Definition of Insurance:

Different references says; “Insurance a system of spreading the risk of one to the
shoulders of many”. More theoretically we can say that Insurance is a contract whereby
the insurers, receiving a consideration called as premium, agree to cover the insured
against losses comes out of certain or uncertain incidents.

History of Insurance business in Bangladesh:

As a business, insurance is not new in this territory. During the British regime in the sub-
continent, almost a century back, some insurance companies, both life and general,
started transacting business in the region.

The business gained a momentum right after the partition in 1947 as 49 companies
started to transact both fife and general insurance schemes in East Pakistan during the
Pakistan period (1947-1971).

These companies were of various origins like British, Australian, Indian, West Pakistani
and local as well. These were mostly limited liability companies. Some of these
companies were specialised in dealing in a particular class of business, while others were
composite companies that dealt in more than one class of business.

Bangladesh era:

After the Independence, the then governemnt nationalised the Insurance sector by
Bangladesh Insurance (Nationalisation) Order 1972.

By virtue of this order, save and except postal life insurance and foreign life insurance
companies, all 49 insurance companies and organisations transacting insurance business
in the country were placed in the public sector under five corporations.

These corporations were: the Jatiya Bima Corporation, Teesta Bima Corporation,
Karnaphuli Bima Corporation, Rupsa Jiban Bima Corporation, and Surma Jiban Bima
Corporation.

The Jatiya Bima Corporation was an apex corporation only to supervise and control the
activities of the other insurance corporations, which were responsible for underwriting.

Teesta and Karnaphuli Bima Corporations were for general insurance and Rupsa and
Surma for life insurance.

The basic idea behind the formation of four underwriting corporations, was to encourage
competition even under a nationalised system. But the burden of administrative expenses
incurred in maintaining two corporations in each front of life and general and an apex
institution at the top outweighed the advantages of limited competition.

As a result of it, on 14 May 1973, a restructuring was made under the Insurance
Corporations Act 1973. Following the Act, in place of five corporations the government
formed two: the Sadharan Bima Corporation for general business, and Jiban Bima
Corporation for life business.
The postal life insurance business and the life insurance business by foreign companies
were still allowed to continue as before. In reality, however, only the american life
insurance company continued to operate in the life sector for both new business and
servicing, while three other foreign life insurance continued to operate only for servicing
their old policies issued during Pakistan days.

After 1973, general insurance business became the sole responsibility of the Sadharan
Bima Corporation. Life insurance business was carried out by the Jiban Bima
Corporation, the American Life insurance Company, and the Postal Life Insurance
Department until 1994, when a change was made in the structural arrangement to keep
pace with the new economic trend of liberalisation.

The Insurance Corporations Act 1973 was amended in 1984 to allow insurance
companies in the private sector to operate side by side with Sadharan Bima Corporation
and Jiban Bima Corporation. The Insurance Corporations Amendment Act 1984 allowed
floating of insurance companies, both life and general, in the private sector subject to
certain restrictions regarding business operations and reinsurance. Under the new act, all
general insurance businesses emanating from the public sector were reserved for the
state owned Sadharan Bima Corporation, which could also underwrite insurance
business emanating from the private sector.

The Act of 1984 made it a requirement for the private sector insurance companies to
obtain 100% reinsurance protection from the Sadharan Bima Corporation. This virtually
turned Sadharan Bima Corporation into a reinsurance organisation, in addition to its usual
activities as direct insurer.

Sadharan Bima Corporation itself had the right to reinsure its surplus elsewhere outside
the country but only after exhausting the retention capacity of the domestic market. Such
restrictions aimed at preventing outflow of foreign exchange in the shape of reinsurance
premium and developing a reinsurance market within Bangladesh.

The Conflict:

The restriction regarding business placement affected the interests of the private
insurance companies in many ways. The restrictions were considered not congenial to
the development of private sector business in insurance. Two strong arguments were put
forward to articulate feelings: (a) Since the public sector accounted for about 80% of the
total premium volume of the country, there was little premium left for the insurance
companies in the private sector to survive. In this context, Sadharan Bima Corporation
should not have been allowed to compete with the private sector insurance companies for
the meagre premium (20%) emanating from the private sector; (b) Being a competitor in
the insurance market, Sadharan Bima Corporation was hardly acceptable as an agency
to protect the interests of the private sector insurance companies and should not have
retained the exclusive right to reinsure policies of these companies. The arrangement
was in fact, against the principle of laissez faire.

