Problems and prospect of insurance Business in Bangladesh
Life insurance may be defined as a contract, whereby the insurer, in consideration of a premium, paid either in a lump- sum or in periodical installments, undertakes, to pay, annuity or a certain sum of money, either on the death of the insured or on the expiry of a certain number of years.
– R.S. Sharma
Life insurance may be defined as a contract, whereby one party undertakes to pay to another a certain sum of money on the latter death or on his attaining a certain age in exchange for cash compensation known as premium, which may be paid in a lump- sum or periodically – Mr. Ghosh & Mr. Agarwl
Classification of Life Insurance
Definition of Life Insurance in ALICO’s point of view:
In the following, we provide a very general overview of the types of life insurance products that are offered in the marketplace. Each of these products is offered in some form by ALICO through its branches and subsidiaries.
A Life insurance policy is a contract between you (the policy owner-insured) and an insurance company (the insurer). Under the terms of a life insurance contract, the insurer promises to pay a certain amount of money (death benefit) to someone you choose (a beneficiary) when you die, in exchange for your premium payments.
The need for life insurance is simple; we should consider life insurance if anyone depends on your income. Essentially, you transfer the risk (loss of your income) to the insurer by paying a fee, or “premium,” to the insurer. The insurer, with a large capital base and expertise in risk selection and management, is better able to accept this risk than any single individual would be.
This risk transfer may be helpful in both personal and business situations.
– Dependent’s Support:
– Life insurance helps a persons dependents to have some financial support on the death of the insured. If you support or help support a family, the loss of income that would result from your death could mean that your surviving dependents may face financial difficulties. Household expenses continue, utility bills and school fees must be paid, and food and clothing must be purchased. Life insurance provides you with a sense of security in the knowledge that the life insurance money will be available to help support family members in case of your death.
– Education Costs: life insurance helps to bear the cost of the ever increasing cost of education . Due to an untimely death, the tuition may become beyond your family’s reach. Life insurance may be used to provide for the tuition expense.
– Burial expenses and estate planning: Life insurance may be used to pay funeral or burial expenses. In addition, it may be used to pay inheritance taxes.
– Investment Income: Life insurance policies that accumulate savings can also be used as vehicles for personal savings and investment. Over a period of time, the accumulated savings in a permanent life insurance policy can grow to a substantial sum and, while growing, will still provide the insured with life insurance coverage.
– Charity: You can purchase life insurance in order to donate the proceeds to a charitable organization, such as a church or an educational institution.
– A business continuation insurance plan: When the owner or a key person (any person whose death would cause the business a significant financial loss) dies, a business continuation life insurance plan may be used to provide the necessary fund for the business’ continued operation.
– Buy-Sell Agreement: If your business partner dies and you don’t have enough money to buy your partner’s financial interest in the company, life insurance may be arranged to cover this cost.
– Life insurance as Employee Benefits: Businesses often use life insurance to provide benefits for their employees. Employers pay for all or part of these employee benefits as part of the total package under which they compensate their employees
The Insurance Policy We Need Most
Although we may hear about many names for different types of life insurance policies, the majority of policies contain benefits derived from one or more of three basic types. These types are briefly outlined in very general terms below.
1. Term Life Insurance: Term insurance is issued for a specific period, or “term.” This term usually ranges from 1 to 30 years. one may choose the length of the term that best suits you. Term insurance is considered an “affordable” insurance choice. If you are young with a family and need a large amount of protection without paying high premiums, this type of life insurance may be of interest to you.
Under a Term policy, in case of death during the term of the policy,ones beneficiary receives the cash payment equal to the insurance amount, or “death benefit.” The death benefit amount is chosen when you buy the policy. Term insurance protection ends when the period or “term” is over, and only pays out in case of death. For this reason this product type offers higher protection at a lower cost. It is a pure “risk transfer” product.
Term insurance can be divided into three main types: level term, increasing term, and decreasing term. Level term means that the death benefit remains the same throughout the term of the policy. Increasing term means the death benefit gets larger throughout the term of the policy. Decreasing term means the death benefit gets smaller.
