Development of Insurance Business and its Applicability in
Introduction
“Insurance is a way of protecting against these financial losses”. “General insurance or non life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event” Anyone who owns an asset can buy insurance to protect it against losses due to fire or thefand so. Each one of us can insure our and our dependents” health and well being through hospitalization and personal accident policies.
Definition of Insurance: Insurance may be defined as a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against that risk. This means that insurance provides a pool to which the many contribute a and out of which the few who suffer losses are compensated by the insurer.
It may be noted that insurance can not prevent loss of property or goods by fire or other perils. It can merely provide financial compensation for the effects of misfortune. An insurances therefore, does not protect the material property which is the subject – matter of the insurance, but the pecuniary interest of the insured.
Chapter – 1
Development of Insurance Business and its Applicability in Bangladesh.
Since 1947 until 1971 insurance business gained momentum in this part of what was then known as East Pakistan. There were about 49 companies transacting both life and general insurance business. These companies were operating under a free competitive economy. After the emergence of the People’s Republic of Bangladesh in 1971, the government in order to make available the fruit of liberation to the general mass, nationalized the insurance industry along with the banks in 1972 by Presidential order no. 95At the same time, five insurance corporations were initially established by the government, which are following.
(i) National insurance corporation,
(ii) Teesta insurance corporation,
(iii) Karnphuli insurance corporation,
(iv) Rapsa life insurance corporation and
(v) Surma life insurance corporation.
On 14th may, 1973 the Insurance corporation Act VI, 1973 was enacted under which the previous five corporations were abolished an the following two corporations emerged:
1. Sadhran Bima Corporation for general insurance and.
2. Jiban Bibna corporation for Life insurance in Bangladesh.
Sadharon Bima Corporation for general insurance deals with any kind of non life insurance. Such as: fire insurance, cyclone insurance, flood insurance etc. On the other hand, Jiban Bima Corporation deals with the insurance of human life or life insurance.
Chapter – 2
Life Insurance
A Contract of life insurance is a contract whereby the insurer, in consideration of a certain premium, undertakes to pay to the assured, or to the nominee or assignee or the legal successor of the assured in case of his death, a stated sum of money or annuity (i.e, payment in monthly, quarterly, half- yearly or yearly instalments), on the death of the insured or on the expiry of a certain period. According to Seetion 2 (11) of the insurance Act, 1938, “life insurance business means the business of effecting contracts of insurance of upon human life.
Insurable Interest: “No insurable interest no insurance’ is a maxim of the law of insurance. Thus, a contract of life insurance is void unless the assured has an insurable interest in the life insured. Insurable interest arises out of the pecuniary relationship that exists between the insurer and the insured, so that the policyholder stands to lose by the death of the insured and continue to gain by his remaining alive. Thus, a son has no insurable interest in Ted by the son.
Presumption of insurable interest: it the following three cases, insurable interest is presumed to exist and no proof is required:
(i) In own life. In this case interest is presumed because one can protect his estate from that loss of his future gains or savings which might be the result of his premature death.
(ii) Wife in the life of her husband. In this case interest is presumed because the husband is legally bound to support his wife and hence she insurable interest in the life of her husband.
(iii) Husband in the life of her wife. In this case interest is presumed only if the
wife is literate and earning member.
In these cases there is no limit to the amount of insurable interest and one can insure for any sum whatsoever, and as often as he pleases.
No Presumption of insurable interest:
The cases where insurable interest is not presumed and an evidence of interest is required can be studied under two heads:
(i) Persons Related: In case of relations other than husband and wife, like as, father and son, uncle and nephew, sister and brother insurable interest is to be proved. If one proves that he is supported by another orelation then only he can insure that other relation’s life.
(ii) Persons not Related: The following have been held to have an insurable interest due to business or contractual relationship:
(a) A creditor in the life of his debtor ‘to the extent of the debt’.
(b) A creditor in the life of surety.
(c) A partner of a partnership firm in the life of a co- partner.
(d) An employee in the life of his employee.
(e) An employer in the life of his key employee.
Kinds of life insurance Policies: Various types of life insurance are issued to meet the varying needs of the members of the society. The more important typer are following:
(i) Whole life Policy: Under this policy the premiums are payable throughout the life of the on the death of the assured to his assignees, or nominees or heirs.
(ii) Endowment Policy: in this case, the policy runs only for a limited period or up to a particular age not exceeding the age of 70 years. Premiums are payable fill the maturity of the policy.
(iii) Limited Payment life policy: in this case, premiums are payable for a specified number of years or until death if it occurs earlier.
(iv) Convertible whole life policy: in case of such a policy the premium is low at the beginning, treating the policy as a whole life policy. Under the terms of the policy the assured is given an option to convert the policy into an endowment policy after five years.
(v) Joint life policy: This type of policy is taken upon the joint lives of two or more persons. The sum assured becomes payable at the end of a specified tern of years, or on the first death of either of the lives assured, whichever is earlier. This type of policy is particularly useful for partners in a partnership firm.
