Thoughts on Economics Vol. 21, No.

01

Landscape of Micro Insurance in Bangladesh: Experience of Prime Islami Life Insurance (Takaful)
K. M. Mortuza Ali

Purpose
The purpose of this paper is to report findings of the study into micro-insurance practices in Bangladesh vis--vis of Prime Islami Life Insurance. The paper is organized as follows:- a) Part one presents a brief overview of Bangladesh economy and the insurance industry and the regulatory environment in which it operates. b) Part two focuses on the extent to which commercial insurance providers and non-formal providers serve the needs of low-income people. c) Part three relates the findings from a cursory survey about provision of and perceptions of microinsurance. d) Final part of this paper deals with the experience of Prime Islami Life Insurance Limited and future actions need to be taken to deal with micro insurance.

Introduction
In Bangladesh, micro-insurance started during late 1980s when the private life insurance companies came into operation. Since then, its growth has been phenomenal. So much so that today a large part of the life insurance industry premium comes from micro-insurance and it is still growing. The main providers of micro-insurance in Bangladesh are the commercial life insurance companies directly or through NGOs(Non-government organizations). Bangladesh has an agriculture based economy with majority of people living in villages where income per household is low with very little opportunity for saving. Therefore, the prospect of micro-insurance in Bangladesh is very good. However, there are certain inherent problems associated with this type of insurance. If these problems can be solved micro-insurance in Bangladesh would flourish. Micro-insurance refers to protection of assets and lives against specific perils of target population, usually low income households at affordable prices through formal and informal institution. Microinsurance products usually provide

Managing Director, Prime Islami Life Insurance Co. Ltd., Dhaka, Bangladesh.

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Landscape of Micro Insurance in Bangladesh.

coverage to health crises, death, accidental injuries etc. Endowment type microinsurnce is emerging in one form or other in recent years. Microfinance-non-government organizations (MF-NGOs) have been involved in reducing poverty and creating opportunities for the poor to participate in income generating activities for overall growth of the economy in Bangladesh. At the early stage, their activities were concentrated on mobilization of small savings from their members and offering a variety of loan products to them. Some of the MF-NGOs were primarily concerned about the vulnerability of the households against the risks such as death, disability, loss of property etc. There was a growing realization among the MF-NGOs that savings and credit can not protect the poor households against those risks. As a result, the large MF-NGOs gradually moved into the area of micro insurance and started offering insurance products to their members outside the umbrella of any regulatory framework. One of the registered insurers started offering microinsurance products to low income households at affordable prices in the late 1980s. Following the astonishing growth of microinsurance program of this insurer during the late 1990s, all registered insurers in Bangladesh except the state owned Life Insurance Corporation and American Life Insurance Company have introduced microinsurance, and this has now become one of their major business operations.

PART ONE
Overview of Bangladesh
Bangladesh is a country of South Asia situated between India and Myanmar having an area of 1,47,570 k2 Its estimated total population is 160 million. Bangladesh is one of the most densely populated land of the world having more than 1000 persons per sq. k.m. Mortality rate of children under one year is 73 per 1000. Life expectancy is 64.5 years for male and 66 years for female. Her per capita GDP is US$ 625 approx. The growth rate of national economy is 6% for the last few years. Bangladesh faces the challenge of achieving accelerated economic growth and alleviating the massive poverty that afflicts nearly 40% of its total population. However, sustained growth since the 1990s speaks of the resilience of Bangladesh economy. Continued rise in saving and investment played an important role in achieving the high economic growth. Presently the rates of

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domestic and national savings stand at 21% and 30% of GDP. Inflation rate has, however, increased recently between 7% to 10%. The monthly household nominal income is approx. taka 7200 (aprox. US$ 100.00) at the national level. However, it is taka 6100 in the rural area and taka 10,500 in the urban area (US$ 150). Monthly household income had increased by 23% in 2005 over 2000 and 115% over 1990 in nominal terms. The average monthly household expenditure was estimated at taka 6150 in 2005. In a country like Bangladesh, poverty is mainly caused by over all low average family income resulting from extremely limited opportunities. Risk of the poor or that of under privileged people are either natural, social or economic. Unfortunately, the question of security of the poor people has drawn little attention of the policy makers. The poor in Bangladesh do not form a homogenous group. It has been estimated that the weakest in the rural areas consist of approximately 23% extreme poor, 52% moderate poor and 25% vulnerable non-poor. The most critical issues for Bangladesh at present are inflation in food and other commodity prices and sharp drop in business and investment activities. On an average food inflation is approximately 12% but this is much higher for low income marginalized groups. One N.G.O has found food inflation to be around as high as 22% for low income groups such as day laborers, factory workers, etc. This has certainly affected saving ability of low income groups in Bangladesh. Income level of the people, as a whole, depends on smooth and sound operation of trade and commerce which is positively correlated with the stable macroeconomic fundamentals of the country. Macro economic performance of the country has negatively been affected in the last few years due to mismanagement of caretaker government as well as economical meltdown of global economy. In the meantime internal and external shocks such as price hike of many imported commodities (doubled, in some cases trebled) in international market as well as damages caused by two successive devastating floods and the catastrophic cyclone SIDR and AILA. Despite the above setback in the economy, the country registered a 5.9% growth in 2009-2010. Inflationary pressure in the commodity market reduces the real income of the people which acts as an additional burden for prospective and existing policyholders.

