Problems and Prospects Analysis of Mercantile Insurance Company

Problems and Prospects analysis of Mercantile Insurance Company Limited

Insurance is a system of spreading the risk of one to the shoulders of many. It is a contract whereby the insurers, on receipt of a consideration known as premium, agree to indemnify the insured against losses arising out of certain specified unforeseen contingencies or perils insured against.

Insurance is not a new business in Bangladesh. Almost a century back, during British rule in India, some insurance companies started transacting business, both life and general, in Bengal. Insurance business gained momentum in East Pakistan during 1947-1971, when 49 insurance companies transacted both life and general insurance schemes. These companies were of various origins British, Australian, Indian, West Pakistani and local. Ten insurance companies had their head offices in East Pakistan, 27 in West Pakistan, and the rest elsewhere in the world. There were mostly limited liability companies. Some of these companies were specialized in dealing I a particular class of business, while others were composite companies that dealt in more than one class of business. The government of Bangladesh nationalized insurance industry in 1972 by the Bangladesh Insurance (Nationalization) Order 1972. By virtue of this order, save and except postal life insurance and foreign life insurance companies, all 49 insurance companies and organizations transacting insurance business in the country were placed in the public sector under five corporations. These corporations were: the Jatiya Bima Corporation, Tista Bima Corporation, Karnafuli 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. Tista and Karnafuli Bima Corporations were for general insurance and Rupsa and Surma for life insurance.

The basic idea behind the formation of four underwriting corporations, two in each main branch of life and general, was to encourage competition even under a nationalized 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. Consequently, 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. 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 liberalization.

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 organization, 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 control over insurance companies including their functions relating to investments, taxation, and reporting is regulated mainly by the Insurance Act 1938 and the Finance Acts.

Mercantile Insurance Company Limited, a Public Limited Company incorporates in Bangladesh on March 19, 1996 under the Insurance Act. 1938 and started trading with Dhaka Stock Exchange Limited (DSE) from 7 December, 2004 and with Chittagong Stock Exchange Limited (CSE) from 21 May, 2009.

Objectives of the Study

Purpose tells the reason of the report. Before going to the organization I set my objectives that guided me until I finished the report. It always kept me focused to be on right track. The objectives are:

• To provide a brief overview of Mercantile Insurance Company Limited and their historical background.
• To know the product and services of General Insurance company and those description.
• To present my observation and suggestion to the Insurance Company.
• To come up with the exact information about the regulatory system from both the business point of view and the regulators point of view.
• To identify associated problems in the observations & research and to recommend actions required to mitigate the problematic situation in the insurance industry.

Mercantile Insurance Company Limited

Mercantile Insurance Company Limited is the one of the best second generation non-life private insurance company and it is a reliable insurance company in the insurance landscape in Bangladesh. The company was founded in 1996 in order to provide non-life insurance services in the country. Customers ‗satisfaction is the company‗s main concern. Mercantile Insurance Company always tries to value its customer, and provides the entire needed safeguard to them. The company helps its customers to get them set soon again and to march with time.

Services of MICL

• Marine Insurance
• Fire Insurance
• Motor Insurance
• Marine Hall Insurance
• Contractors all risks policies
• Cash in transit / Cash in save /Cash in counter Insurance
• Worksman compensation
• Industrial all risks policies
• Property Insurance
• Personal Accident Insurance
• C.A.R. Insurance
• Jewelry Insurance
• Business interruption and Machinery breakdown Insurance
• Health Insurance including overseas medicalim Insurance

Insurance

Meaning & Definition of Insurance

It is a contract in which one party known as the insured also known as assured, insures with another party (person or organization), known as the insurer, assures or underwrites his property or life, or the life of another person in whom he has a pecuniary interest, or property in which he is interested, or against some risk or liability, by paying a sum of money as the premium. Under the contract, the insurer agrees to indemnify the insured against a loss which may accrue to the other on the happening of some event.