2. Endowment Life Insurance: Endowment life insurance generally guarantees that a sum of money will be available to ones beneficiaries, whether one live until the policy ends (or “matures,”) or in case of an untimely death. Endowment insurance usually provides a guaranteed death benefit and has a savings component called the “cash value.”
Generally, if one buy an endowment policy and keep it until maturity, it will provide a lump-sum cash payout equal to the insurance amount, or “death benefit.” In case of death before maturity, the death benefit would be paid to ones beneficiary.
Endowment insurance can be useful for people who know that they will have to incur a specific expense in the future — like a wedding or college tuition. They know that regardless of what the future may hold, the expense will have to be paid. Endowment insurance allows them to be certain that the money will be there.
3. Whole Life Insurance: Whole life insurance has many of the same features as Endowment insurance, but it is designed to remain in force during the insured’s entire lifetime. Like Endowment insurance, it provides a guaranteed death benefit, and has a savings component called the “cash value.” As you pay your premiums, a portion of each payment is set aside to create the cash value. The insurance company typically invests the cash value, which continues to grow as long as the policy is in force.
Some of the advantages of a policy’s cash value are that:
– You can cancel or surrender the policy in total or in part and receive the cash value; however, since this is a long-term policy, in the early years the cash value may be small or even equal to zero.
– If you find that you need to skip a premium payment, you can use the cash value to continue your current insurance protection for some time.
– In most cases, you may borrow from the insurance company, using the cash value in your life insurance as collateral.
Other types of whole life insurance:
Universal Life Insurance: Universal life insurance has all the features of Whole life insurance. In addition to those features, it offers flexibility in premium payment and face amount, and it provides current interest rates. Unlike whole life and term, Universal life allows you, after payment of your initial premium, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the death benefit more easily than under traditional whole life policy.
Variable Universal Life Insurance: Variable universal life insurance has all the features of Universal life insurance coverage, but, instead of earning an interest rate, its cash value is linked to non-guaranteed equity investment funds, bond investment funds, or similar investments. Your premiums will be invested in the various investment options that you have chosen, and you assume the investment risks. The amount of the policy benefit is dependent on the performance of your investments.
Benefits We Can Get
A number of supplementary benefits can also be added to the various forms of life insurance policies. These additional benefits are usually provided by adding riders to the life insurance policy. The most common supplementary benefits include:
– Accidental Death Benefit: If the insured dies as a result of an accident, the insurer will pay an amount of money in addition to the basic death benefit provided by the life insurance policy.
– Waiver of Premium for Disability Benefits: insurer waives its right to collect premiums that become due while the insured is totally disabled.
– Disability Income Benefits: The insurer provides a monthly income benefit to the policy owner insured if he becomes totally disabled.
– Critical Illness Benefits: The insurer agrees to pay a portion of the policy’s face amount to a policy owner insured who suffers from one of a number of specific, critical illnesses.
Life Insurance Business in Bangladesh
During the British rule, some insurance companies started functioning in India. These companies were of various origins including British, Australian and also Indian.
Now a days Bangladesh insurance business has developed a lot. Establishment of a number of new insurance company in private sector carries sign of this development. Before the independence all insurance companies had their main branch at west Pakistan and they were owned by the capitalist. After the liberation state take the authority of all the insurance company and they were included under five different groups. Those were
1) Bangladesh National Insurance Corporation
2) Kornofuli Insurance Corporation
3) Rupsha Insurance Corporation
4) Tista Insurance Corporation
5) Surma Insurance Corporation
Later within one year’s these five corporation were taken under two principal group named General Insurance Corporation and Life Insurance Corporation.
After independence, Bangladesh government nationalised the insurance industry in 1972 by the Presidential Order No 95, known as the Bangladesh Insurance (Nationalisation) Order 1972.
After the liberation till 1985 these two corporation mainly ruled the insurance business in our country. But the pre- liberation period in this country postal life insurance business operated by the government in a very small extent. Besides these by government special declaration American Life Insurance Company (ALICO) started their business in our country from 1952. Though it’s operation was closed for a short period after the liberation. After this at 1984 government passed the Insurance (Amendment) Ordinance 1984 and insurance companies to start their business in private sector. As a result after period a number of insurance company had been established in the country and they are trying to expand their business widely over the country.