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Landscape of Micro Insurance in Bangladesh.

Regulatory Framework
After independence of Bangladesh, the Insurance Act, 1938 was adopted in Bangladesh. The Insurance Act, 1938 and the Insurance Rules, 1958 were amended from time to time to regulate and promote orderly growth of the insurance business. The Department of Insurance, an attached department of the Ministry of Finance, is the regulatory authority of the insurance sector. The regulatory framework in Bangladesh have remained almost the same as were in the days of undivided India. The only visible change is the change of administrative ministry from Ministry of Commerce to Ministry of Finance. In 2010, new Insurance Development and Regulatory Authority Act has been promulgated and an independent Regulatory Authority is likely to be formed very soon. There is no specific provision for regulation of micro-insurance business in the Insurance Act, 2010. While a very liberal insurance legislation can give rise to massive expansion of insurance services eroding the long term viability of the insurers, a very rigid legislation can restrict the growth of micro-insurance business. In the absence of appropriate legal infrastructure the interests of policyholders cannot be adequately protected, and the institutional risks are very high. The insurers, which started micro-insurance business did so on their own initiatives. The Insurance Act prohibits any one from carrying on any class of insurance business in Bangladesh unless certificate of registration for that class of business is obtained from the Insurance Regulatory Authority. Micro-credit Regulatory Authority Act, on the other hand, allows Microfinance Institutions to provide insurance services to their members. Many NGOs in Bangladesh have been providing micro-insurance services in one form or other to their members outside the radar of any regulatory framework. The government of Bangladesh had undertaken financial sector reform in the early 1990s, and, it is still continuing in one form or another. The insurance sector had been kept outside the preview of the reform process. Reform in the insurance sector is now the need of the hour. We are hopeful that the Government would initiate the reform process in order to provide a stable and vibrant insurance sector in Bangladesh, which will ensure; (i) orderly growth of micro-insurance services, (ii) insurance business based on Shariah, (iii) level playing field for all insurance companies including state owned insurance

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corporations, (iv) framing rules and regulations in line with the international best practices, and (v) operational independence of the new regulatory authority.

PART TWO
Developing Micro Insurance Products
There is considerable scope of developing life insurance products for the poor people, both as an instrument of saving and to cover the risk of premature death. The micro-finance institutions and the banks providing micro credit may provide insurance coverage for the person to whom credit is given. It appears that life insurance companies have not so far made determined efforts to formulate appropriate micro insurance products and evovle marketing strategies to penetrate in this sector. A few possible approaches may be considered and are discussed below. Emphasis has to be put on group sales. This is simply because contacting persons individually, explaining the benefits and concluding the contract would be a costly proposition. An attempt could be made to form groups through the help of N.G.Os and/or cooperative societies, social welfare organisations etc. For example, in Malayasia a large number of workers in palm oil plantations are covered through their union. In India, group of landless labourers, handloom weavers and members of milk cooperatives have been covered on a group basis. For any insurance scheme for the poor, premium would have to be kept low so that the coverage could be affordable by the persons concerned. A term insurance based package or a policy with a low saving element may be more suitable. The possibility of collection of premium on an easy weekly or monthly basis rather than on an annual basis, be explored further. There is no denying the fact that penetration of insurance in Bangladesh is very low, and the image of the insurance sector is poor. Allthough, the rural sector offers substantial opportunities, the development of new products in any branch of insurance in Bangladesh had been far from encouraging, even in comparison to India. Most of the non-life insurance companies in Bangladesh are unlikely to have any worthwhile infrastructure outside the sphere of their primary activities. Private non-life insurance companies have so far not designed any product on crops, livestock, poultry & aquaculture. There is substantial amount of untapped general insurance business in rural areas such as:

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Landscape of Micro Insurance in Bangladesh.

a) b) c) d)

Dwelling, stables, stores, shops, Pumpsets, harvesters, threshers, Handicrafts and household products, Personal accident and hospitalisation.

Since micro-credit constitutes the central component of development progrmmes of most N.G.Os in Bangladesh and it is getting more priority than any tools for alleviating poverty; it is envisaged that a Comprehensive Micro-insurance Policy (C.M.P) for the micro-credit users will play an important role to achieve the desired goal. Some MFI-NGOs that are now offering insurance services to the microcredit clients are in true sense self insurance. These are being provided mainly because of the following reasons: i) Non availability of appropriate product/services. ii) Non confidence on the insurers in general. iii) High cost of commercial insurance. These schemes of mentioned below: i) ii) iii) iv) v) MFI-NGOs have some inherent weaknesses as

The basic principle of spreading the risk is defeated. The fund which is built up may not be sufficient to meet the large and unusual losses. There is no protection from reinsurance and absence of pooling arrangement. There is lack of executive talent needed for underwriting, claim and fund management. If insurance reserve fund is not set aside and only a book reserve is made the purpose is defeated.