According to Investopedia, Insurance is–

“A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients risks to make payments more affordable for the insured.”

At present, insurance is being used widely and becoming more and more popular both in personal life and in the business sector as a significant risk management tool which is primarily used to hedge against the risk of a contingent, uncertain loss. Insurance contract provides financial protection to the insured by the insurer against a loss arising out of happening of an uncertain event. The insured can avail this protection by paying premium to any insurance company with whom the contract has been made. Insurance works on the basic principle and concept of risk-sharing. When a company insures an individual entity (the insured), there legal requirements to share the risks associated with the insured by the insurer, breaking of which contract creates legal bindings. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type and the re-insurance system makes the total risk at zero level in the long run. On the one hand, insurance can increase fraud; on the other it can help societies and individuals in preparing catastrophes and in mitigating the effects of catastrophes on households, business operations and societies.

Features of Insurance

Insurance has various effects on society through the way that it changes who bears the cost of losses and damage of the insured according to the insurance contract. The distinguished common features of any insurance are as follows:

• Shifting or transferring risk of loss or damage of any life, asset, or property from one party to another party.
• Sharing of losses by members of the group/company.
• One party undertakes the loss incurred on the insured property or asset of the other party.
• The risk is shared/ accepted by the insurer for a consideration of money from the insured  called as Premium (No risk to be assumed unless premium is received in advance).
• It is assured to the insured by the insurer that the amount will be paid on happening of the Specified act or event. E.g. Death, Fire, Burglary, Accident, Any peril in Sea etc.

Parties of Insurance Contract

As insurance business has insurance contract, there are mainly two parties in the contract —

• Insurer : ( The person who undertakes the risk under the contract)
• Insured: ( The person to whom the undertaking is given) The Insurer can be any of the following mentioned below:
• An individual
• Unincorporated body of individuals,
• Body corporate ( established by the Companies Act)
• An Association of partnership firm Registered,
• Any other agency permitted under any other Law in Bangladesh

In order to lower the huge amount of insurance risk, insurance companies intend to re-insure their contract with any other (mostly larger) local of foreign insurance companies.

Prominent Features of Insurance Law of Bangladesh

The history of Bangladesh is a history of endless struggle. Since the independence of Bangladesh, its citizens have been fighting for the improvement of their standard of living as well as economic condition. But most of the time various accidental incidents and disasters hamper the smooth continuation of the journey. Over the last 40 years, many helping hand especially insurance companies are trying to share their risk associated with various tasks, assets, operations, and even of their life.

The Insurance business has been introduced & developed in proportion to the development of the economic growth in Bangladesh. There are 62 insurance companies in the country,  including two state-owned enterprises, the Jiwan Bima Corporation (JBC) for life insurance, and the Sadharan Bima Corporation (SBC) for general insurance.

Nevertheless, BD remains behind its neighbors, both in terms of premium income and penetration. Only 1.5 percent of the population has life insurance coverage in Bangladesh, as compared to 4.5percent in Pakistan and 7.5percent in India (as of 2010).

Regulatory Framework in BD

Every industry needs to be regulated and maintained properly to ensure the conflict free operation in any country. In this regard, Parliament of Bangladesh, on 03 March 2010, passed two insurance laws in a bid to further strengthen the regulatory framework and make the industry operationally vibrant. The new laws, came in to effect on 18 March 2010, are Insurance Act 2010 and IDRA 2010.

• Major Insurance Acts
• The Insurance Act, 1938
• Insurance Rules of 1958
• Bangladesh Insurance (Nationalization) Order 1972.
• The Insurance Corporations Act, 1973
• Insurance (Amendment) Ordinances of 1984
• The Insurance Act, 2010

History of Insurance & Insurance Laws in Bangladesh

Insurance business is not new in Bangladesh. Almost a century back, during the British rule in India, some insurance companies started insurance business transaction, both life and general, in this region (former Bangal or Indian Subcontinent). This business gained momentum in East Pakistan during 1947-1971, when 49 insurance companies transacted both life and general insurance schemes. The insurance sector was originally regulated by the Insurance Act, 1938 and after the Independence in 1971; the industry was governed by the Insurance Act 1973. In 2010 a new Insurance Act has been passed to modernize the sector.

