AReport On

Insurance & Risk Management

Discussion AreaProblems and Prospects of Insurance Business in Bangladesh

Risk Management & Insurance (MGT-205)

SUBMITTED TOProf. Dr. Md. Mosharraf HossainProfessor, Department of ManagementUniversity of Dhaka

SUBMITTED BY Team Exotic

NameIDScoreNobonita Roy002Shamim Sheikh008Shuva Das015Shahria Yasmin036Mohammod Belal Uddin038Ismail Hossain087Jamil Hossain097Al Jakaria John099Fahmida Nishat Nishi100 Prantika Mutsuddi105

DATE OF SUBMISSION: 15th May, 2014.

Letter of Transmittal

ToProf. Dr. Md. Mosharraf HossainProfessor, Department of ManagementUniversity of DhakaSir,We have the pleasure to submit our group report on Problems and prospects of insurance business in Bangladesh as you assigned us.

This report discusses about the practical application of insurance principles in problem settlement of different policies in their functional level. By this report preparation, we have learned how to settle claim of insurance policies and how to apply the principles of insurance. Moreover by visiting the organizations, we have increased our practical knowledge about real situations of insurance in our country.

Moreover, your time to time suggestion and advice helped us to fulfill experience as we put everything in this report.

We thank you for choosing us for working on this topic.

Sincerely yoursAll members of our group .

ACKNOWLEDGEMENT

It is a great honor for us to submit this report to our respected teacher Mr.Md Mosharraf Hossain, Professor, Department of Management. At first we want to convey our thanks and gratitude to him for assigning us to prepare report entitled, Problems and prospects of insurance business in Bangladesh. It would not be possible for us to complete the report, but for his help.

We are also grateful to officials of insurance companies namely Sandhani Life Insurance company Ltd. They have provided us the required documents we needed.

All of the efforts ended at a desired point for the cooperation and hard work, sincerity and seriousness of our group members. So all of them as well as our group members are worth of pure compliment. Our fellow classmates supported us in every possible way. We would like to thank them for all their support.

Contents

Executive Summary6Chapter-1(Introduction)7ORIGIN7BACKGROUND7OBJECTIVE OF THE REPORT7SCOPE OF THE STUDY8METHODOLOGY & SOURCES OF DATA8LIMITATIONS9Chapter-2(An overview of insurance business)10Definition of Insurance:10History of insurance10Types of insurance13Different types of life insurance policies offered by the companies in Bangladesh:15Chapter 3 (A case on SLIC)17An Overview on Shandhani Life Insurance Co. Ltd.17Commitments of SLIC:18Sandhani Life's Vision & Mission:19Strategic Objectives:19Ethical Principles:19SLIC at a glance20Questionnaire21Problems of Sandhani Life Insurance Co. Ltd.23Recommendations:24Conclusion25Bibliography26

Executive SummaryInsurance is the distribution of risk from one person to many others within a group. It is an essential thing for our day to day life. It is the main concern for every type of business. Types of insurance cover both the life and non-life things. Insurance is essential for the protection of business from any type of peril that may cause an end to the life of business. Our country is a developing one. Every day new types of business are emerging. So insurance is an essential part for them. Again we feel a lot of uncertainty in every sphere of life. So we always seek for some type of assurance for ourselves and for those who are dependent on us. Insurance also helps us in this task. One of the main functions of insurance company is to settle claim of the insured. This is a little bit difficult and comprehensive tasks.Our report mainly focuses on the problems and prospects of different insurance companies. The process may vary depending on the type of insurance. We have tried to mention all the rules and regulations required to claim

Chapter-1

Introduction

ORIGIN

The preparation of this report is a requirement of the course on Risk Management & Insurance. Mr.Md Mosharraf Hossain, Management Department at Faculty of Business Studies, University of Dhaka, who is also the course teacher of Risk Management & Insurance, has assigned to the students of BBA 19th batch to select some organization doing insurance business in our country and prepare a report on the topic Problems and prospects of insurance business in Bangladesh " BACKGROUND

The world of business is increasingly becoming more and more competitive. At the same time it is becoming more and more uncertain. In every sphere of life we are facing risk of accident even death. Again every business also faces the risk of damage from fire, accident or other types of perils. So each and every business should ensure protection of its properties and resources. We also should take some action to get assurance of financial support. For this insurance is necessary for us and business.