Formal Sector Microinsurance in Bangladesh

Microinsurance products may generally be divided into: life microinsurance, health microinsurance, disability microinsurance, property microinsurance, and crop microinsurance. There are other kinds of micro insurance products but they are not usually marketed by the insurance providers due to low demand by the prospective beneficiaries.

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Benefits under life microinsurance products vary greatly depending on the design of the products, which range from fairly simple to extremely complicated. One of the common life microinsurance products is credit life insurance, which repays a loan if the borrower dies with an outstanding balance. There could be a number of variants of these insurance products of which one could be credit life integrated with some kinds of savings so that in the event the insured dies the outstanding balance of the loan goes to the lender and an agreed amount goes to the beneficiary nominated by the insured. In Bangladesh, a few MFI offer this insurance product to their members, but no such product has so far been developed and marketed by the commercial insurers. Microinsurance products that are commonly provided by the commercial insurers in Bangladesh are endowment type products. Health insurance provides coverage for illness and accidents arising from physical injuries. Health insurance usually provides coverage for limited hospitalization benefits for certain illnesses, and for costs of physicians and medicine. MFIs in many countries including Bangladesh provide health insurance cover to their members. Crop insurance typically provides policyholders protection in the event their crops are destroyed by natural calamities such as flood or droughts. However, it is very difficult to come up with a good program design taking into account covariant risks and other risk elements inherent in crop insurance, and, as a result it has not yet been introduced in many countries. Some of the countries including Bangladesh where crop insurance coverage was provided had to abandon it because the expenditures had far outstripped the revenues.

Microinsurance Schemes of Life Insurance Companies

Encouraged by the phenomenal growth of microinsuance of Delta life insurance, life companies except Jiban Bima Corporation and American Life Insurance Corporation introduced microinsurance products similar to those of Delta. The most popular microinsurance plan launched by the life insurers is deposit pension scheme. This plan gained popularity not because of the benefits it provides in relation to its premium rate but mainly because of the familiarity among the common people of a deposit scheme introduced by some of the commercial banks earlier with the same title. Premium rate of PILILs deposit pension scheme is determined by dividing the amount of sum assured with the number of premium installments payable during the term of the insurance. At maturity total amount of premiums paid

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during the term is payable together with the accrued bonuses. A policyholder instead of receiving the total amount of premiums at maturity may exercise the option of pension benefit, which has not been specified in the scheme a priori but will be fixed only at maturity. On death, total amount of premiums paid up to the date of death together with bonuses accrued thereon is payable to the nominee. Premium rates of PILILs micro Insurance Products are not age specific but uniform for all ages for all microinsurance plans. Premiums are usually payable monthly, but in many cases frequency of payment has been kept flexible. Maximum sum assured is generally fixed at Tk. 1,00,000.00 but in a few cases it exceeded the prescribed maximum. Premiums are collected in most cases from door to door through pass book. Documentation has been made simpler than what is required under the traditional insurance plans.

Distinguishing Features of Microinsurance Schemes and Traditional Insurance Schemes

Microinsurance schemes innovated in the late 1980s and the early 1990s are no longer marketed. In substance, microinsurance products now being marketed by life insurers are not very different from the traditional ordinary endowment insurance products. However, some of the distinguishing features are given below: Premium rates for microinsurance products are uniform for all ages at entry, whereas for traditional insurance products premium rates are age dependent. Mode of premium is monthly/quarterly/half yearly/yearly, whereas in the case of traditional insurance products premiums are paid less frequently; In most cases, premiums in the case of microinsurance schemes are collected from door to door through pass book. Maximum sum assured is usually fixed at Tk. 1,00,000. Policies above Tk. 1,00,000 may be issued whereas there is no uniform policy with regard to prescribing celling on sum assured for traditional microinsurance products. In general average sizes of the sum assured of microinsurance products are lower than those under traditional insurance products with similar benefits but the difference is gradually diminishing over the years.

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Commission rates for new business and other forms of remunerations for marketing of microinsurance products are lower compared to those for traditional insurance products. However, micro insurance products higher than ordinary traditional life products. Administrative expenses are higher in micro infurance than those incurred for traditional insurance products because of small sizes of microinsurance policies. Premium rates of microinsurance plans are lower than those of traditional insurance plans with similar benefits. Documentation is relatively simple compared to the requirement under traditional insurance business.

Main feature of microinsurance products offered by the formal sector insurance companies in Bangladesh is endowment type life insurance of small amout the premiums of which are collected monthly from door to door from the policyholders whose family income are less than below certain amount as specified by the respective insurers. Some of the life insurers also provide health coverage, accidental injuries and accidental death in combination with life insurance coverage but such schemes are very rare. However, the distinction between the life micro insurance products and the traditional life insurance products is eroding over the years.