1947-1972 Period:

Insurance is not a new term in this territory of Bangladesh. Right after the great division in 1947, the industry had got its momentum and 49 insurance companies started to conduct their business during the Pakistan period (1947-1971). These companies doing insurance business were of various origins like British, Australian, Indian, West Pakistan and local. At that time, ten insurance companies had their head offices in East Pakistan, 27 in West Pakistan, and rest elsewhere in the world. Most of these companies were Limited Liability Company. Some of these companies were specialized on dealing in a particular class or sector of business, while others were composite companies that dealt in more than one class of business. After the Independence of Bangladesh in 1971 through the war of liberation, the Government of Bangladesh nationalized insurance industry in 1972 by the Bangladesh Insurance (Nationalization) Order 1972.

1973 (After Nationalization):

By virtue of the nationalization order, all 49 insurance companies and organizations transacting insurance business in the country were placed in the sector under fie operations except postal life insurance and foreign life insurance companies. These operations were: the Jatiya Bima Corporation, Tista Bima Corporation, Karnafuli Bima Corporation, Rupsa Jibon Bima, Corporation and Surma Jibon 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. Tista and Karnafuli Bima Corporation were for general insurance and Rupsa and Surma for life insuance. The specialist life insurance companies or for a life portion of a composite company joined the Rupsa and Surma corporations while specialist general insurance companies or the general portion of a composite company joined The Tista and Karnafuli corporations. The basic idea behind the formation of four underwriting corporations, two in each main branch of life and general, was to encourage competition even under a nationalized 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 the nationalization of the insurance industry, on 14 May 1973, a restructuring was made under the Insurance Corporations Act 1973. Following the Act, the government formed two corporations in place of five corporations: 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 Limited continued to operate in the life sector 3 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. Postal life maintained its business as before.

1973- 1984 Period:

After1973, general insurance business became the sole responsibility of the Sadharan Bima Corporation. Life insurance business was carried out by the Jibon Bima Corporation, the American Life insurance Company, and the Postal Life Insurance Department until 1994, when a change was made in the structure arrangement to keep place with the new economic trend of liberalization. The insurance corporations Act1973 were amended in 1984 to allow insurance companies in the private sector to operate side by with Sadharan Bima Corporation and Jiban Bima Corporation.

1984-1994 Period:

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 business 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 o obtain 100% reinsurance protection from the Sadharan Bima Corporation.This virtually turned Sadharan Bima Corporation into a reinsurance organization, in addition to its usual activities as direct insurer. Sadharan Bima Corporation itself had the right to reinsure its surplus elsewhere outside the country out 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 are insurance market within Bangladesh. 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: 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 compute with the private sector insurance companies for the meager premium (20%) emanating from the private sector;

Being a competitor in the insurance market, Sadharan Bima Corporation was hardly acceptable as an agency to protect the interest 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:

Underwrite both public and private sector insurance business in competition with the Sadharan Bima Corporation, and The government modified the system through promulgation of the Insurance Corporation (Amendment) Act1990.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 reinsure of their choice, at home or aboard, keeping the remaining for placement with the Sadharan Bima corporation.

1994 — Present:

Since then the Industry is growing steadily despite many back logs, several amendments were made in the Insurance Law since 1984. In 2010, a New Insurance Act passed by Parliament called Insurance Act, 2010 to replace the old Act of 1973. As soon as the new insurance act has been passed, the old one has become inactive and from now on the entire insurance industry will be regulated by the new Insurance Act 2010.