OBJECTIVE OF THE REPORT

The primary objective of this study is the partial fulfillment of the course requirement. The main objectives of this report are as follows: To fulfill the partial requirement of the course Risk Management and Insurance offered in BBA program. The collateral purpose of this report is to explore about insurance principles used by companies. The main objective of the report is to show Problems and prospects of insurance business in Bangladesh. It will also enable us to improve our skills on report writing. As corporate executive put great value on report writing as an important element in organization success, this part of the course will prepare us to face the future challenges of corporate world. To meet the curiosity in this stated subject.

SCOPE OF THE STUDY

This report gives a narrative overview of claim settlement process of some insurance companies namely Sandhani Life Insurance Bangladesh Limited. Here insurance principles used for problems and prospects of insurance business in different insurance companies are the major part of our experiment and report. We could not include every data with illustration to prevent our report from verbosity. We fix our limit of the report analysis only on various cases to make the point easy and clear to the reader.

METHODOLOGY & SOURCES OF DATA

The information for the report was collected from both primary and secondary sources. Primary sources: All the data and information that are collected from primary sources are acquired by interviewing the officials of the related company. Secondary sources: Secondary data have been collected from various sources like website of this companies.. We have also visited insurance companies physically. We have taken theoretical data from our text book Risk &Insurance by Prof Dr Md Mosharraf Hossain. We have also collected information from different journals, news papers and magazines available on the insurance in Bangladesh. Finally the case information is based on conversation with the respective people.The data and information collected from interviews and secondary sources have been analyzed.

LIMITATIONS

The major limitations encountered are: The most elementary limitation of this study is the tendency of the employees to be always alright attitude hindered us to realize the overall claim settlement process. Time constraints of the required personnel in providing us with information. Lack of experience also acted as constraints in the way of exploration on the topic. The companies are also reluctant to give some important information for their internal privacy.

Chapter-2

Overview of insurance

Definition of Insurance:Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss. An insurer is a company selling the insurance; an insured or policyholder is the person or entity buying the insurance. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

History of insuranceIn some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: money economies (with markets, money, financial instruments and so on) and non-money or natural economies (without money, markets, financial instruments and so on). The second type is a more ancient form than the first. In such an economy and community, we can see insurance in the form of people helping each other. For example, if a house burns down, the members of the community help build a new one.A brief chronological historical development of the various branches of insurance is given below-Marine: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 & 13th century and gradually the concept was rather transferred to or taken over by the United Kingdom. During the 13th/14th century the Italian merchants went to the U.K and along-with the merchandise carried with them the trading

customs including, the concept of marine insurance. Marine insurance as such was not being practiced as a separate specialized entity during that time since it were the merchants who used to transact marine insurance business side by side with their general trading activities .

Gradually Lombardy Street of England (named after the merchants of Lombardy of Italy) started becoming the nerve center of marine insurance activities as it was here where the merchants used to assemble for the purpose of trade and insurance protection. However, problems used to arise as there were no set rules or regulations for settling disputes arising out of marine policies and it was the Lombard Street customs that used to influence settlement of such disputes. Practices were there to refer disputes to admiralty court but it had the drawback of not having special knowledge of the law of merchants or of Lombard street customs. Subsequently in 1575 chamber of assurances was established for the registration of insurance policies and the advantage it has had in it this that the dispute were minimum because such registration was the evidence of the contract and various terms and conditions under it. In 1601, court of arbitration was established- through enactment for setting disputes on marine policies. The bubble act, 1720 saw the granting of charter to two insurance companies, viz, royal exchange and London assurance, for transacting marine insurance business side by side with the individuals.

The coffee houses have indeed played a very vital role in the development of trade and commerce in U.K. It is in such houses that the merchants used to congregate for their business locations. One such was opened by Edward Lloyd in 1680 where the merchants used to frequent their visits. Auctions of ships, insurance coverage etc. used to take place here and gradually it became a place of shipping intelligence. Since later part of the 17th century and early 18th century this coffee house virtually turns into the most famous Lloyds which has boost of being the strongest and soundest insurance organization all over the world. The monopolies granted to two insurance companies previously by the bubble act 1720 were subsequently repealed and now the number of insurance companies and individual insurers are operating as marine insurers in the U.K the present act regulating the marine insurance business is the marine insurance act, 1906 and this act is followed in our country also.

Fire:Fire insurance came second in the list of development. The insurers who had thereto been doing marine were contemplating about starting fire insurance business also. The great fire of London in 1666 practically demonstrated the necessity and urgency of fire insurance, about insurance companies came forward to provide fire insurance protection. But due to introduction of newer types of hazards arising out of industrial revolution of the 19th century and because of the increased demand of such types of insurance, some more companies had to come into the picture. The Toole Street fire, 1861 had an influence in improving the business of fire insurance as it demonstrated that classification of risk was necessary for sound rating system. In 1868 the

fire offices committee (FOC) was formed which has multifarious responsibilities like, uniform rating, statistics and various technical advices to member organization. Subsequently also developed various other bodies such as. Joint fire research organization, Salvage corporations etc who are directly and indirectly helping the fire insurance business on a sound scientific line.