Non-formal Microinsurance in Bangladesh

Most of the large MF-NGOs in Bangladesh offer a variety of microinsurance products to their clients. These MF-NGOs had several thousand clients, strong information-tracking capabilities through their large network of branches throughout the country, and a stable saving and credit portfolio before they developed insurance product on their own. Insurance coverage reduced the vulnerability of their clients against unforeseen risks on the one hand and enabled the MF-NGOs to run their credit programs without undertaking undue risks of loan default due to death of the borrowers on the other. Typically these MF-NGOs form groups of village poor, encourage the groups to make small weekly savings, supplement these savings with MF-NGOs own funds and arrange disbursement through the groups to pursue different forms of income generating activities. The borrowers are required to repay the loan in small installment at short intervals, usually on weekly basis. Microinsurance products offered by MF-NGOs in Bangladesh cover the outstanding loan balance, health, disability and provide, in some cases, an additional one-time monetary benefit to the clients designated beneficiary. These MF-NGOs

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appeared in the microinsurance scene in the late 1990s and early 2000s except Gonoshashtho Kendro, which developed health micro insurance product in 1978. Grameen Bank and BRAC (Bangladesh Rural Advancement Committee) have also health microinsurance provision. ASA, one of the largest MF-NGOs has not yet entered the health microinsurance market. However, many other MFNGOs have provisions of health insurance schemes in their agenda. Health insurance coverage for some of the organizations is provided partly by donors support. It is not clear how the pricing of health insurance would be changed after withdrawal of donors support in order to make the scheme financially viable. The micro-finance market in Bangladesh is big and wide, with plenty of room for many players. There are more than 1000 NGO micro finance institutions (MFIs). Several banks, government agencies, and cooperatives are also active in the micro finance sector of the country. Apart from credit and savings, insurance is an important product of micro-finance services for both formal and informal financial markets for mobilizaing capital funds and ensuring incentive and encouragement for investment. Some MFIs have introduced insurance products for their clients in order to extend benefit to them in case of death. Some MFIs offer insurance benefit for crops and livestock. The mode of operation varies between different MFIs. We will examine few schemes of MFI NGOs in Bangladesh. BRAC (Bangladesh Rural Advancement Committee) is one of the largest NGOs in the world. It maintains big micro finance programs which includes group formation, savings mobilization, credit support, skill training, technical support and insurance benefit to its members. More than five million poor people so far have been organised by BRAC through its micro finance who deposit savings regularly with BRAC. All these members are eligible to receive loans from BRAC. Out of the total mobilized group, three million group members have loans with BRAC. It has been offering insurance benefit to its VO (Village organization) members in the case of death since 1990. Working with the rural poor over the years BRAC has realised that the poor people are vulnerable to any emergency situations. A sudden death of an earning member of a family under poverty conditions can jeopardize a family. The benefit of insurance has been fixed at Tk. 5000. This money is given to the nominee of the insured member after her/ his death.

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The BRAC insurance service cover is only for death of all active members who have renewed their membership. It is not linked with receiving a loan. Members having no loans with BRAC are equally eligible to receive the benefit of BRACs insurance service. Members do not have to pay any amount as premium. BRACs insurance service provides a capital sum of Tk. 5000 to the dependants of the deceased, the money rescuing such dependants from acute financial hardship following the death, and allowing them to continue their economic activities. If the member is a borrower, with a loan from BRAC, the outstanding loan is also written off. As BRAC does not collect insurance premium either by collecting a fee from the members or by deducting an amount from the loan during the disbursement, BRAC manages these insurance funds from the interest earned from the loan made to VO members. It is estimated that approximately 2% of the total service charge earned on a loan is required to cover total expenses of the insurance benefit. ASA(Association of Social Advancement) has managed life insurance by itself without any linkage with conventional insurance companies. Before a loan is disbursed, 0.3% of the total credited amount (Tk. 3/100) has to be paid as premium, in cash, to the Life Insurance fund. In case of death of the general loanee, a maximum amount of Tk. 8,000.00 will be paid and for the borrowers of personal loans or small entrepreneurship developer, a maximum amount of Tk. 12,000.00 will be paid. For general members the credited amount will be refunded. If the loanee dies after taking a loan (credit) of Tk. 3000 or 6000, he will be refunded for the same amount only. Similarly for the loanee who dies after taking an amount of Tk. 20,000.00 his nominee will be given a maximum of Tk. 12,000. If any members of the group dies, then the other members of the group will select his/her successor. If the group fails to select the successor, then the successor will be selected on the basis of succession certificate. If payment for a loan amount for the previous term is completed, and the borrower is waiting to receive his next term of credit and at this stage dies, then the claimant will receive an insurance claim according to the earlier credited amount. As suicide is a social crime, a member will not receive any insurance compensation if he willfully commits suicide.

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PART THREE
Findings of Field Study
The author of this article conducted a cursory survey to assess marketability of micro insurance products among the poor of Bangladesh. This study had been designed as three steps for collection of information, monitoring of operation, and obtaining ideas from the following group of stakeholders. a) agencies. b) c) Micro-Credit providers, mainly NGOs and government Leading insurance professionals. Micro-Credit beneficiaries.