Major Regulatory Conflicts

Even though the different rules & regulations have been made to regulate the entire insurance industry smoothly, many situations and problems regarding the implementation process caused conflicts over time. The Conflicts

• There was a restriction regarding business placement under the Insurance Act 1938, which affected the interests of the private insurance companies in many ways in Bangladesh. Since the public sector accounted for about 80% of th he total premium volume of the country, there was a little percentage of premiums left for the insurance companies in the private sector to survive.
• In such situation, the withdrawal of the restriction became essential. So, the private sector insurance companies demanded withdrawal of such restrictions so that they could:

 (a) Underwrite both public and private sector insurance business in competition with  the SBC

 (b) Effect reinsurance to the choice of reinsures

Resolutions Solving the Conflicts

When there is any problem, there is the emergence of solutions. As the insurance industry faced significant problems regarding the restrictions on business placement, the regulatory bodies had to take necessary resolutions to face & handle the situation. In this regard, the following steps had been taken by the regulatory bodies:

• The Government modified the system through promulgation of the Insurance Corporations (Amendment) Act 1990.
• The changes through the Insurance Corporations (Amendment) Act 1990 allowed the 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 reinsures of their choice, at home or abroad, keeping the remaining for placement with the Shadharon Bima Corporation (SBC).
• Many other changes were introduced such as privatization policy, which paved the way for a number of insurers to emerge in the private sector.
• The overhaul also includes the establishment of an Insurance Regulatory Authority (IRA), which would be autonomous, and have the power to regulate the state-owned JBC and SBC as well as all private insurance companies on an equal footing under a uniform regulatory framework.

Reforms in Insurance Sector

In order to smooth the overall insurance business in Bangladesh, the concerned authority had always been alert. While there was any problem or conflicting situation arises, the authority doesn‗t sit idle; rather they try to solve it at their best.

• Considering the expansion of trade and commerce in the country and for reducing risk related problems in people‗s life, the new law titled ―Insurance Act 2010‗ has been enacted to update the provisions of ‗Insurance Act, 1938‗.
• Insurance Development and Regulatory Authority Act 2010‗ has also been formulated with a view to synchronizing the functions of the existing Insurance Department with the spirit of newly enacted Insurance Act, 2010 to maintain proper control and supervision of the sector and protect the interests of policy holders and beneficiaries under the insurance policy.

New Additions by the Act, 2010

The newly passed Insurance Act 2010 has some notable new additions, which were absent in the previous Insurance Act of 1938. Therefore, the entire insurance industry is facing some new practice while implementing the new act in the insurance business. The new additions by the new act are as follows:

• Creation of New Regulatory Authority

Insurance Regulatory Authority (IRA) will be established for the Insurance sector. There are 62 insurance companies (see Appendix) operating in the country and they need to be regulated under comprehensive laws and guidelines and need to be supervised by a strong regulatory authority. The Insurance Act 2010 said the sector needs to be managed properly and be strengthened by reducing business risks, and local and international insurance laws need to be harmonized considering the socio-economic aspect of the country, and to protect the interest of policy holders and stakeholders of the insurance industry in Bangladesh. The New Insurance Act provides for the composition of such Authority, its terms & conditions.

The IRA will have the power to:

• Making regulation for Insurance Industry and delegation of powers,
• Establishment of the Insurance Regulatory Fund,
• Establishment of Insurance Advisory Committee,
• Power to make any future rules or amendments, etc

The Insurance Development and Regulatory Authority Act 2010 said the authority will comprise a chairman and four members and they will look after the whole sector. The enactment of the law will abolish the department of insurance under the Finance Ministry of Bangladesh.

Premium charged by the companies will be determined by a committee formed by the authorities and it will also investigate any irregularities of the companies, the act said. To create a vibrant insurance sector, the industry got its recognition from the government and a new Insurance Act 2010 has been passed to replacing the old Insurance Act of 1973.

