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INSURANCE

1. WHY INSURANCE?
Risk, which is uncertainty regarding loss, poses a problem to business and individuals in
nearly every walk of life. Risk is something that is now taken up front rather than be left to
circumstances or fate to decide. Executives, employees, investors, students, households,
travelers and farmers all confront risk and deal with it in various ways. And insurance is one
of the major risk-handling methods probably begun in Northern Italy some time during the
12th and 13th century and Marine Insurance came in the list first. Originally it was a voluntary
device. But in modern time insurance is treated as a contract between two parties.
Insurance plays a substantial role in the economic development and economic stability of a
country. Insurance constitutes an important service segment accentuating economic
development by resource mobilization, its utilization and by resource creation. It works on
the principle of pooling risks and charging each customer a premium based only on the
average risk of the pool. Insurance promises a compensation of monetary loss sustained by a
particular person due to the damage or destruction of a particular piece of property owned by
him, provided it happens due to certain causes. Thus, the primary purpose of insurance is to
cover the risk of uncertain losses by providing individuals and organizations with financial
protection through the collection of premiums. Insurance has peculiar advantages as a device
to handle risk and so ought to be used to bring about the greatest economic advantage to
society. Therefore, insurance has grown rapidly throughout the world.
2. DEFINITION OF INSURANCE
We can define insurance as a system of spreading the risk of one on the shoulders of many.
In other words, insurance may be defined as a contract between two parties whereby one
party called insurer undertakes, in charge for a fixed sum called premium, to the other party
called the insured, a fixed amount of money on the happening of a certain event. The
insurance company is called the insurer and the policy holder is called the insured.
Section 2 (25) of the Insurance Act 2010 states that insurer meansa. Any individual or unincorporated body of individuals or body corporate incorporated
under the law of any country or State outside Bangladesh carrying on insurance business
whichi.
Carries on that business in Bangladesh; or
ii.
has his or its principal place of business or is domiciled in Bangladesh; or
iii.
with the object of obtaining insurance business employs a representative, or
maintains a place of business in Bangladesh.
b. Anybody corporate carrying on this business of insurance, which is a body corporate
incorporated under any law for the time in force in Bangladesh; or States to any such
body corporate in the relation of a subsidiary company.
c. Any person who in Bangladesh has standing contract with underwriters who are members
of the society of Loyeds whereby such persons is authorized within the terms of such
contract to issue protection notes, cover note, or other documents granting insurance
cover to others on behalf of the underwriters.
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3. KINDS OF INSURANCE:

1.

2.
3.

4.

5.

Insurance can be divided into two types: life insurance and non-life
insurance.
Life insurance: Life insurance is different from other insurance in the sense
that here, the subject matter of insurance is life of human being. The insurer
will pay the fixed amount of insurance at the time of death or at the expiry of
certain period. At present, life insurance enjoys maximum scope because the
life is the most important property of the society or to an individual. Life
insurance business means the business of effecting contracts of insurance
upon human life. It includes:
i.
Any contract whereby the payment of money is assured upon death
(except death by accident only); or the happening of any contingency
dependent on human life;
ii.
Any contract which is subject to the payment of premiums for a term
dependent on human life;
iii. Any contract which includes the granting of disability and double or
triple indemnity accident benefits; the granting of annuities upon
human life, and the guaranteeing of superannuation allowances.
Non-life insurance: Non-life insurance business means fire, marine or
miscellaneous insurance business.
Marine insurance: Marine insurance has been defined as a contract
between insurer and insured whereby the insurer undertakes to indemnify
the insured in manner and to the interest thereby agreed, against marine
losses incident to marine adventure. Marine insurance business means the
business of effecting contracts of insurance upon vessels of any description,
including cargoes, freights and other interests which may be legally insured
in or in relation to such vessels, cargoes and freights, goods, wares,
merchandise and property of whatever description insured for any transit by
land or water or both, and whether or not including warehouse risks or
similar risks in addition or as incidental to such transit and includes any
other risks customarily included among the risks insured against in marine
insurance policies.
Fire insurance: Fire insurance is a device to compensate for the loss
consequent upon destruction by fire. Thus the fire insurer shifts the burden
of fire losses from their actual victims over to all the members of the society.
Miscellaneous Insurance: The property, goods, machine, furniture,
automobile, valuable articles etc. can be insured against the damage or
destruction due to accident or disappearance due to theft.
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4. TYPES OF LIFE INSURANCE POLICIES