For each group, separate questionnaires were designed and personal visits were made to interview key officials at various NGOs involved in Micro-Credit operations, leading insurance professionals and beneficiaries. The important features revealed from the analysis of these data of the different group are described in the following paragraphs. Fifteen leading NGOs in terms of cumulative loan disbursement and two other Micro-Credit oprators such as BRDB and Grameen Bank were selected. The data indicated that most of the NGOs, BRDB and Grameen Bank provide credit for small scale trading, livestock and poultry raising, for purchasing of rickshaws, babitaxies (three wheeler motor taxi), crop production and other income generation projects such as micro enterprise development, paddy husking etc. Only two NGOs provide credit for housing, health and sanitation programmes, improvement and the development of childrens education. Only one NGO provides credit for sericulture and psiculture development schemes. Only four have some kind of insurance scheme of their own. These schemes are mainly designed to cover the life of the borrowers. Only Proshikha has some kind of insurance coverage for the loss of livestock. All the NGO representatives strongly supported the idea for the introduction of appropiate insurance scheme for their borrowers. It was suggested that introduction of an insurance scheme, particularly for the partial or full damage to property will bring confidence and revolution in the Micro-Credit operation system. Most of the NGOs suggested that the premium rate should be between 1% and 2% of the total sum borrowed. When asked what type of risks need to be covered, most NGOs recommended that insurance scheme should cover both

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life, health and partial or full damage of properties by any natural or man made calamities against which the money has been lent. The Government of Bangladesh should not provide any premium subsidy directly to the borrowers, instead the total annual premium of a particular NGO can be directly paid to the respective NGO as a lump-sum grant. This will help in establishing a good relationship between the NGO and the Government. Moreover, the Government will have some kind of monitoring control over the NGO activities.

Users View Point

One hundred beneficiaries from seventeen locations of BRAC, ASA, PROSHIKA, GRAMEEN BANK, BURO, AND SOCIETY FOR SOCIAL SERVICES (SSS) were personally interviewed through a pre-designed questionnaire written in Bengali to assess the extent and nature of the microcredit market and to determine the need for insurance services for these microcredit borrowers. The beneficiaries were either interviewed at the unit office of the respective NGOs in presence of the Branch or Unit mangers or at the villages of the respective borrowers accompanied by the NGO representatives. The major findings are described below. Of the 100 micro-credit borrowers interviewed, 85 were female and housewives. Their ages ranged between 20 and 50 years coming from the low income, landless and economically poor class of society. Some of them were widows with 3-4 children. These women took credit mainly for their husbands and sons. Only a few of them do the trading by themselves. The amount of loan mainly depends on the requirement and repayment capabilities of the borrowers. Of those interviewed, the amount ranged from TK. 2100 to Tk. 70,000. Each NGO has its own system for recovery of the credit. BRAC and Proshika collect their installment on a bi-monthly or monthly basis. Proshika collects by 11 or 22 installments up to an amount of Tk. 10,000 and beyond which they collect by 36 monthly installments. Some NGOs collect their installment on a weekly basis by 46 installments. When the amount exceeds TK. 20,000 the number of installments also increases up to 100. The borrowers usually come to the branch or unit office to pay the installment but in some special occasions the Credit Officer goes to the houses of the group leaders and collects installments. Some NGOs have been successfully operating their micro-credit system for a long time. Graneen Bank, for example, provided credit to one of its beneficiaries for the 12th term. But most of the NGOs provided credit to their beneficiaries from 3rd to 8th term.

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It appears from the responses that the purpose of borrowing money differs from location to location. For example, irrespective of the micro-credit source, most of the borrowers of Rupganj (Narayangonj) and Madhabdi (Narsigdi) areas took credit for cloth trading or production of cloth items, whereas the borrowers of Tangail, Muradnagar and Belabo areas took credit mainly for trading of rice, fertilizers, and buying of rickshaw or van etc. and also for production of cane, bamboo items etc. They paid their installment from previous savings reserved for emergency crisis. In some cases, the other members of the family also helped them to repay their installment. Some micro-credit providers, particularly ASA and Grameen Bank, rescheduled their installment by extending the repayment period and also by reducing the amount of installment. When asked whether there is a need for insurance coverage of the credited amount in case of emergency resulting from various natural calamities like flood, cyclone, illness or death of the borrower etc. and also whether they are willing to pay a premium for this insurance converge, 99 out of 100 answered that there was an urgent need for an insurance coverage to meet emergency crises and they are prepared to pay a premium for insurance coverage.

PART FOUR
PILIL at a Glance
Prime Islami Life Insurance limited (hereinafter referred to as PILIL) a third generation life insurance company, was incorporated on July, 2000 as a public limited company under the Companies Act, 1994 with the vision to become one of the best private life insurance company in Bangladesh and in South-East Asia as a whole by maintaining utmost integrity, responsibility and transparency. PILIL was subsequently converted into full fledged Islami life insurance company(takaful) from April, 2002.

Marketing Strategy
Since incorporation, the company follows moderate marketing strategy which is being reflected in increasing trend of market share. The total number of agent and employer of agent stood at 16,186 and 16,034 respectively in 2009. Besides getting direction from the top level officials, agents provide door-to-door service for collection of new policies as well as for renewal of policies under specific guidelines. However, all the agents are employed on the basis of commission. In addition, the agents get non-monetary benefits subject to their achievements of certain consistent performance record on premium collection.