Life:

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 policies were used to 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 more so, there was no fix some assured and the amount payable used to vary depending on the fund available. Life insurance virtually did not have any scientific basis at the time there was no mortality table through which the risk could be scientifically assessed. Legal backing was also not therefore sound and systematic conduct of business. In 1693 Halley introduced the mortality table giving a definite value to risk of death. Subsequently, Dodson demonstrated that it was possible to charge level premium throughout the duration of policy period in 1774, the life assurance act was passed in the British parliament requiring the presence of insurable interest before one could affect a life policy on the life o0f another. All these gradually gave life assurance a sound, systematic and scientific basis as we see in the present day.

Accident:The last in the list of development is the accident insurance business, it is still an open branch in the new sense that any new type of insurance that is not cared foe under marine, fire and life would fall under accident branch. Therefore, we see a number of various types of policies coming under accident department. Examples are- Personal accident, burglary, fidelity, workmens compensation liability policies engineering policies, erection of risk, cash in safe and transit, crop, cattle, bond, credit guaranty schemes, motor, aviation etc.

Accident insurance basically started from personal accident insurance effect of industrial revolution in the 19th century particularly the invention of steam power and railway, was responsible for numbers of accidental death and bodily injuries some specialized insurance companies started operating in the field side by side with the existing companies doing fire, marine and life business. With the increased demand from the public for protecting themselves

against other various types of risk associated with rapid intra industrialization gradually developed other types of business, already indicated.

Types of insuranceAny risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as "perils". An insurance policy will set out in detail which perils are covered by the policy and which is not. The classification of insurance can be described in two ways, Viz. branch wise classification and interest wise classification.Branch wise classification: The following table shows the branch wise classification:

The accident department is still an open department and any new type of policies, which will not appropriately come under marine, fire and life will be treated under accident department.

Subject matter wise classification: The subject matter wise classification is shown in the following chart:

There are various types of insurance emerging day by day. They are categorized according to their nature. Our report does not concern much about them.

Different types of life insurance policies offered by the companies in Bangladesh:The life insurance policies are of many types. The principal types of policies are discussed below:(1) Whole life Policy :Under this policy premiums are paid throughout life and the sum insured becomes payable only at the death of the insured. The policy remains in force throughout the life of the assured and he continues to pay the premium till his death. This is the cheapest policy as the premium till his death. This is the cheapest policy as the premium charged is the lowest under this policy. This is also known as ordinary life policy. This policy is suitable to persons who want to provide for payment of estate duty, make bequeathments for charitable purposes and to provide for their families after their death.(2) Limited payment life policy : In the case of whole life policy there is one disadvantage in that the assured must continue to pay the premium even during his old age when he is no more employed. Under the limited payment life policy premiums are payable for a selected number of years or until death, if, earlier. The assured knows how much he will be required to payable only at the how long he lives. The sum insured becomes payable only at the how long he lives. The sum insured becomes payable only at the death of the insured. It is a suitable policy to meet the family needs.(3) Endowment policy :It runs only for a limited period or up to a particular age. Under this policy the sum assured becomes payable if the assured reaches a particular age or after the expiry of a fixed period called the endowment period or at the death of the assured whichever is earlier. The premium under this policy is to be paid up to the maturity of the policy, i.e., the time when the policy becomes payable. Premium is naturally a little higher in the case of this policy than the whole life policy. This is a very popular policy these days as it serves the dual purpose of family and ole age pension.(4) Double endowment policy :Under this policy the insurer agrees to pay to the assured double the amount of the insured sum if he lives on beyond the date of maturity of the policy. This policy is suitable for persons with physical disability who are otherwise not acceptable for other classes of assurance at the normal tabular rates. Premiums are to be paid for a selected term of years or until death, if earlier.

