Low Demand for Life Insurance Among Common People of Bangladesh free essay sample

The most significant measure of an industry or an activity is its contribution towards employment generation, strengthening linkages with other sectors of the economy in promoting growth and stability, and creating a sizeable impact on the national income of a country. In developed countries, the Insurance industry is a necessary part of daily life and serves all the above mentioned purposes as opposed to developing countries where insurance is still dependent upon an individual’s net disposable income, religious beliefs and government policies. Hence the economic significance of insurance as measured by the total gross premiums to GDP is very high in developed countries in contrast to developing countries. Generally, insurance companies help businesses and individuals in managing risks which can severely impact their economic well-being. Moreover, insurance companies are also termed as the largest investors in capital markets, in addition to being characterized as the sole suppliers of insurance business to reinsurance companies. We will write a custom essay sample on Low Demand for Life Insurance Among Common People of Bangladesh or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Life insurance in Bangladesh is very small in comparison to the economy of Bangladeshi Bangladesh the average revenue generated by life insurance constitute only a small (nearly . 23%) of the GDP. Bangladesh has also a low per capita income in life insurance business compared to the other countries in the south Asia region. However the market has been steadily growing but not in a rate as it should be. Economic growth, expansion of infrastructure, industries, trade and commerce is leading to the expansion of the insurance market. Although Bangladesh has opened up its economy considerably in recent years with various reforms aimed at creating favorable investment environment, there are many barriers to encourage both foreign and domestic investment in the insurance sector. In Bangladesh the social security system or simply the security system is not so strong and life is highly in threat for many reasons including natural and man made reason. But it is found that life insurance demand is low in Bangladesh and people are fond to be indifference about life insurance. This is the area of research. 1. 1Brief discussion on the secondary Research Factors affecting the life insurance purchase have been the focus of insurance research for many studies. Studies have looked at numerous variables that might be significant in explaining the demand for life insurance. Many studies find conflicting result with previous research. Life insurance consumption is complex because country’s social structure, consumer attitude toward insurance and social security system play significant roles Demand for life insurance (Hwang Greenford, 2005). In many studies it is found that the relationship between income and life insurance demand is positively related (Browne Kim, 1993; Outreville, 1996) . There is no consistent finding concerning the effect of the level of education on the demand for life insurance (Browne Kim, 1993; Outreville, 1996). Several studies suggested that highly educated people are willing to accept that life insurance provides economic security for the family and thus tend to spend more on life insurance (Truett Truett, 1990; Browne Kim, 1993). On the other hand Anderson Nevin, 1975; found that income and life insurance demand are negatively related for middle income families and positively related for low and high income families. The effect of social security on the life insurance demand varies from country to country due to social security system (Hwang Greenford, 2005). It is found that the more the social security the less the need for the life insurance (Anderson Nevin, 1975). Industrialization and social structural transformation are directly related to shift in the concentration of the population to the urban area. The decline in the mutual support resulting from decline in the agricultural sector and the decline in the number of children per family industrialization make people financially independent and this increase the demand for life insurance (Hwang Greenford, 2005). The price of the life insurance and the demand for it are negatively related (Browne Kim, 1993). In the study of Browne and Kim (1993), average life expectancy is found to be an insignificant factor affecting the demand for life insurance. However, Outreville (1996) shows that longer life expectancy has a positive effect on the life insurance demand as it result in a reduction of price of the life insurance. Age is found to be inconsistent effect on the life insurance consumption as Truett Truett, 1990; found it is positively related to demand on the other hand Anderson Nevin, 1975 mentioned age is not significant in life nsurance demand. Marital status, family sizes are found to have positive, negative and no impact on the demand for life insurance (Zietz, 2003). Browne and Kim (1993) and Outreville (1996) reveal that inflation has a significant negative relationship with life insurance demand). Lim Haberman (2004) indicated that savings deposits rate and the price of insurance are two important macroeconomic variables associated with the demand for life insurance in Malaysi a. They measure the demand for life insurance in terms of the amount of sums insured rather than the number of policies and macroeconomic variable that was the consideration of the study were the level of financial development, income per capita, inflation rate, savings deposits rate, the price of insurance, stock market return and demographic variables –crude live-birth rate, crude death rate, fertility rate, life expectancy at birth . Religion may cause a cultural opposition to life insurance (Browne Kim, 1993). Life insurance industry in Bangladesh is very small to its economy and it has a very low per capita income in life insurance business compared to other countries of the South Asian region (Islam Mamun, 2005). Ahmad Khanal (2007) found that Bangladesh ranks 78th in the world and has world market share of 0. 01%. Per capita spending on insurance is only US dollar 2. 30. Insurance premia as a percentage of GDP remains low at 0. 57% where life insurance contribution is 0. 