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Market and Competition

Micro insurance market is spread out all over the country covering the urban, sub-urban and rural areas of Bangladesh. The competitive environment in the insurance industry in Bangladesh is quite complex. There is one nationalized insurance corporation having extensive branch networks, holding huge premium deposit and enjoying certain prerogatives. There is one leading international insurance company branches with focused business objectives, experiences and highly skilled human resources. Further, there are the first generation private life insurance companies having comparative large branch networks, reasonable access to technology and market. Besides, the second-generation private insurance companies (started operations in 1996) make the insurance business more competitive. The relative position, focus and competition are so diverse that it is difficult for any new insurance company to make a favorable market entry and day-by-day the competition is increasing. Although there are more competition in the insurance sector, Prime Islami Life Insurance Limited a third generation company (2001) has earned a notable position within a short time in this risky market through its performance, reliabilities, efficient management and wide acceptance by its clients.

Micro Insurance Schemes of PILIL

At present, Prime Islami life insurance is marketing three micro insurance products. Small saving assurance plan, the first micro insurance product of PILIL was introduced in 2002 and total number of policies sold under this plan comes to 3,00,958 at the end of 2009. The second micro insurance product (PIDPS) was introduced in 2004. Total number of polices sold under this plan in the first year of operation was 6000 only. Total number of policies under this plan comes to 76592 in 2009. The third micro insurance product- Two payment Deposit Scheme (Kalyan Bima) was introduced in 2006. In the first year the number of policies sold was 6200. But at the end of 2009 total number of policies sold was 88608. After the introduction of PIDPS; share of small savings plan decreased substantially. With the introduction of Kalyan Bima (anticipated endowment policy) the demand for this product is continuously increasing. This means people are more keen to buy short term anticipated endowment type of plan.

Features of Micro Insurance Products of PILIL

Small Savings Assurance Plan (Mukto Bima)

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It is an endowment assurance plan where the assured is given back the money deposited in his Mudaraba fund (participants account) with accrued bonus. At maturity of the policy, nominee will get the full sum assured along with the profit. At the death of assured during policy period, full sum assured is paid. Prime Islami Deposit pension Scheme (PIDPS) It is an endowment plan with alternative option of annuity (pension). After completion of policy term, the assured can take the benefits of the policy as lump sum with accrued profit, alternatively the assured can take the benefit in the form of pension. Pension is given for 5, 10 or 15 years at the option of policy holders. The nominee gets full sum assured with accrued bonus or pension for fixed period at the death of the assured during policy period. The policy term is 10 to 15 years. Minimum monthly installment is Tk. 200. Double Indemnity Accidental Benefit (DIAB) cover is inclusive in this plan without any additional premium. Features of two-payment Kalyan Bima It is an anticipated endowment plan with the alternative option of pension. Fifty percent of sum assured is paid on the completion of half of the policy term. Balance 50% is given at maturity. But the nominee gets the full Sum assured irrespective of receipt of installment of 50% sum, at death of the assured during the policy period. At the maturity of the policy the assured can take the benefit in the form of pension for ten years. The comparative features of three micro insurance products are given below:
Features Small Savings Assurance Plan (Mukta Bima) 2001 Monthly Prime Islami Deposit Pension Scheme 2004 Monthly, Quarterly, halfyearly, yearly. 10 to 15 years Endowment plan with option of annuity DIAB is included without any additional premium Two-payment Deposit Scheme (Kalyan Bima) 2006 Monthly, Quarterly, halfyearly, yearly. 08,10,12,14,16,18,20 Anticipated endowment plan DIAB is not included

1. Marketed since 2. Mode of payment 3. Policy term 4. Nature of the products 5. Benefit

10 years (fixed) Endowment plan

DIAB (Double indemnity & accident benefit) is not covered.

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6. Min-Max of monthly Installments 7. Commission structure

Minimum: taka100 Maximum: taka1500 1st year 58% of 1st year premium for rest nine years 13% of total premium payable in the period.

Minimum: taka200 Maximum: No limit 1st year 58% of 1st year premium for rest nine years 5% of total premium payable in the period.

Minimum: taka200 Maximum: taka10000 1st year 58% of 1st year premium for rest nine years 5% of total premium payable in the period.

Underwriting Features a) About 45% policies are below taka 25000 sum assured. b) Average Sum assured of micro polices is Taka 43792. c) Only 7% policies Sum Assured is taka 1,00,000 or above. d) 53% of policyholders are female. Death Claim Experience Total number of up-to-date death claim intimated was 364. Number of claims paid so far 254. Death claim ratio of micro insurance is more in relation to premium in comparison to ordinary life polices. Out of 364 death claims, 37 were caused by accident, which is approximately 10%. It case of ordinary life the percentage of accidental death is 6%. The main reason for declination of death claims is breach of utmost good faith (non disclosure of material fact) false documentation and misstatement of facts. Proposed Group Cover for the poor To cover the financial risk of the poor people on group basis, PILIL has designed and developed a group micro insurance product in the name of Samajik Nirapatta Bima. (Social Security Insurance) which will be marketed in 2011. The main features of the plan are: * * * * * It is a group assurance plan where premium is refunded at maturity. Term of plan is 10 years. Yearly mode of payment. Amount of group premium: minimum taka 5,000/-(five thousand) for the group. Number of members of a group:- Minimum 10, Maximum unlimited.