(5) Joint Life Policy :This policy covers the risk on two lives and is generally available to partners in business. Policies are however, issued on the lives of husband and wife under specified circumstances. Sum assured becomes payable at the end of the selected term or on the death of either of the two lives assured, if earlier.(6) With or without profit policies :Under the with profit or participating policies, the policy holder is allowed a share in the profits of the corporation in the form of bonus and it is added to the total sum assured and paid at the time of maturity of the policy. In the case of without profit or non-participating policies, no such profit is allowed. Premium in the first case is higher and is lower in the later case.(7) Convertible whole life policy :This policy initially provides maximum insurance protection at minimum cost and offers a flexible contract which can be altered at the end of five years from the commencement of the policy to an endowment insurance.(8) Convertible term assurance policy : This policy meets the needs of those who are initially unable to pay the larger premium required for a whole life or endowment assurance policy but hope to be able to do so within a few years. It would also enable such persons to take final decision at a later date about the plan suitable for their future needs.(9) Fixed term (marriage) Endowment policy & education annuity policy :It is a policy suitable for making provisions for the marriage or education of children. Premiums are payable for a selected term or till prior death. The benefits are payable for selected term or till prior death. The benefits are payable only at the end of selected term. In case of the marriage endowment, the sum assured is paid in lump sum, but in case of the educational annuity, it is paid in equal half-yearly installments over a period of five years.(10) Annuities : It is a policy under which the insured amount is payable to the assured by monthly or annual installments after he attains a certain age. The assured may pay the premium regularly over a certain period or he may pay the premium regularly over a certain period or he may pay a lump sum of money at the outset. These policies are useful to persons who wish to provide a regular income for themselves and their dependants.

(11) Sinking fund policy : Such a policy is taken with a view to providing for the payment of liability or replacement of an asset.

(12) Multipurpose policy :This policy meets several insurance needs of a person like provision for himself in old age, income for his family and provision for the education, marriage or the start in life of his children. It gives maximum protection to the beneficiaries in the event of the early death of the assured, as it provides :i) Regular monthly income during the unexpired term;ii) Additional monthly income for a period of two years from the date of death;iii) Payment of a part of the sum assured on death andiv) Payment of the balance sum assured at the end of the selected periodOn maturity the assured may get the sum assured in cash, in the form of monthly pension, or an increased sum payable on death. Premiums are payable during the selected term or till death, it earlier.Chapter 3An Overview on Shandhani Life Insurance Co. Ltd.

Head Office

Sandhani Life TowerRajuk Plot No. 34 Bangla Motor, Dhaka-1000. Bangladesh PABX : 9611197, 9664931, 9661241 Cell: 01833325681-82Fax: 88-02-9614405 web:www.sandhanilife.com email: slic@sandhanilife.com

Head Office(Extended)

sandhani Life Bhaban

22/10,Bir Uttam A.N.M. Nuruzzaman Road Shaymoli, Dhaka -1207 ,Bangladesh PABX : 9139134,9139189 Fax: 88-02-8130897web : www.sandhanilife.com e-mail :slic@sandhanilife.com

SLIC is one of the leading Life Insurance Company in Bangladesh since 1990. SLIC enlarge its network by establishing agency offices. As a result in 31st December 2010 8.61 lac Policyholder is now under the shade of Sandhani. SLIC provides Life Insurance coverage in the remote area as well as within all the people of the country.The core business activities of SLIC covers Micro Insurance for the Poor People, Ordinary Life Policy for the General, Group Insurance for the Corporate, Education Policy for the Students, Hajj Policy for the Religious People and so on.

Commitments of SLIC:

To build a safe and sound prospect for every Individual, Society and Community. Policyholder:SLIC seeks to build an ever relationship with the policyholder by providing a qualitative service.Employees: SLIC seeks to enhance employees skill, efficiency and make them more innovative and dedicative by providing effective professional training and a highly motivated remuneration package.Shareholders:SLIC seeks to satisfy the shareholders by achieving consistent operating performance and by disclosing transparent financial information.

Business Partners:SLIC seeks to maintain excellent relationship with its business partners.

Community:SLIC seeks to live up its responsibilities to the community by providing various types of Philanthropic activities to play a supportive role to protect our social, cultural, environmental, economical and national interest.

Sandhani Life's Vision & Mission:1. To ensure social & family protection through Life Insurance Policy of all families of Bangladesh.2. To ensure highest possible services to Shareholders & Policyholders of the company with modern technology & dedicated professionalism.3. To settle & handover insurance claims to the doorstep of policyholders or their nominees within quickest possible time.4. To provide highest dividend & bonus to the shareholders & policyholders respectively.5. To increase asset, investment & life fund with modern technology & most efficient management.

Strategic Objectives:

In order to achieve companys long-term goal, it has maintain a number of key business objectives which are: Prompt claim settlement; Improve staff-client relationship; Enhancement of employees skill and efficiency; Maximize shareholders wealth through a sustainable return on their investment; Maintenance of social commitment; Establishment of corporate governance.