• Legal Framework for Islami Insurance

Islamic Insurance was already in Bangladesh but it was now bought under legal framework by this new Act 2010. Under the section 7 (1) of the Insurance Act 2010, no insurance company is allowed to do both Islami Insurance business and non-life insurance business together. If any company have both of this businesses, then according to section 7 (2) of the new act it has to give up one and can continue any of these two. And the decision has to be informed to the insurance authority within six month of forming the business authority.

However, the claim of the previous policy holders shall be settled according to the previous Insurance act of 1938.

During 1999 & onward many insurance companies have been given license to underwrite Islami insurance business without having proper law, rules and regulations to guide them. It is not proper to allow Islami insurance business without having legal backing and, therefore, this business has been brought under the ambit of new law.

• Micro Insurance Business

The new Insurance Act 2010 is making way for the Micro Insurance Business opportunities in the insurance sector of Bangladesh which has a great prospect for the small and medium enterprises as well as the growing businesses especially in the rural areas—

Micro insurance can be a great prospective area for the insurance business in our country especially in the rural areas. Most of the people of our country are unable to have costly and long term insurance policies since a great portion of the country‗s population is from lower & middle income class.

Micro insurance can be provided to individual personnel or to small business owners against little insurance premiums and with easy terms and conditions. When they will afford to minimize their risks at a lower price, they will take that opportunity and they will become to get used to it. This can cover a huge portion of the society who can be a prospective target market for this business.

Changes Bought by the New Act

The Insurance Act has not only brought the new additions, but also has brought some eyecatching changes in some significant areas that existed in the previous insurance act. The changes brought by the Insurance act 2010 are described shortly below—

Capital Requirements:

An insurer transacting life insurance business would be required to have a minimum paid-up capital of Tk. 300 million while the minimum paid-up capital for non-life insurer would be Tk. 400 million.

Spread of Business in Rural Areas:

Provision has been made to induce insures to undertake such parentage of his business in the rural areas or in social sectors as maybe specified by the Authority, This provision would encourage savings among the people in the rural areas and social sectors on the one hand, and provide financial security to the insurer, on the other.

Reinsurance Abroad:

The present mandatory provision for reinsurance of general insurance with the state-owned Sadharan Bima Corporation (SBC) has been relaxed. An insurer may reinsure with any other insurer inside or outside Bangladesh.

Penalty

Under the new insurance law, maximum penalty for any violation will be Tk. 10 lakh in fine while the minimum fine will be Tk. 50,000. If the violation continues, an additional fine of Tk. 5,000per day will be imposed.

Provision for Foreign Investment

With a view to attracting foreign investment in the insurance sector in Bangladesh, foreign investors would be allowed to hold or subscribe to the share of an insurance company up to a prescribed maximum (the maximum limit has not yet been set).

The New Act at MICL and Its Problems & Prospects

As the entire Insurance industry is having the experience of the new Insurance Act 2010, MICL is also not the exception. There is a significant prospect of the newly passed Insurance Act 2010; still there are some notable problems that the insurance industry including Mercantile Insurance Company Limited is facing due to various reasons regarding the implementation of the new act as well as due to lack of guidance.

Problems at MICL

Mercantile Insurance Company Limited is doing non-life insurance business in Bangladesh since 1996. It was established under the Insurance Act 1938 and was operated under the same act until 2010. As it was the first time for the company to be introduced with a big change through implementing a new Insurance Act since after its inception, it is very natural that there caused some problems for the company due to the Insurance act 2010. Some notable problems that the company is facing regarding implementing the new act in operating their business are shortly described below:

Increasing Paid-up Capital

As the amount of paid up capital has been increased both for the life and non-life insurance companies in Bangladesh, Mercantile Insurance Company is facing problems regarding fixing the amount of its paid-up capital.

Decreasing Number of directors

There are eighteen directors in Mercantile Insurance Company Limited currently shown in the company‗s hierarchy below. Since the Insurance Act 2010 restricts the number of directors exceeding 15, the company is facing a serious problem regarding reducing the number of directors as well as in the reduced director‗s would be designation in replacement of their present designation.