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* * *

Age of the member at commencement of policy: Minimum 18 and maximum 50 years. Age at maturity: Maximum 60 years. Target Group: workers of factory, offices, club, professional groups etc.

At maturity, the assured will get the amount deposited in mudaraba fund and maximum 90% of surplus of tabarru fund (if any). In case of assureds death within policy period; in case of normal death, nominee(s) will get 30 (thirty) times of individual yearly contribution. At accidental death; nominee(s) will get 60(Sixty) times of assureds individual yearly contribution. In case of permanent disability, assured will get 30(thirty) times of his individual yearly premium. Proposed Group cover for the local and non-resident workers of Bangladesh (Karmajibi Kalyan Bima) In order to bring various communities of the society under social security system in Bangladesh. Prime Islami Life Insurance has developed recently introduced Karmajibi Kalyan Bima for labourers. It is a group term insurance which provides full face value of Insurance at normal death and other additional benefit like accidental death benefit, permanent disability benefit, repatriation of body from abroad/funeral cost of the deceased assured and stipend at death & disability. This product is specially designed for low income people working in home and abroad. This product is a unique example of providing maximum benefits to customers of low income group of the society at the least amount of premium. People belongs to various income group in Bangladesh, such as weavers, industrial workers, employees of government and non-government offices, members of various trade and professional organizations. agricultural workers, fishermen, craftsman, teachers and employees of small enterprises are the main target group of this product.

Observations and Suggestions

It is observed that insurers have been offering micro-insurance in rural areas because there is demand for this type of product and because the multinational competitor is so strong that the local Insurance companies are unable to compete successfully in the urban areas. Community based micro-insurance operator in Bangladesh do not follow insurance principles and they are unregulated. The MFI-NGO operators primarily provide health care and or credit insurance. They are practicing micro-insurance as an ancillary service on

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the rule of thumb method. It appears that if and when micro-insurance schemes are not regulated or monitored properly; anarchy might prevail in the market and unethical practices can destroy the whole system. Unfortunately, in Bangladesh, mutuals have not developed because of lack of awareness and initiatives by the incumbents. It is likely that Micro-finance Institutions and NGOs will be forming mutual associations in near future in order to provide insurance covers (Life/Credit/Health/Property) to their members. Success story of micro-health insurance is very rare in this part of the world, because of lack of experience, lack of proper support services and high moral hazard inherent in the system. Agriculture micro-insurance seems to be a far cry without initiative and or subsidily from donors/international agencies, government. In Bangladesh, composite insurance companies are not allowed to operate. Therefore, it is very difficult to offer bundle/package product (Life and non-life together). It is felt that the Regulatory Authority should wave the legal barrier at least for micro-insurance schemes in order to promote combined/package plan for the poor householder/microenterprise. Donors/International Development partners for promoting Micro-insurance are not usually available. They should be keen to grant providing funds to develop and operate micro-insurance schemes. Insurance Regulatory Authority in Bangladesh in not a member of IAIS and similar international bodies. Therefore, they are not updated with the development in micro insurance sector. Moreover, the Chief Executive of the Authority being a Govt. high official is frequently transferred to other departments within short span of his duration. Obviously, long and short term planning is absent in the Regulatory Body. It is not always true that unregulated micro-insurance providers can not protect consumers interest. One of the largest Micro-credit Institute in Bangladesh never asks for any premium from the insureds, other than membership fee. This has been possible because of their ability to generate huge fund by charging high rate of interest ranging between 25/30% against credit to poor people. They have in built mechanism and sufficient reserve fund to meet claims of their members. It is urgently necessary to provide guidelines and support services to all microinsurance operators (both formal and informal) by the Insurance Regulatory Authority. It will be unwise to allow informal insurers to continue their operation without having Prudential Regulation. Regulatory Authority need to

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Landscape of Micro Insurance in Bangladesh.

formulate separate Rules, Regulations and guidelines for micro-insurance. Under no circumstances, customers interest be overlooked. If and when actuarial valuations may not be feasible and cost worthy the Regulatory Authority should at least scrutinize the accounts of all microinsurers and may have to inspect the insurers office on a regular basis or as and when required. A separate department in the Regulatory Authority may be entrusted to supervise, inspect, scrutiny of accounts and to provide guidelines to all micro-insurers (both formal and informal). The core principles of insurance including essential criteria and advanced criteria should form the basis of future work on the Regulation and Supervision of micro-insurance. However, the pertinent question is how these principles will be adopted. In a developing country like Bangladesh, the Regulatory Authority is very weak because of lack of professionalism, lack of man power and lack to technology. Until and unless the Regulatory Authority is made strong enough and they adopt core principles for formal regulated insurance, we can not expect those to be applied to micro-insurance. We need to formulate strategies so that within a specified time frame, the core principles are adopted in Bangladesh. Unless we have full understanding about the core principles and action plan to strengthen the Supervisory Authority, we can not implement the conditions for effective supervision and determine the supervisory process. The Supervisory Authority must be an independent powerful and capable to determine and fulfill the objective. In Bangladesh, micro-insurance is basically designed to cater to life insurance needs of the poor and the marginal poor people. Micro-insurance in Bangladesh is distinct from the conventional live insurance on several basic issues such as:a) The premium or the contribution is collected on flat basis irrespective of age of the insured. Entry age is limited to maximum 45 years to 50 years. b) Premium payment mode is usually monthly and the insurance is written on non medical basis. c) In case of micro-insurance, in contrast to conventional insurance renewal commission is paid at higher rate regardless of the subsequent years for which premium is paid under the policy. d) Overhead expenses and lapse ratio of micro-insurance are more than those under conventional life insurance schemes.