A total of 60 insurance companies are operating in Bangladesh till date. Of these companies, 57 are private, two state-owned and one is foreign.
Insurance Directorate, under the Ministry of Commerce, is the regulatory-body of the country’s insurance sector.
Name of Life Insurance Companies
|Name||Date Of Registration|
|1. Jiban Bima Corporation||1973|
|1. National Life Ins. Company Ltd.
|2. Delta Life Ins. Company Ltd.
Uttara Bank Bhaban 90-91,Motijheel C/A Dhaka .
|3. Shandhani Life Ins. Company Ltd. Tranga Complex 19, Rajuk Avenue Dhaka.||25-04-1990|
|4. Meghna Life Ins. Company Ltd. Biman Bhaban 100, Motijheel C/A Dhaka||01-06-1996|
|5. Homeland Life Ins. Company Ltd. Eallal Chamber 11, Motijheel C/A Dhaka .||15-09-1996|
|6. Rupali Life Ins. Company Ltd.
Rupali Biman Bhaban 7, Rajuk Avenue Dhaka.
|7. Golden Life Ins. Limited
Uttara Bank Bhaban 90-91, Motijheel C/A Dhaka .
|8. Progressive Life Ins. Company Limited
Scout Bhaban, Inner Circular Road, Kakrail, Dhaka
|9. Progati Life Ins. Ltd.
Uttara Bank Bhaban
90-91 ,Motijheel C/A Dhaka.
|10.Padma Life Ins. Company Ltd. Rupali Bima Bhaban 7, Rajuk Avenue Dhaka.||30-04-2000|
|11.Baria Life Ins. Company Ltd. 82, Kakrail, V.I.P. Road Dhaka||30-04-2000|
|12.Sunlife Ins. Company Ltd.
B. T. A. Tower 29, Kamal Ataturk Avenue, Banani Dhaka.
|13.Sunflower Life Ins. Company Ltd. 28, Dilkusha C/A Dhaka.||30-05-2000|
|14. Fareast Islami Life Ins. Company Ltd.||30-05-2000|
|SW (A)-25, Gulshan Avenue Dhaka|
|15. Popular Life Ins. Company Ltd. Senakalyan Bhaban 195, Motijheel C/A Dhaka.||04-10-2000|
|16. American Life Insurance Company Alico Building, 18-20, Motijheel C/A Dhaka .||1974|
Profile of the Company:
Mr. C.V. Starr, the founder of what would later become ALICO’s parent company, American International Group, Inc. (AIG), formed American life insurance company (ALICO), originally named Asia Life Insurance Company, 85 years ago in Shanghai, China. Within ten years, C.V. Starr had opened offices across China, Hong Kong and elsewhere throughout Southeast Asia. After World War II the Company turned its sights towards the Caribbean, and subsequently towards the Middle East, Africa, Europe, the Far East and the Americas. In 1951, Asia Life Insurance Company changed its name to American Life Insurance Company (ALICO). Today, ALICO, with its Home Office in Wilmington, Delaware USA, operates in approximately 50 countries and territories around the world and continues to expand its global network.
ALICO’s branches and subsidiaries market a wide range of life and health insurance products. These products include traditional life insurance, variable universal life insurance, supplemental medical and personal accidents products, health and hospitalization insurance, group life, pensions and annuities, through a network of some 33,000 agents. ALICO does business globally in Japan, Europe, the Middle East, South Asia, Latin America, and the Caribbean in more than 50 countries.
In 2008, ALICO celebrates its 87th anniversary serving and providing financial security to policy owners globally. Experience gained through international diversification sets ALICO apart. Based upon this experience, ALICO has cultivated the ability to respond quickly to changing customer needs and marketplace conditions. It remains committed to pursuing a strategy of customized products and distribution channels to meet the particular and changing needs of consumers in each country where ALICO operates. Local knowledge and awareness has typified ALICO’s 87-year history and continues to this day. ALICO’s global reach, its strategic focus on emerging markets and its financial strength continue today as the Company serves its costumers in the 21st century.