Private sector insurance companies demanded withdrawal of the above restrictions so

that they could (a) underwrite both public and private sector insurance business in
competition with the Sadharan Bima Corporation, and (b) effect reinsurance to the choice
of reinsurers.
The Resolution:

The government modified the system through promulgation of the Insurance Corporations
(Amendment) Act 1990. The changes allowed private sector insurance companies to
underwrite 50% of the insurance business emanating from the public sector and to place
up to 50% of their reinsurance with any reinsurer of their choice, at home or abroad,
keeping the remaining for placement with the Sadharan Bima Corporation.

According to the new rules the capital and deposit requirements for formation of an
insurance company are as follows:

Capital requirements: for life insurance company - Tk 75 million, of which 40% shall be
subscribed by the sponsors; for mutual life insurance company - Tk 10 million; for general
insurance company - Tk 150 million, of which 40% shall be subscribed by the sponsors;
and for cooperative insurance society - Tk 10 million for life and Tk 20 million for general.

Deposit requirements (in cash or in approved securities): For life insurance - Tk 4 million;
for fire insurance - Tk 3 million; for marine insurance - Tk 3 million; for miscellaneous
insurance - Tk 3 million; for mutual insurance company - Tk 1.4 million; and for
cooperative insurance society, in case of life insurance - Tk 1.4 million, and in case of
general insurance - Tk 1 million for each class.

Deposit requirements (in cash or in approved securities): For life insurance - Tk 4 million;
for fire insurance - Tk 3 million; for marine insurance - Tk 3 million; for miscellaneous
insurance - Tk 3 million; for mutual insurance company - Tk 1.4 million; and for
cooperative insurance society, in case of life insurance - Tk 1.4 million, and in case of
general insurance - Tk 1 million for each class.

The government guidelines for formation of an insurance company are:

(1) The intending sponsors must first submit an application in prescribed form to the Chief
Controller of Insurance for prior permission. (2) After necessary scrutiny the Chief
Controller shall forward the application with his recommendation to the Ministry of
Commerce. (3) After further scrutiny, the Ministry of Commerce shall submit its views to
the Cabinet Committee constituted for this purpose. (4) The decision of the Committee, if
affirmative, should be sent back to the Ministry of Commerce which in turn should send it
back to the Chief Controller of Insurance for communicating the same to the sponsors. (5)
The sponsors would then be required to apply in a prescribed form to the Registrar of
Joint Stock Companies to get registration as a public liability company under the
Companies Act. Memorandum and Articles of Association duly approved by the Controller
of Insurance would have to be submitted with the application. (6) Once the registration
process was completed the sponsors would have to obtain permission of the securities
and exchange commission to issue share capital. (7) Reinsurance arrangements would
have to be made at this stage. (8) After all the above requirements were fulfilled the
licence to commence business under the Insurance Act 1938 is to be obtained from the
Chief Controller of Insurance. Application can only be made subject to government
announcements in this regard.

The control over insurance companies, including their functions relating to investments,
taxation, and reporting, are regulated mainly by the Insurance Act 1938 and the Finance
Acts.
Privatisation Policy:

The privatisation policy adopted in the 1980s paved the way for a number of insurers to
emerge in the private sector. This resulted in a substantial growth of premium incomes,
competition, improvement in services, and introduction of newer types of business in
wider fields hitherto untapped. Prior to privatisation, the yearly gross premium volume of
the country was approximately Tk 900 million in general insurance business and
approximately Tk 800 million in life insurance business. In 2000, premium incomes rose
to Tk 4,000 million in general insurance business and Tk 5,000 million in life insurance
business.

Up to 2000, the government has given permission to 19 general insurance companies

and 10 life insurance companies in the private sector. Insurers of the country now
conduct almost all types of general and life insurance, except crop insurance and export
credit guarantee insurance, which are available only with the Sadharan Bima Corporation.

The Insurance Law:

Finally in 2010, the industry has got its recognition as the government has passed the
Insurance Act 2010 replacing the Insurance Act 1973.

The new law recognised the insurance companies as financial institutions and brought
the sector under the Ministry of Finance from the Ministry of Commerce.

Under the law, an Insurance Regulatory Authority will act as a watchdog.

Unfortunately, we couldn’t get hold of a copy of the legislation yet, we are going to focus
on the previous law, THE INSURANCE CORPORATIONS ACT, 1973, in the following:

Under the law, a board will be constituted with the directors or major share holders of the
corporation. And the board will elect a Chairperson.