Maximum Management Expenses

Due to the increased price of various products used in any office or business, the Mercantile Insurance Company Limited along with other insurance companies existing in the insurance sector of Bangladesh are having a great load of continuously increasing management expenses as well as other expenses. However, there has not been made any change in the maximum percentage of management expenses since 1938 under the new Insurance Act 2010, the company cannot show the actual management expenses if it exceeds the certain percentage.

Old Habit

As we all know that there are stubborn employees in almost every old company, Mercantile Insurance Company is not the exception. Since its inception in 1958, MICL is being operated with the earnest hard-work of its employees. However, there are some employees who were just not ready to face changes made by the new Insurance act 2010 and that are why it is quite difficult for the company to come forward all-together. Practically, it is easy for a single entity with a single person to adapt with change, but it is very difficult for any entity consisting of a large group of people to become accustomed with the change.

Prospects for MICL

There are always two sides of anything–good and bad. Even though the Insurance Act 2010 has caused some significant problems to Mercantile Insurance Company Limited as well as to the whole insurance industry, the problems are very insignificant compared to the prospects and benefits of the new act.

New Direction at New Age

It had been a long time since passing and implementing the previous Insurance Act 1938 until 2010. It had been found that the previous Insurance Act 1938 was too restrictive in the matter of investment. The inflexible rigid rules put obstacles in the way of earning high profits for the insurance companies.

Since we are in a new era now, it was very essential to pass a new act with new direction to operate any insurance business in Bangladesh. So, the new Insurance Act 2010 has brought the necessary new direction for the Mercantile Insurance Company Limited.

Spreading Business in Rural Areas

As shown in the map below, Mercantile Insurance Company Limited has 17 branches throughout Bangladesh, over almost districts. Under the new Insurance Act 2010, every insurance company should have a certain percentage (not yet fixed) of its business in the rural areas for the rural insurers. The authority of MICL thinks that they won‗t have any problem regarding this rule; rather they had planned to spread their business in more rural areas already.

Introduction of Proper Agency System Reduces the Risk of Corruption

The Insurance Act 2010 introduces the agency system in a effective frame. Previously, there were agents and brokers existing in the operation of the insurance business, but there were no mentionable proper & informative records of them. Therefore, there was a chance to commit corruption. For example: the staffs of the insurance business were regular employee of the company who has a certain pay scale. On the other hand, the agents work and get sales commission which is not fixed. In this situation, many corrupted employees particularly of the marketing department used to show their sales in the account of the agent‗s sales and got a certain percentage of invalid commission from the commission of the agents. Thus they used to earned invalid commission which resulted unexpected financial loss for the double payment (as the employees were paid their salary and at the same time the invalid commission, and also the agents were paid their commission on the sales made by the employees) However, this is really good news that the new Insurance Act 2010 has reduced the chance of such corruption in the insurance industry including the MICL by introducing the proper Agency System.

Micro insurance

Even though Mercantile Insurance Company Limited doesn‗t have any plan to do micro insurance in near future, it can be a great prospective area for the company in our country. Most of the people of our country are unable to have costly and long term insurance policies specially the rural people. Micro insurance can be provided to those individual personnel or to small business owners against little insurance premiums and with easy terms and conditions. When they will afford to minimize their risks at a lower price, they will take this opportunity and they will become to get used to it. This can cover a huge portion of the society who can be a prospective target market for this business.

Risk-free from Penalty

In the years of history of Mercantile Insurance Company Limited, any penalty caused by violation is not found. So, the authority is also hopeful that they won‗t have to face any problem regarding the implementation of the new rules on penalty.

Findings

While working on the internship report, the following findings have been identified:

Strong regulatory system

Through passing the new Insurance Act 2010 and Insurance Development and Regulatory Authority Act 2010 to better regulate the insurance industry and protect customers’ interests, a strong regulatory system for the insurance industry has been developed. Therefore, the insurance industry is supposed to be modernized under the new and strong regulatory system and authorities.

