the premium of malicious damage was
determined at 20% of the fire premium. In addition, there is existence of risk
of earthquake and flood. So the premium for earthquake was 0.4% and 0.3% for
flood. Here one point to be noted that government of Bangladesh has set 0.1%
discount on Earthquake and flood premium, so ultimately the premium for
earthquake is 0.3% and for flood is 0.2%.
In brief the
premium rate was:
3.06: Premium Calculation
underwriters of Provati Insurance Company Limited decided to calculate the
premium of the policy aggregately for all assets i.e. subject matter of
insurance worth Tk. 2,32,65,000 rather than calculating it separately for
Building, Premises and decoration, CNG reserve plant, MIW dispensing machine.
So, the premiums calculation was as follows:
Plus CNG Filling Station paid the whole
amount of premium, Tk. 3,87,409 on 31st July, 2007 to Provati
Insurance Company Limited for 1 year insurance policy.
Damage of Insured Subject Matter
17th April 2008 at 4 pm one unit of the MIW fuel dispensing machines was severely damaged due to an explosion of
CNG cylinder of a truck which was refueling from that particular machine. That
machine was worth Tk. 20,00,000.
Claiming Compensation for Damage by Energy Plus CNG Filling Station
after the occurrence of the damage, Energy Plus CNG Filling Station informed Provati
Insurance Company Limited about the explosion through telephone. Provati
Insurance Company Limited then asked them to place an application at the next
day. On 18th April, 2008 Energy Plus CNG Filling Station formally
placed an application on the application form provided by Provati Insurance
Company Limited. The application contained following information:
- Name of insured: Energy Plus
CNG Filling Station
- Insurance contract number:
- Duration of the insurance:
From 31/07/2007 to 31/07/2008
- Time of damage: 17th
April, 2008 at 4pm
- Types of risks covered:
Fire, Malicious damage, Earthquake, Flood
- Name of damaged asset: MIW dispensing machine
- Location of the damaged
asset(s): Energy Plus CNG Filling Station premises
- Was the damaged asset was
- Was there any additional
risk to the asset: No
- Were all the conditions of
insurance contract obeyed: Yes
to the claim application of Energy Plus CNG Filling Station, the description
placing all these information, the manager of the filling station attested all
the information and claimed Tk. 10,00,000 for the compensation of the damage.
Surveyor by PICL
Provati Insurance Company Limited received formal application from insured
about the claim, he assigned a government certified surveyor named Modhumoti Surveyors. And sent a letter
to Energy Plus CNG Filling Station informing them about the assigning of
surveyor and requested them to coordinate with the surveyor. On that same
letter Provati Insurance Company Limited also asked Energy Plus CNG Filling
Station for some required documents. These are:
1. Copy of F.I.R duly authenticated
by the concerned Police Station.
2. Police investigation report in
original or a copy duly certified by the concerned Police Station.
3. Fire Brigade Report in original.
4. Copy of contract papers.
5. Manager’s statement about the
occurrence of damage.
6. List of damage.
7. Quotation of repair cost of the
damaged asset(s) from the repairers.
8. Paper of import, if applicable.
9. Policy papers of insurance
contract with other insurance company.
insurance company also asked the insured to provide the same document to the
surveyors if they require them.
Survey Report from Modhumoti Surveyors
Surveyors surveyed the spot of damage by their expert surveyor team. It took
three days to survey the damage. The surveyors found the following information
from their survey:
point to be noted that, according to the information given by Energy Plus CNG
Filling Station in their claim application the value of rescued asset was Tk.
10,00,000 only and Repair expense was Tk. 10,00,000. But surveyors report says
that the value of rescued asset was Tk. 14,00,000 and Repair expense was Tk.
6,00,000. Modhumoti Surveyors reported another important thing i.e. the particular
assets were also insured by another insurance company named People’s Insurance
Compensation by PICL
Provati Insurance Company Limited took the decision to compensate Energy Plus
CNG Filling Station for their loss. Their repair expense was Tk. 6, 00,000
according to survey report. But as the surveyors reported that those properties
were also insured by another insurance company named People’s Insurance Company
Limited, Provati Insurance Company Limited decided to compensate the repair
expense proportionately with the second insurer. So Energy Plus CNG Filling
Station was compensated for Tk. 3, 00,000 by Provati Insurance Company
Limited. In summary:
Claimed repair expense
Actual repair expense
Proportionate compensation by PICL
purpose of this study was to show the implication of insurance company’s
procedures in real life. So we have selected Provati
Insurance Company Limited
for this task. As the study is done as a student, not a professional; it is
very likely that there are a various faults in every stage of this study, in
analysis & interpretation of data, which needs to be detected. So the
findings of the study should not be relied upon to take major managerial
decision unless further test is conducted.
the development of business and industries in the country necessity of
insurance is being felt immensely. In the face of stiff competition in the
industry Provati Insurance Company has been rendering better quality and
specialized services to its clientele through a big network of branches spread
all over the country and with the help of a team of highly qualified and
experienced professionals headed by a Managing Director having vast expertise
and experience in the field of Insurance, Re-Insurance and Financial Management
to his credit. They maintain stringently ethical
standard in business operation. Their attention is always focused on the
individual client and his special needs. It has set its motto to
serve the clients with utmost trust. They ensure benefit to the policyholders,
shareholders and society at large.
They have taken necessary steps to face the challenges considering the
competition in business market. They have settled their strategies.
the years, it has positioned itself as a one of the leading insurance company.
It is expected that if Provati Insurance Company Limited maintain properly all the rules
and regulation imposed by the government they can create a congenial atmosphere
in insurance business.