There are various types of life insurance. The principal types are described
below:
1. The Whole Life Policy: A whole life policy is one under which a lump sum
of money is payable upon the death of the assured to his or her nominees.
2. The Endowment Policy: An endowment policy is one under which a lump
sum of money is payable to the assured upon his attaining a certain age or in
the event of his dying earlier, to his heirs or nominees upon his death.
3. Policies, with profit or without profit: In profit policies, the policy-holder
gets the bonuses declared from the profit of the insurer. The bonuses are
paid on the maturity of the policies.
4. The Joint Life Policy: A joint life policy involves the insurance of two lives
simultaneously. The policy money is payable upon the death of any one of
the lives insured. If there is a joint life policy of A and B, the money is
payable upon the death of- either A or B. A and B may be husband and wife
or partners in a firm. Partners very often enter into this form of insurance.
The premium is paid by the firm and money is payable to the firm. Upon the
death of any partner the insurance money is used to buy out the heirs of the
deceased partner and the firm goes on with the remaining partners. If there
were no insurance the heirs of the deceased partner would have had to be
paid out of the partnership assets and this might have led to the dissolution
of the firm.
5. Annuities: A annuity policy is one under which the policy money is payable
to the assured by monthly or annual installments after he attains a certain
age. The assured pays premium up to a certain age or (sometimes) a lump
sum of money. The insurer pays a certain sum monthly, or annually to the
assured after he attains a certain age. The usual object of annuities is to
provide for ones old age.
6. Limited Payment Policies: In some life policies the obligation to pay
premium ceases after the assured attains a certain age. Such policies are
called Limited Payment Policies.
7. Miscellaneous Types: Insurance Policies may be affected for the purpose
of the education of children or the marriage expenses of daughters. The
insurer agrees to pay a certain sum for the purpose when the children attain a
certain age. Premiums are payable by the person entering into the contract of
insurance. If he dies before the maturity of the policy no further premium is
payable. Policies of this type help the education and marriage of children in
cases of premature death of parents.
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PROVIIONS APPLICABLE TO INSURERS


1. REGISTRATION OF INSURANCE COMPANY:[Section 8]
1. No person shall begin to carry on any class of insurance in Bangladesh, unless he has
obtained a certificate of registration for the particular class of insurance business from the
Insurance Controlling Authority. However, the JibanBima Corporation and the
SadharanBima Corporation established under the Insurance Corporation Act, 1973 shall
be considered to be having been registered under the Act for the purpose of carrying on
their business.
2. Every person willing to carry on any life insurance or Non-life insurance business in
Bangladesh has to apply in the prescribed form and procedure to the
Authority for obtaining a registration certificate.
3. In the case of an insurer incorporated under the Insurance Act, 1938, who was carrying
on any class of insurance business in Bangladesh at the commencement of this Act, and is
willing to continue the same that insurer has to apply to the Authority in writing for
obtaining a registration certificate within 6 (six) months from the commencement of this
Act.
4. An applicant applying for registration under this section for issuance of certificate and
renewal thereof has to make payment of prescribed fee.
5. Every application for registration shall be accompanied by the following papers,
documents and information:
a) Where the applicant is a company, a certified copy of its memorandum and articles of
association, the name, address and occupation of its directors and their Tax
Identification Numbers, if any.
b) Where the applicant is an insurance company incorporated under the Insurance act,
1038, the full address of its Principal office in Bangladesh, the names and Tax
Identification Numbers, if any of its directors and manager and their contact address.
c) In the case of an insurer having its Principal place of business or domicile outside
Bangladesh, the documents specified in clause (a) of section 114.
d) Where the applicant is a Co-operative society, the names addresses and Tax
Identification Numbers, if any, of its members and address of its principal office.
e) A statement of the class or classes of insurance business done or to be done and a
statement that the amount required to be deposited together a certificate from the
Bangladesh Bank showing the amount deposited.
f) Where the provisions of section 21 or section 118 apply, a statement duly certified by
an auditor showing the total working capital of the insurer and a declaration verified
by an affidavit made by the Principal officer of the insurer authorized in that behalf
that provisions of those sections as to paid up capital or working capital or working
capital as the case may be has been complied with.
g) A certified copy of the published prospectus, if any, and the standard policy forms of
the insurer and statement of assumed rates, advantages, terms and conditions to be
offered in connection with insurance policies together with a certificate in connection
with life insurance business by an actuary that such rates, advantages, terms and
conditions are workable and sound.
h) The receipt showing payment in the prescribed manner of the fee as prescribed for
any class or sub class of insurance business.
i) Any other documents, paper or information as prescribed under this Act.
6. Every application made under this section shall be accompanied by a declaration signed
by the applicant and verified by an affidavit stating that all statements as supplied with
the application are true and correct.