Introduction of Agency System

The Agency system for the business development of the insurance business is a new addition under the Insurance Act 2010. So, the implementation is not that easy. Maintaining the Agent Account‖ is a new and complicated task for the MICL as well as the other insurance companies in Bangladesh which has caused increased pressure of work load. To some extent, it is causing higher expenses also. However, the loss due to corruption has been decreased due to the proper Agency System. Now, it‗s up to the company to conduct the costbenefit analysis.

Percentage of Agency Commission Expenses Decreased

Under the new Insurance Act 2010, no non-life insurance company is allowed to expend more than 15% sales commission to the agents or brokers. Due to this, the agents are becoming demotivated, and as a result the MICL is losing their marketing as well as business. Sometimes, they could offer more commission in order to complete strongly with their business competitors as well as to spread business in some certain areas in Bangladesh where insurance business is not popular at all and seen negatively.

Some notable Restrictions

According to the section 74(1&2), no person who is the agent or appoints agent, brokerage house or directly involved in it, and surveyor or auditor can be the director of any life or nonlife insurance company. If such happens to anyone then his/her license or certificate as agent,broker, or auditor will be void as per section 74(3) and that person will be working only as the director of the certain company.

Lack of guidelines & difference in legal opinion due to time gap

When a new law is passed to replace the old one, the system of the old law is automatically cancelled. In this condition, when the new insurance act of 2010 was passed to replace the previous one, the previous act of 1938 was automatically cancelled & inactive. The insurance Act 2010 only says what to be done by the insurance industry, but it doesn‗t set the information about how to do and in what amount/percentage. Actually, these things are properly given in the various Rules & Regulations supporting the Insurance Act. At this point, many supporting rules and regulations have not yet been set and established. Therefore, the whole insurance industry is suffering from lack of guidelines & different legal opinion.

Provision for Re-Insurance

SBC has long been the sole reinsures in Bangladesh and the private insurance companies of the country were statutorily compelled to place 100% of their reinsurance business with SBC. In 1990 the government amended the relevant provisions of the insurance Act allowing 50% of all reinsurance of general insurance business to be placed forcibly with SBC and the rest to private reinsurance companies .About 70% of premium income from general insurance business in Bangladesh is retained locally and the rest 30% goes to reinsures abroad.

Recommendations

I want to remind both the insurance regulatory authorities and the insurance business authorities concerned about the poor state of the entire insurance sector in Bangladesh, which is to be abolished following the enactment of the Insurance Development and Regulatory Authority Act 2010. While working on the report I have developed some recommendations  and suggestions both for the insurance authorities and for the insurance companies in Bangladesh specifying the Mercantile Insurance Company Limited.

Recommendations to the Regulatory Authority:

After analyzing the findings of my report I would like to place the following recommendations to the insurance authority of Bangladesh-

• The new Insurance Act 2010 introduced many essential features that were missing in the previous Insurance Act of 1938 but the implementation process were too slow, the independent Insurance Regulatory Body (IRA) is not yet fully functional. It was not yet properly established and many of features are yet to be implemented. So, the Finance Ministry should focus on the problems regarding it and should take pragmatic steps to solve those problems as soon as possible, because this is already too late and we don‗t want to be more lagged behind.
• To bring a real change and in the Insurance Business Sector in Bangladesh, the proposed changes brought by the Insurance Act 2010 should be implemented prudently and as soon as possible. In this purpose, the concerned authorities need to be stronger and more active as well as accountable enough.
• All the insurance companies in the insurance industry need to be responsive equally and very actively. So, the concerned insurance authority should focus on spreading necessary awareness among the insurance companies as well. To make it possible, regular seminars, meetings with the business authorities and proper auditing may be conducted.
• The percentage of management expenses should be at least double to cope up with the current price hike. In order to ensure maintaining proper expenditure accounts by the insurance companies, the regulatory authority should take this issue into consideration with due importance.
• The total power that has been given to the regulatory authority to deal with the different opinions over insurance claims should be reconsidered.
• Transparency and accountability should be ensured in each and every step to ensure the full implementation of the new Insurance Act 2010 in the insurance sector in Bangladesh. For this, every single person associated with the implementation have to be honest and conscious. In this regard, everyone should come forward to make the associated procedure smoother.
• As one of the basic requirements for the insurance industry to have sustained growth is to enhance training facilities, Bangladesh Insurance Academy is providing training facilities and professional education to those engaged in insurance business in the country. The syllabus, curriculum and training programs of the academy (BIA) should be modified and updated to meet the modern needs of the insurance industry and to ensure the proper implementation of the Insurance Act 2010.