About AIG (American International Group):
American Life Insurance Company (ALICO) is a member company of American International Group, Inc. (AIG).
AIG is the world’s leading international insurance and financial services organization, with operations in approximately 130 countries and jurisdictions. AIG member companies serve commercial, institutional and individual customers through the most extensive worldwide property-casuality and life insurance networks of any insurer. In the United States, AIG is the largest underwriter of commercial and industrial insurance and a top-ranked life insurer through AIG American General. AIG’s global businesses also include financial services, retirement savings and asset management. AIG’s financial services businesses include aircraft leasing, financial products, trading and market making. AIG’s growing global consumer finance business is led in the United States by American General Finance. AIG also has one of the largest U.S. retirement savings businesses through AIG SunAmerica and AIG VALIC, and is a leader in asset management for the individual and institutional markets, with specialized investment management capabilities in equities, fixed income, alternative investments and real estate. AIG’s common stock is listed on the New York Stock Exchange, as well as the stock exchanges in London, Paris, Switzerland and Tokyo.
American Life Insurance Company (Alico Bangladesh):
Started full service branch operations in Bangladesh on 15 January 1974 and has since then been marketing individual and group life insurance products under the Insurance Act 1938, Insurance Rules 1958, and other applicable laws. Alico, incorporated in 1921 in Wilmington, Delaware, USA, is the largest international life insurance Company in the world. It is a member company of the American International Group (AIG) that operates life insurance businesses in more than 135 countries. American Life Insurance Company Bangladesh (referred to as the company hereafter) runs its business through its agency offices scattered mostly in big cities such as dhaka (43), chittagong (9) and khulna (3). Over 2700 career agents are working for the company. The company has a trained and dedicated work force of 223 employees in Bangladesh.
Net premium income received by the company from direct business in 1999 was Tk 1,896.75 million as against Tk 21.12 million in 1981. The figures include both new or first year premiums and renewal premiums derived from its various life insurance plans/schemes such as ordinary life policies, personal accident protection, group life, group medical, and ordinary term insurance. Re-insurance premium paid by the company to its re-insurer abroad was Tk 0.32 million in 1999, when it paid a net amount of
commission of Tk 333.94 million. Net claims settled by the company during the year amounted to Tk 75.11 million.
Apart from net premium income derived from direct life insurance business, the company earned Tk 514.81 million in 1999 as interest, dividend, and rent income. Major investments of the company were in short term deposits with banks, national investment bonds, Pratirakkha Sanchaya Patra, shares of companies, ICB-mutual funds, policy loans to holders, fixed deposits and permanent investment in real estate. The assets of the company were valued at Tk 5,900.27 million and the revenue surplus stood at Tk 1,042.29 million in the reference year.
The regional office of the company at Sharjah, Dubai, oversees the administrative and business affairs of Alico Bangladesh. It invests its entire investable surplus locally, mostly in government securities/banks and shares/stocks of companies, thereby allowing usage of its progressively increasing fund in such public interests as infrastructure development, industrialisation and employment generation. [S M Mahfuzur Rahman]
Choosing a Career with Alico:
- As an ALICO agent, you will have the opportunity to enjoy financial independence, personal satisfaction, and prestige as you offer your clients, value, security, and financial relief in time of need.
- With ALICO there are virtually no limits to the amount of income you may earn. Your income can grow in direct proportion to the amount of effort you apply.
- At ALICO, commissions are earned from the sale of each policy. Additional commissions are also payable as policies are maintained in force.
- In addition to the financial benefits of a successful insurance career, ALICO will recognize your efforts in many other ways. Locally, there is a distinguished annual recognition program whereby top performers are honored at an annual Awards Banquet. Leading producers are also invited to Regional and Worldwide incentive conferences. In recent years, such conferences have been held in Cancun, Copenhagen, Amsterdam, Marrakesh, Spain, Orlando, and aboard cruise ships in the Caribbean and the Mediterranean.
