Why insurance assumes importance in our life?

Against 123 million people this investment appears to be negligible. Tragic road accidents, launch disasters and murders have become routine affair in the country. There has been a distressing picture in Bangladesh because people are not encouraged to go for life and property insurance.

In view of many accidents, vehicles of different types along with travelling passengers including driver need to be insured. Against the backdrop of an indifferent attitude towards insurance, there is perhaps need for an awareness campaign to be launched by insurance companies themselves.

It was undoubtedly a shocking news that none of the victims in ill-fated MV Nasreen, which capsized in the river Meghna on 8 July 2003, were insured. As a result, parents or families were deprived of probable insurance benefit. However, had the insurance policy been applied to passengers on compulsory basis the owner of the launch MV Nasreen would have taken extra care to ensure safety of the passengers.

The concept of insurance is not a new phenomenon. Insurance in fact has existed for thousands of years. A form of credit insurance was included in the code of Hammurabi, a collection of Babylonian laws said to be predating the Law of Moses. Prophet Moses instructed the nation of Israel to contribute 'a portion of their produce periodically for the fallen resident and fatherless boy and widow.' The history of insurance could be traced back to those days when traders were encouraged to assume risks of trade being done by caravan through loans, which were repaid with interests only after the goods had arrived safely. According to Islamic tenet, insurance is permissible on the basis of mutually helping each other for a financial protection against risk.

Insurance companies began establishing in mid sixteenth century in London when Edward Lloyd was running a coffee house where merchants, ship owners and underwriters used to meet to transact business.

By the end of eighteenth century Lloyd had turned into one of the first modern insurance companies. Lloyd along with Tyser, Munich Re and Swiss Re have become re-insurer worldwide. For example, if a Bangladesh insurance company seeks business with a foreign company, it should signs an insurance policy under the umbrella of re-insurance arrangement with Sadharan Bima Corporation, the government owned re-insurer and worldwide known re-insurer like Lloyd. This is done to protect the interests of the clientele as any amount of insurance is fully ensured and protected on the basis of treaty insurance.

One should not consider insurance as an investment from where one expects to get one's money back with much of profit. In fact insurance works as protector against risks that exist in our day-to-day life. Therefore, insurance appears to be sharer of risk with others.

In insurance parlance risk is uncertain and insurers have defined risks as pure risk, speculative risk, fundamental and particular risks. According to New Columbian encyclopedic, insurance is a devise for indemnifying against loss.

The amount of premium is determined by law of averages as calculated by actuaries. Insurance companies also take into consideration the risk involved while calculating premium. This reminds me a case of health insurance in Germany. In European countries health insurance is a must for every individual. Insurer gets a certificate from registered doctor about the health condition of an individual before contract of insurance is made. If the person concerned continues to suffer from chronic disease of risk, insurer either refuses to execute contract or charge premium at a high rate. Modern insurance companies study statistics that show the frequency of past losses -- for example, losses from shop fire or car accident -- to find out what losses are likely to be experienced by their clients in future. Accordingly they calculate premium.

Earlier, in this part of the world (Bangladesh), a few insurance companies were in operation in British period. From 1947 to 1970, during Pakistan time, insurance business began expanding gradually. As many as 49 insurance companies, according to one report, were in operation. There were insurance companies dealing with life insurance only while other insurance companies were involved in general insurance and some others were dealing with both life and general insurance. Many insurance companies of British, American, Australian, Indian and Pakistani origin were in operation. The first insurance company with Bangalee capital was established in 1958. And Sheikh Mujibur Rahman was the founder of this insurance company, known as Homeland Insurance Company.

When Bangladesh became independent, President's order of 1972 nationalised 49 insurance companies. Presently 45 insurance companies including life and general are in operation, but the insurance business in Bangladesh has not made any significant progress. Insurance companies were allowed to operate in the private sector during the regime of General Ershad.

Global recession coupled with stagnant economy, political instability and deteriorating law and order situation in the country are causing hindrance in the development of insurance companies. Lack of education and knowledge about insurance is also responsible for not advancing in this field.

The existing Insurance Act of 1938, which is obsolete, needs to be revamped commensurate with the need of the present day world in the interest of the development of the insurance industry in Bangladesh.

Mohammad Amjad Hossain, a former diplomat, is Advisor to Chairman, Paramount Insurance Company.