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PILIL as micro-takaful operator are facing similar problems as that of conventional micro-insurers. Takaful is based mainly on the concept of donation (tabarru) where participants (policyholders) donate to a pool of funds for the purpose of providing mutual protection among all members. Takaful is more akin to mutual insurance. It is strongly felt that the regulator will address the problems of micro-takaful and micro insurance operators. It is felt that Regulatory Authority should address the problems and provide specific guidelines for micro-insurance operators of Bangladesh.

Concluding Remarks
The frequency and severity of disasters have increased sharply in the recent decades. In Bangladesh, the major causes of deaths and damages to property from natural disasters are droughts. cyclones and floods. For obvious reasons, poor people are much more exposed to disasters than are rich ones. In Bangladesh, natural disasters as well as man made disasters are an integral part of poverty cycle. In Bangladesh, NGOs are increasingly involved in the implementation of schemes for reducing poverty. They are providing credit. A few of them are also extending insurance services to their members and credit users. These services are being provided more or less on rule of thumb basis. Since insurance is a scientific way of dealing with risks and providing security to people it is necessary that this is handled professionally. It has been observed that micro credit programmes are to some extent effective in fighting poverty. However, it is unlikely that micro-credit alone can be the solution to poverty reduction. The government/donors and micro-credit providers must find ways to extend micro-insurance services to the poor. It is felt that micro insurers should offer group policies for the poor. Group insurance enables a large number of people being covered under one contract. In case of individual insurance, the contract is with the individual policy holder. The decision to take out the policy is voluntary and the amount as well as plan of insurance is decided by the individual. On the other hand, in case of group insurance, the contract is with the group/association. A single master policy is issued covering all the members, as per agreed terms. Therefore, group policy for micro-credit borrowers, can be issued. The premium will be paid by the respective MFI/NGO or whoever represents the group and takes out the master policy. Group term insurance is renewable every year and is the simplest and cheapest of all the schemes that a life insurance operator can offer. Under this scheme, a

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Landscape of Micro Insurance in Bangladesh.

fixed sum is paid on the death of a member covered under the scheme. This scheme would be also appropriate to meet the outstanding loans. MFIs, therefore, should take such policies to cover borrowers at least to the extent of outstanding loans. When a micro insurer offers group-term insurance, the premium will be charged according to the loss experience of the group. In case of favorable experience, premiums may be brought down or the surplus that emerges can be passed on to the members of the group. Apart from micro-credit borrowers, group term insurance cover can be made available to other poorer sections of society like landless agricultural laborers, handloom workers, rickshaw pullers, artisans, taxi drivers, cooperative milk producers, tailors, barbers, masons, carpenters etc. In this respect, Social Security Fund need to be created by the government with the help of donors in order to meet emergency. Social Security Fund could be utilized in times of need for providing reinsurance cover of micro insurance. It is no denying the fact that the lack of access to insurance is one of the reasons of our inability to achieve any sustainable and substantial increase in living standards for the poor. On the other hand, we must remember that Islamic Shariah prohibits conventional insurance in its present form and methodology. As a result, penetration of insurance in Bangladesh has been very negligible. It is primarily limited to the urban elite sector. However, Muslim Jurists of recent age have concluded that insurance schemes comprising the elements of shared responsibility, joint guarantee and solidarity is permissible. The fundamental philosophy of Islamic Insurance (Takaful) and Mutual Insurance is the same. Theoretically, Takaful is perceived as cooperative insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is to uphold the Islamic principles of bearing one anothers burden. Takaful, from the practical point of view means mutual guarantee provided by a group of people living in the society against defined risks of life and property. A Takaful scheme aims at undertaking a joint responsibility towards financially safeguarding the widows, orphans and helpless ones in the society, and also the one who faces unexpected loss or damage. therefore, conceptually mutual insurance is in harmony with the central philosophy of Takaful. The fundamental principles of Takaful may be summarized as follows : a. Policyholders cooperate among themselves, for their common good. b. Policyholders contribute to help those who need.

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c. Liabilities are spread out according to the community pooling system. d. Transparency, fairness, equity and justice is maintained in the operation. e. Shariah based investments are made on the basis of profit and loss sharing. The basic idea of Takaful system has stemmed from the principle of Tabarru (donation), whereby each participant of the scheme contributes to a fund that is used to support one another. The objective of Takaful is to pay a defined loss from a common fund created by all the members of the scheme. It is, observed that in Bangladesh micro takaful products are more in demand. Therefore PILIL based on its last eight years having experience in individual micro-takaful, has decided to launch group micro takaful products for the poor people of Bangladesh. This will help to minimize very high lapsation ratio and reduce distribution cost and management expenses. The poor people will be then having their risks covered at the minimum cost.