Recommendations to Mercantile Insurance Company Limited

When there is an emergence to cope up with the time, obviously something need to be changed. With the changes and additions brought by the Insurance Act 2010, there a lot more changes and modifications have to be brought in the individual insurance companies. So, even it is true that there are some problems created due to the implementation of the new act at Mercantile Insurance Company Limited, the company should focus more on the prospects and the pragmatic solutions of the problems. Therefore, I also have come out with some recommendations to the company which is as follows:

• MICL should provide extensive training to its employees especially to the business development & marketing executives in order to make them able to cope up with the changes brought by the Insurance Act 2010. Through proper training to the employees and agents the company should practice and ensure marketing through the use of promotional tools such as advertising, sales promotion, public relation and publicity, personal selling and direct marketing.
• The company should raise awareness among all the employees and staffs about the implementation of the new law to make the implementation process much smoother. In order to do so, regular weekly/monthly meetings and seminars can be arranged after the office hours.
• As one of the most important tasks, client awareness needs to be increased in the insurance sector in Bangladesh. In this purpose, MICL should take the necessary steps  through its large sales and business development force to ensure a level of awareness among their clients throughout the country.
• Even though it is quite difficult, the company should try its best to reduce the management expenses as well as commission expenses to cope up with the rules regarding these issues under the new Insurance Act 2010. In this regard, each & every employee should work as cost saver. At the end it will certainly be beneficial for them.
• The company should consider the rules and regulations for the non-life insurance companies in Bangladesh under the Insurance Act 2010 before and during setting any future plan regarding operation and expansion of its business, so that there doesn‗t arise any conflicting situation. It will make their way of business operations much smoother as well as easier and less problematic.
• Transparency and accountability should be ensured in each and every step in the implementation of the new Insurance Act 2010 in the entire departments of MICL. To ensure a transparent environment in the company, the employees along with the management and authorities should come forward with their best flexibility.

Concluding Remarks

To conclude, I would like to mention that the whole internship period was a significantly knowledgeable journey for me which allowed me to learn and improve my skills and I hope the significant experience will allow and help me to build a better career in future.

I think Insurance Industry is playing a significant role in the economic improvement of Bangladesh through its risk sharing operations which motivate investment in many important businesses. The government has now embarked on a reform programme in the insurance sector to promote a vibrant insurance sector in our country. As a first step towards achieving  the objective, the Insurance Act, 2010 in replacement of the previous Insurance Act, 1938, and the Insurance Development and Regulatory Authority Act, 2010 also has been passed for establishing a stronger insurance sector in Bangladesh.

 I am upbeat that the new laws will help the entire insurance industry of Bangladesh to face the challenges of the time and thus bring dynamism in this sector. While I am genuinely joyous, I also would like to say that the proper implementation of the new act is extremely important. As the Insurance Act 2010 is for the insurance industry, the concerned authority should consider the interests of the insurance companies of Bangladesh as well as the stakeholders ‗interests. Strict transparency and discipline need to be there where around 3.0 million people are involved. In this regard I support the stand of the Bangladesh Insurance Association that has stressed the need for formation of the Insurance Development and Regulatory Authority and formulate necessary rules and regulations to make the new laws effective and purposeful.