Ethical Principles:

We are committed to living by the principles and practices established by our corporate and social responsibility and business ethics, which enable us to manage effectively our impact on the society and environment. Our core values, depends on:

Integrity & Honesty: We believe only integrated, honest and sincere employees can bring the company in a sustainable position.

Objectivity: We are committed to serve our clients and beneficiaries and conduct all business activities according to the business principles.

Accuracy and In Timely Manner: We are very much aware about the accuracy of all the calculation and evaluation by using the report of the expertise and serve to the valued clients in timely manner.

Performance in due care: To maintain the professional competence, it requires a continuing awareness and an understanding of relevant technical professional and business developments, so as a public service provider we exercise a sound judgment in applying professional

knowledge and skill in the performance of such service.

Safety & Confidentiality: According to the principles of safety and confidentiality we are

alert to the possibility of inadvertent disclosure of information of a prospective client or employer and the identification, evaluation and elimination of hazards that could cause harm to our employees, property and the environment.

Respect and Trustiness: We earn the trust and respect of our shareholders, employees, clients and business partners by being honest, fair & open and honoring our commitments.

Accountability & Transparency: We are in practice of highest level of accountability and transparency regarding our product, business activities, performance and financial results to meet the expectation of all the valued users and beneficiaries.

SLIC at a glance

Date of Incorporation January 23, 1990

Obtained certificate for commencement of businessMarch 28, 1990

Registered with the Controller of Insurance April 25, 1990

Prospectus issued for floatation of public sharesJanuary 01, 1996

Subscription openedJanuary 08, 1996

Subscription closedJanuary 14, 1996

Listed with Dhaka Stock ExchangeApril 06, 1996

First trading of shares on Dhaka Stock Exchange FloorApril 06, 1996

First A.G.M of public shareholdersAugust 25, 1996

First election of Directors from public subscribersNovember 20, 1997

Settlement of SLIC shares in Demate mode in the CDSApril 27, 2004

Number of Directors19

Life fund at the end of the year 2012816.51 Crore

Bonus Share for the year 201230 shares for every 100 shares (30 :100)

Questionnaire

We are team exotic, students of Management Dept. of Dhaka University. This questionnaire is a result of the partial requirement of the course (Insurance & Risk Management ) under B.B.A program at Dhaka University. The data which is collected by this questionnaire will only be used only in academic and statistical purpose. The information will be kept confidential.General information:Name: Occupation:Age:Specific information: Please answer the following question with check () mark. 1. Do you have an insurance policy? Yes No 2. What type of policy have you taken? Life insurance Fire insurance Marine insurance Health insurance3. Do you think insurance is useful? Yes No4. Are insurance companies reliable? Yes No5. Do you feel risk free by taking the insurance policy? Yes No

6. Will your family be benefited by this insurance policy? Yes No

7. Is the behavior of insurer good enough? Yes No

8. Do you get payment properly? Yes No9. Will you suggest others to have an insurance policy? Yes No10. Are you satisfied with the overall performance of insurance companies in Bangladesh? Yes No Thank you

Problems of Sandhani Life Insurance Co. Ltd.

Insufficient fundLess innovative marketing systemIllegal InterferenceIncorporate CultureLack of TransparencyLack of safe investmentLack of Reward and Punishment System to the employeesDullness in Management AuditJob Dissatisfaction of employeePolitical Instability

Recommendations:

The following are the recommendations of the problems that are mentioned above.

Ensure sufficient fundEnsure innovative marketing strategy Reduce Illegal InterferenceEnsure Corporate CultureEnsure TransparencyMake some room for safe investment around the countryEnsure reward and punishment system to the employeesRegular Managerial AuditEnsure Job SatisfactionPolitical Stability

Conclusion

Insurance is a key mechanism to handle the risk. It is also a core component of financial infrastructure of a country. As people are exposed to new type of risks in everyday life, they increasingly feel the importance of insurance. But insurance in Bangladesh failed to occupy a dominant place not only as a risk handling mechanism but also as a financial institution. Insurance in Bangladesh is facing multidimensional problems. As a consequence of problems, the pace of development of insurance business in this country is very slow. Insurance products could not achieve significant acceptance to the mass people. Therefore, currently identified problems should be solved to accelerate the growth of insurance industry.

Bibliography

Annual Report of SLIC www.google.com The financial express www.bing .com Insurance & Risk Management by Dr. Md. Mosharraf Hossain Conversation with the policy holders. www.sandhanilife.com

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