37%. So, Life insurance has a great impact in the economy of Bangladesh but it is not growing as fast as should be. Economic growth, expansion of infrastructure, industries, trade and commerce will lead to the expansion of insurance market. They also expect that the present low insurance penetration in the country points to the potential for future expansion. In Bangladesh there are 18 private and only one public life insurance company in Bangladesh. The private and public sector arrangement are simply inadequate to provide life insurance services to 140 million people of Bangladesh (BIA, 2000; Ahmed, 1997). The number of life insurance policy holder is not increasing satisfactorily (Uddin Uddin 1999). Lack of confidence, poor service quality and innovations in the product development in life insurance from the service provider side for the lack of interest in Bangladeshi people to buy life insurance (Solaiman Haque, 1999). Islam Mamun, 2005 identified fourteen factors which are responsible for poor demand for life insurance in Bangladesh of them most important factors are ifficulty in continuation of life insurance policy, claim settlement hurdle. Given the growing competition from various investment products as well as growing competition from non traditional insurance markets such as bank, the position within the financial industry of current insurance product must be carefully examined and however the change in technology demographic factors, economic environment, many of the significant findings from studies conducted in previous years may likely be considered obsolete (Zietz ,20 03). 1. Brief Discussion on the Primary Qualitative Study Primary qualitative research is very important stage in research since the findings create the basis for further studies and also opens up new arenas that might not have been discussed in the secondary research. During the research many different people holding different positions were met and each of them came up with opinions of their own. In certain cases the concerned people were completely in disagreement with each other’s opinions while in other cases they did agree on many issues. Therefore based on what was collected during the research it can be stated that even with diverse opinions there are agreements on many different issues concerning Liquidation of the insurance policies. This section of the report attempts to summarize the findings of the research. The insurance companies do not put ample importance to choose proper marketing strategy. The overall industry image is not positive and very nominal care has been taken to overcome that. The communication by the field representative is very limited and to be more precise only bounded around close relatives and known persons which hinder the growth of the sector. Representatives are not well educated, trained, or smart to impress a learned person. Insurance policy provides a very low return on the investment compared with the same amount of investment in other sectors like share market or banks. The premium once deposited can not be withdrawn at the time of emergency which creates a negative impact by providing constraints over liquidity of the instrument. Religion is a factor for not buying life insurance policy because most of the people of Bangladesh are Muslim and the Muslim has a negative mindset regarding life insurance. People of Bangladesh does not perceive value of their life to be of importance to attain a life insurance (They think that Allah will take care of everything after death) The legal structure of the country has failed to provide protection against any fraud done on part of the company. Once a premium is lapsed it becomes very difficult to get the previously deposited money back or restart the policy. Bureaucracy of the system and hazards faced by the people to realize claim is considered an important factor of low demand for life insurance in Bangladesh. The policy terms and condition is vague and difficult for people to understand which may be real or caused by the misrepresentation of the field worker. Most of the people of Bangladesh are financially insolvent. A large portion of people live in rural area with financial crisis. So, they don’t even think about to buy a policy of life insurance. Very little portion of our total population is financially solvent enough to buy life insurance. Very small percentage of our total population is educated and the percentage is even lower who thinks like an educated person. So, the consciousness about life insurance is very low. Job security in Bangladesh is not up to the standard level. People with low job security don’t even think about life insurance which would put more pressure on them as they perceived. Common people especially in rural areas perceive insurance companies as NGOs or Co-operative Society. Many of them have bad experience about NGOs or Co-operative Society. So, they lost their interest and confidence to open a new policy. Insurance policies provide a low return compared to the same amount of investment in stock, bonds, or savings therefore people are reluctant to opt for insurance policies. Insurance policies does not cover the scenario of inflation hence decreases the demand to obtain a life insurance. The whole industry was state owned for a very long period (1971-1984), during which there was no door to door activity or any effective development program that hindered the growth of the industry and the perception of a weak industry among people created a low demand. During the period of state ownership there were a large number of fraud cases that deprived the insured or the nominee to attain the benefits. The situation created a long lasting bad impression among the people and resulted in lost faith among the people. The social structure of Bangladesh is not favorable for life insurance in Bangladesh . because in Bangladesh family is still dominant by the joint family and when one people die other members of the family supports the family which was depended on the people died. There is absence of proper coordination of life insurance Company and bank in Bangladesh. There is no direct relation between a clients account with the bank and insurance company which make a people enable to debit their account to pay life insurance premium automatically. The absence of local reinsurance company is one of the most predominant indirect factors of low demand of life insurance in Bangladesh . in Bangladesh there is now no local reinsurance company. If there is local reinsurance company in Bangladesh the claim settlement in much case would be easier and faster which will give people idea and impression about life insurance. 1. 3Gap Analysis There were mainly a few gaps between the secondary and the findings of the quail research. The main areas of irrelevancy can be summarized as: †¢During qualitative we found that inefficient marketing and communication strategy is one of the main reason of low demand which was absent in the secondary review. †¢Proper training and education of field representatives was a highlighted factor of the qualitative research but was not found during the secondary research. †¢The low rate of return is another factor that results in low demand. †¢The absence of local reinsurance company is a factor that is very crucial. From secondary survey we identified that marital status as a factor but in the qualitative part we found that the family structure is more important. †¢From qualitative research we found in Bangladesh the bank and insurance companies are not integrated which is a common scenario in many of the European countries that is one of the reason for lapse.