The New Nation - Internet Edition

Dr. Mahbub Alam

To commence insurance business there are certain rules and regulation that should be followed and to achieve the permission from the Chief Controller of Insurance the Company should go through the process and registered with Registrar of Join Stock. At present there are 18 life insurance companies and 44 non life insurance companies prevailing in the market. Most of the companies are also listed with Dhaka and Chittangong stock exchanges. It is needless to say that insurance industry has been caring a good hope for our future market. Even in the global recession the General Insurance companies' gross premium income grew by 16% in 2008, which is significant. The market is increasing day by day and the growth of insurance industry and the economic development is interdependent. Economic development of a country is partly dependent on the development of insurance industry. The American writers Mehr and Cammack, mentioned in their book "Principles of Insurance" that the rise of Britain as a great trading nation was due to their good fire insurance facilities.

Despite of getting the permission to start the business from the government, the insurance companies are failing to progress due to the ill cooperation of few banks. The companies have to be enlisted every year with the banks. It is very hilarious that the system of enlistment is that by creating FDR with a huge amount of money with those respective banks. Not only that the amount will be fixed by the said banks. The amount varies bank to bank and the amount is increasing day by day. The system of enlistment is actually a tactic to earn business. This system is standing as a barricade on the path of the flourish of insurance business. As per circular No. BRPD(P-1)760/Misc/ 2007-4176-4223, December 02, 2007, Bangladesh Bank has noticed that the condition applied by the Commercial Bank prior to enlistment is unjustified. In this regard Bangladesh Bank also issued circulars dated February 19, 1986, February 19, 1987.

If the bank wants to know about claim paying ability/financial status of an insurance company they can easily measure by the Credit Rating. In may be mention here that the Chief Controller of Insurance, in 2007 took steps to make "credit rating" compulsory for the Insurance Companies in every year. In the process of "credit rating" one of the most important criteria is Claim Paying Ability (CPA) rating, which denotes of a Company's cash flows, liquidity reserves, risk reserves, business concentration, Capital strength, investment policy, and prominently the strength of its reinsurance arrangement. By credit rating bank could easily know the condition of a company and effortlessly go through a better Company to purchase the Insurance Policy for their consumer.

The Chief Controller of Insurance has circulated a circular (No: 21/21/98-376 dated March 12, 2007) regarding mandatory of credit rating every year for each & every insurance companies. The evaluation of insurance company's strengths and weaknesses can found through the credit rating. It also helps the policyholder while taking insurance policies.

Bank and Insurance is interdependent. In order to sound economy of the country as well as to increase mutual benefits it's time to work jointly and cooperation between Bank & Insurance is very much essential.

The new elected government recently approved the new Insurance laws in the cabinet, which we believe will help the sector to grow further. We also hope that government would take the bank enlistment issue into considerations and immediately terminate the system of enlistment.