- Additional recognition opportunities include the Chairman’s Council, the Gallery of Stars, and the Million Dollar Round Table.
- As your professionalism and effectiveness develop, we trust that you will find that your career with ALICO to be personally rewarding, highly enriching, and self-satisfying.
Special Policy Offered by ALICO:
The hospital care accident and sickness hospital income supplementary contract pays the cash amount which is selected by policy holders and when he or his family members are hospitalized, regardless of expenses, even in a free hospital. The cash income starts from the very first day of hospitalization and continues for up to 52 weeks for each confinement.
This company also offers some special facilities for NINE (9) dread diseases. The in hospital weekly cash income is doubled for the first two weeks of confinement. If any members of the policy holder are hospitalized due to any one of this dread diseases as follows—
- Heart arrack
- Renal failure
- Major organ transplantation
- Coronary artery disease
- Major burns
- Blindness due to sickness.
Even if a policy holder is enjoying other medical plans, he will always need extra cash to pay for the incidental expenses when he is hospital confined that no medical plan will pay for, such as:
- Upgrading the hospital facility
- Companion’s expenses
- Hotel and travel expenses
- Child minding and care
- Your choice of six coverage packages to supplement your life insurance cover.
- You can select the plan of your choice for you and your family.
- The daily cash income continues up to 52 weeks from the very first day of hospitalization.
- The cash income is paid directly to you, to use any way you wish.
- The cash income is payable regardless of expenses, even if you are confined in free hospital.
- No deductible amount or waiting period.
- Benefits are payable in addition to any other insurance plan that you may have.
Education Protection Plus;
a) All future premiums under the policy will be waived and the policy would continue till the maturity of the policy.
b) income for education equal to 1% of the face amount will be paid every month to the insured child till the maturity of the policy, and
c) At maturity, he/she would receive full face amount (FA) with bonuses.
Payments on disability:
For a small additional premium, you can add disability protection rider (DPR) that provides the following:
In the event of your total and permanent disability due to sickness or accident,
(1) all future premiums will be waived
(2) Income equal to 1% of the face amount will be paid every month to the insured child till the maturity of the policy,
(3) at maturity, he/she would receive full face amount (FA) with bonuses
As an example if your age is 35 years and you wish to buy a 20 year term EPPP policy for your 2 year old child with the face amount of to 100000, your EPPP yearly premium with DPR would be to 7932.
Life Line:Pension Plan
One year after the completion of the Premium Payment Term, They will start receiving Income Coupon every year and it will continue during their life time up to attaining age 100 provided the policy is not surrendered. No premium payment will be required to keep the policy in force after completion of the Premium Payment Term.
The Income could be used to meet the customers regular expenses, to supplement any other income or for anything as thy desire. This can provide a very valuable saving that would be available any time needed by the shareholder.
Problems of Insurance Business in Bangladesh:
ALICO’s Point of View:
Problems Of Policy Holders
v Various insurance companies cheat with the general people. So that many people do not want to adopt the policy. In that case the general people also think the same concept about the ALICO Company.
v There are many types of insurance policy. But many people do not want to understand that types or policies. They take those policies without knowing. After that, they do not want to take any further advantages from the taken policy and think about that policy negatively. In this case they blame the policy holder.
v The policy agents sometimes keep the policy holder’s concept unclear about the policy. For that reason, the general people can not be able to keep their concept clear about the policy.
Though all the documents in ALICO are in English. So that the insurers sometimes can not understand the terms and conditions of the insurance contract.
v The insurer always become victim while claiming for the compensation.
v When a insurance policy does its transaction activity with the help of
its other branches, sometimes it can be seen that the amount which has
paid by the insurer, has not yet included into the reserve. So, in the
time of withdrawing, the insurer faces problems to collect the money.
Recently the ALICO has composed up a new rules which provides that premium amount must be paid directly to the head office. In this situation a field officer may have a accident on the way to submit the payment ,and the insured person may have to compensate the amount.
v Sometimes the insurer can not be able to pay the monthly policy in
time. So that his policy may sometimes cancel.
v Most of the time, general people can’t understand what the doctor has written in the medical certificate.