Capital:

The authorised capital of the corporation shall be Taka 120 crore to be subscribed by the
Government from time to time according to the requirements of the Corporation and in
such form and manner as may be prescribed.

[Insurance Corporations (Amendment) Ordinance, 1986 (Ordinance No. VIII of 1986)]

Board:

The Board of the Corporation shall consist of the Managing Director and six other
Directors to be appointed by the Government, at least three of whom shall be from
amongst persons who, in the opinion of the Government, have had the experience and
shown capacity in the field of insurance.

The Government shall appoint one of the Directors, other than the Managing Director, to
be the Chairman of the Board.
The Chairman and other Directors of a Corporation, other than the Managing Director,
shall, unless removed earlier, hold office for a term of three years and shall be eligible for
re-appointment.

The Chairman or any other Director may at any time resign his office by notice in writing
addressed to the Government:

The Managing Director shall be a director of the board and should be a whole time officer
and the chief executive of the Corporation.

A Board may appoint such committee or committees as it thinks fit to assist it in the
efficient discharge of its functions.

(Act IV of Insurance Act, 1938), Bangladesh Insurance (Nationalisation) Order, 1972

(P.O. No. 95 of 1972);

Qualifications and disqualifications of Directors:

Every director of the board has to be solvent, cannot be of unsound mind, cannot have
any criminal record, and cannot be a minor as well.

Other than the Managing Director, a director of the board cannot be an employee of the
corporation and has to be a citizen of Bangladesh.

Rights of the Corporation:

Insurance Corporation has the authority to acquire, hold and dispose of any property for
the purpose of its business. It also can transfer the whole or any part of its insurance
business carried on outside Bangladesh to any other person or persons, if in the interest
of the Corporation it is expedient so to do. It may also carry on any other business which
may seem to the Corporation to be capable of being conveniently carried on in
connection with its business and calculated directly or indirectly to render profitable the
business of the Corporation. It also carries the authority to do all such things as may be
incidental or conducive to the proper exercise of any of the powers of the Corporation.

[Insurance Corporations (Amendment) Ordinance, 1984 (Ordinance No. LI of 1984)]

Recruitment of employees:

A Corporation may appoint such officers and other employees as it considers necessary
for the efficient performance of its functions on such terms and conditions as it may
determine.

Annual Budget Statement:

A Corporation has to submit to the Government their annual budget statement in the
prescribed form every year showing the estimated receipts and expenditure during the
period.

(Chartered Accountants Ordinance, 1961 (Ord. X of 1961)

Investment:
A Corporation may invest its funds in such manner as its Board may think fit.

[Insurance Corporations (Amendment) Ordinance, 1984 (Ordinance No. LI of 1984)]

Return:

A corporation has to submit their audit report returns reports and statements to the
Government may from time to time require.

[Insurance Corporations (Amendment) Act, 1990 (Act No. XXIX of 1990)]

Re-insurance:

Every insurer registered and carrying on insurance business in Bangladesh has to re-
insure, on acceptable terms and conditions, a portion of his insurance business.

[Insurance Corporations (Amendment) Act, 1996 (Act No. XVI of 1996)]

Guarantee of policies:

The sums assured by all policies issued by a Corporation including any bonuses declared
in respect thereof and the sums assured by all policies issued by any existing Bima
Corporation the liabilities under which have vested in a Corporation under this Act, and all
bonuses declared in respect thereof, whether before or after the commencement of this
Act, shall be guaranteed as to payment in cash by the Government.

Indemnity:

No suit, prosecution or other legal proceedings can be filed against the Government or
any director or employee of a corporation for anything which is in good faith done or
intended to be done under the Act.

Government’s power to make rules:

The Government may, by notification in the official Gazette, make rules for carrying out
the purposes of this Act, like the following: 1) the form and manner in which capital of a
Corporation may be subscribed, 2) the manner of appointment of a Director of a
Corporation, 3) the terms and conditions of service of the Chairman and other Director of
a Corporation, 4) the powers, functions and duties of the Chairman and other Director of
a Corporation, 5) the time and place at which meetings of a Board may be held, 6) the
form in which the annual report of a Corporation shall be prepared, 7) any other matter
which has to be or may be prescribed.

[Insurance Corporations (Amendment) Act, 1990 (Act No. XXIX of 1990)]

Authority of making regulations by corporations:

A Corporation can, with the previous approval of the Government, make regulations, not
inconsistent with the provisions of this Act and the rules.

Registration Exemption:

A Corporation is exempted from registration.

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