CAPITAL, DEPOSIT AND AUDIT


1. REQUIREMENT AS TO CAPITAL AND SHARE-HOLDINGS: [Section 21]
1. No insurer, other than an insurer who was transaction any class of insurance business
in Bangladesh immediately before the commencement of this Act shall be registered
after such commencement for transacting any class of insurance business unless he
has a paid up capital of not less than the amount specified in the Schedule I and his
shares have been subscribed in such manner as may be prescribed.
The existing requirement of paid up capital as per Schedule I for a company
incorporated in Bangladesh or outside Bangladesh-life insurance company Taka 30
crore and non-life insurance company Taka 40 crore. For companies incorporated in
Bangladesh 60% of the paid capital shall be subscribed by the sponsors and the
balance 30% shall be open for public subscription while in case of a company
incorporated outside Bangladesh 100% of the capital shall be brought in to
Bangladesh through remittance from abroad and deposited into bank.
It may be mentioned that the Government may, by notification in the official Gazette,
increase or decrease the amount of paid up capital.
The sponsors, before making application for registration deposit their own portion of
the paid up capital in the name of the company in any schedule bank in Bangladesh
without any encumbrance and that money shall remain deposited unencumbered.
2. An insurer after submission of the application for registration or in future cannot
withdraw any money other than the interest earned on this deposit and without the
written permission of the Authority cannot mark any lien other than in favour of the
Authority.
3. An insurer registered in Bangladesh or abroad before the commencement this Act has
to fulfill the requirement of depositing capital under the provisions of this section and
with the time fixed by the Authority.
2. DEPOSITS:[Section 23]
1. An insurer if registered before the commencement of this Act or at the time of
applying for registration under this Act shall deposit or keep deposited with the
Bangladesh Bank the amount specified in Schedule I at the estimated market value of
securities on the day of the deposit, or partly in cash and partly in approved securities
so estimated. The amount of the deposit as per Schedule I is Taka I (one) crore and 50
(fifty) lac for life insurance business and Taka 2 (two) crore 50 (fifty) lac for non-life
insurance business.
2. The deposit made in cash under the sub section (1) shall be held by the Bangladesh
bank to the credit of the insurer and shall except to the extent, if any, to which the
cash has been invested in securities to be returnable to the insurer in cash in any case
in which under the provisions of this Act is to be returned; any interest accruing due
and collected on securities shall be paid to the insurer.
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3. It may be mentioned here that, for the purpose of realization of interest on


securities normal commission is deductible at a rate as determined by the
Bangladesh bank from time to time. The insurer may at any time replace any
securities deposited by him under this section with the Bangladesh Bank either by
cash or by other approved securities or partly by cash and partly by other
approved securities, provide that such cash or the value of such other approved
securities estimated at the market rates prevailing at the time of replacement, or
such cash together with such value, as the case may be, is not less than the value
of the securities replaced estimated at the market rates prevailing when they were
deposited.
6. AUDIT: [Section 28]
1. The balance sheet, profit and loss account, and revenue account of every insurer in
respect of the insurance business transacted by him in Bangladesh shall, unless
they are subject to audit under the Companies Act, be audited annually by one or
auditors in accordance with the provisions of this Act.
2. An auditor employed under the provision of this section shall have authority to
exercise such powers and functions as is given to an auditor under section 213 of
the Companies Act.
7. SPECIAL AUDIT: [Section 29]
1. Whatever may exist in other provisions of this law, the Authority may from time
to time order auditing of all insurance business related transactions, records,
documents of any or all insurance companies doing insurance business in
Bangladesh under the provisions of this Act.
It may be mentioned here that an auditor appointed under this section shall not be
the same person appointed as auditors under section 28.
2. An auditor appointed under this section shall have a right of access to all such
books of account, registers, vouchers, correspondence and other documents of the
insurer and shall be entitled to require from the directors and officers of the
insurer such information and explanation as may be necessary for the performance
of his functions and duties under this section.
3. An auditor appointed under this section shall prepare an audit report within a
maximum period of four months of its appointment and shall submit the audit
report to the Authority in four copies.
4. An auditor appointed under this section shall be paid by the insurer such fee as
may be prescribed by the Authority.