Consequences 3: After one persons death his physician provides a death certificate which contains that the disease he died for was already in his body for a long period .In this situation, insurance company may not fulfill his claim. So the insurer’s doctor or the company’s doctor must clarify the disease and the treatment procedure properly to the insurers or his family.
Problems Of Alico
v ALICO Insurance Company has fallen in problem by policy holder, government rules and regulation, recruitment etc. in several times.
v Sometimes many policy holder provide wrong information about them to the company for getting the claim.
In hospital care policy one insurer claimed the insured amount by cheating or making a false statement. After the maturity date, the insurer’s family claims that the insurer already died and they claim for the insurance amount but the company does not get any death certificate from them.
v Many policy holder provide false information to the company while taking the policy. So that the company has faced the problems.
v The policy holder almost time does not want to talk frankly while giving the information to the company.
The problem they face most is the insurers become unable to pay the premium or to continue the policy. For them the company tries to make another possible solution. But those who does not contact about this problem, their policies may be forfeited.
v The agent of the company always try to convince to the policy holder to take the policy or about the company –that is time consuming.
One field officer can visit minimum three families in a day; consequently he can visit maximum twenty one families in a week. But most of the families do not become interested to make policy; as a result fifteen to eighteen families may become interested in policies through the field officer.
v Who takes the policy, are quiet rich people and are not well-educated. .so they remain unconscious about the policy. They take policy without knowing about the term. In that case, it creates problems to the ALICO Company.
40 (Forty) year old people are the most of the policy holder among all policy holder and most of them are business person.
v Some fraud branches of the well-known company deceive the general people. So, the general people has lost their trust on the company.
: Consequence 8
Insurance company do not follow proper rules and regulations or formalities in case of policy dealing. So the people can easily take a policy without a lengthy process or any hindrances. But the insurers face problems at the time of payment of insured amount. Such complaints are available among the insurers.
v If the government take part in publicity to encourage the people to accept insurance and to conscious about the insurance, people will be more interest.
v The ALICO Insurance Company invest their reserve into the Bangladesh Bank, all other public and private banks. It also invest their reserve into the housing company like Basundhara, Shahinpukur, kornophuli river etc. so if the interest rate decreases, the profit rate also decreases.
v There may be changed with the photos and the signature of the policyholder with the passage of time. So in maturity period, the ALICO insurance company has become in a great confusions in matching the past photos and signature with the comparing the current photos and signature of the policy holder
General Point of view
Lack of motivation of public: The people of Bangladesh don’t show the interest about insurance or they don’t trust of insurance. They don’t have any idea about insurance which can remove risk and uncertainty. There is no system to advertise about it. Therefore, the people don’t interest about insurance.
Traditional method: There is no modern and developed method in the business of insurance in Bangladesh. All the insurance companies are moving their activities in the
Lack of policy and planning: There is no policy and planning about the insurance in our country in broader sense. The government can’t determine the proper rules and regulations till today.
Lack of capital: Undoubtedly saying that capital is the life blood of all stages of the business. The area of business is as big as extent. For extension of business, capital is most necessary. Insurance company can’t collect necessary capital because of our poverty and consciousness.
Insufficient service: Unskilled management inexperienced employee can’t give efficient service. Most of our employees are not trained, they can’t service properly.
o Through all the documents in ALICO are in English. So that the insurers sometimes can not understand the terms and conditions of the insurance contract. Perhaps written documents both in Bengali and English may help insurers to sort out this problem.
o It will be better if there is some change in the got policy they are:
a. For death people any one certificate of doctor, inspector, and commissioners enough.
b. policy is valid only by policy holder sign at the head office, it will be better if the photo of policy holder is addend’s
- Public don’t have specific and verse knowledge about the Insurance policy, even if they have some knowledge that is not sufficient and can be a wrong one. In this issue different media can be used to make the public conscious about insurance. Such as — bill board, television advertisement, news paper advertisement etc.
¨ www.insurance in bd.com
¨ insurance journal; Bangladesh insurance academy
¨ company brocheures