(vi) Annuity policy: this policy is an endowment policy with the difference that here the full amount of the policy is not payable in a lump sum but is payable in the form of annuities for a specified number of year or till the death of the assured.
(vii) Education /Marriage Endowment Policy: Such a policy is effected for the purpose of meeting the education or marriage expenses of children. As is usual, here also assured insures his own life but the purpose is different.
Surrender value: it is applicable only on the life insurance. The ‘surrender value’ denotes that value or consideration which the insurer is prepared to pay at any particular time during the currency of the policy, after it has run for a specified period, in total discharge of the contract, in case the assured wishes to surrender his policy and extinguish his claim upon it. In brief, the surrender value is the cash value of the policy which is payable to the policy holder if he decides to terminate the contract after a specific period or term.
Paid – up value: if, after the policy has acquired a ‘surrender value’ a policy – holder discontinues the payment of the premium, the policy does not become wholly void but continues to subsist as a ‘paid-up policy’ entitled to the ‘paid-up-value’ of the policy. Of course, such a value is payable only at the maturity of the policy; and it is for this reason that this value is always higher than the ‘surrender value’ which is playable immediately on surrendering the policy.
Chapter – 3
Fire insurance
Fire insurance means insurance against any loss of or damage to property by fire. A contract of fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to indemnify the insured against financial loss which the latter may sustain by reason of certain defined subject-matter being damaged or destroyed by fire during a specified period.
Character is tries: the characteristics of a contract of fire insurance are as follows:
1. It is a contract of indemnity. The insured suffering the loss in fire policy can.
2. It is a contract of utmost good faith. The proposer is under an obligation to supply detailed information regarding the subject-matter to be insured. He must disclose all material facts correctly and fully, otherwise the contract is avoidable at the instance of the insurer.
3. It is a contract from year to year and therefore a fire insurance policy can be issued for a period of a one year only.
4. The principles of ‘Subrogation’ and ‘contribution’ apply to contract of fire insurance.
5. It covers loss caused proximately by fire.
6. Unlike a life insurance policy, a fire policy does not carry any surrender value or paid- up value.
7. The assured must have insurable interest in the subject- matter, i.e. the property insured, both at the time of contract as well as at the time of loss.
8. Procedure for Effecting Fire insurance:
For taking out a fire policy the proponent has to fill a proposal from giving necessary description such as location, amount, age, nature of possession etc. Of the property. While filling up the proposal form, the proposer must observe utmost good faith and disclose all the material facts. On receiving the proposal form the insurer assesses the risk to be insured. The properly is fully inquired and examined by the surveyors who determine the degree of risk precisely. If the insurer thinks that the property is insurable, he gives his acceptance of the proposal subject to the payment of premium. Finally a fire insurance policy duly stamped and containing the terms and conditions of insurance will be issued by the insurer to the assured.
Chapter – 4
Marine insurance
A contract of marine insurance is a contract whereby the insurer undertaker to indemnify the assured, in the manner and to the extent there by agreed, against marine losses, that is to say, the losses incidental to marine adventure.
Subject – matter of a contract of marine insurance: Every lawful marine adventure may be the subject – matter of a contract of marine insurance. The more popular types of marine insurance are as follows:
(i) Hull insurance: insurance of vessel and its equipments (i.e., furniture and fittings, machinery, tools, coal and engine stores etc.) are included in hull insurance.
(ii) Cargo insurance: The insurance of cargo includes goods and merchandise and not the personal belongings of the crew and passengers.
(iii) Freight insurance: in many instances, under the terms of contract, the shipping company is unable to earn freight, whether paid in advance or otherwise, if the cargoes are not safely transported. As such, if the cargoes are destroyed or the ship is lost on the way, the shipping company losses the freight. To guard against such an eventuality the shipping company may effect freight insurance.
(iv) Liability insurance: Liability insurance includes liability to a third party by reason of hazards like collision etc.
Maritime perils: As observed earlier, marine insurance policies protect the assured against maritime perils. According to Section 2 (e), “maritime perils means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, was perils, pirates and rovers, thieves, captures, seizures, restraints and detainments of princes and peoples, jettisons, barratry and any other perils which are either of the like kind or may be specified by the policy”.
Characteristics of Marine Insurance Contracts: The characteristics of a contract of marine insurance are as follows’.
(i) It is a contract of indemnity.
(ii) It is a contract based upon the utmost good faith, and if the utmost good faith be not observed by either party, the contract may be avoided by the other party.
(iii) The doctrine of ‘Subrogation’ and ‘contribution’ apply to a contract of marine insurance.
(iv) A marine policy is invariably subject to the ‘ average clause’
(v) All marine insurance contracts are subject to certain “express and implied warranties”.
(vi) In a marine insurance contract, the assured must have insurable interest in the subject – matter insured at the time of the loss, though he may not have insurable interest when the insured is effected.
Introduction
“Insurance is a way of protecting against these financial losses”. “General insurance or non life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event” Anyone who owns an asset can buy insurance to protect it against losses due to fire or thefand so. Each one of us can insure our and our dependents” health and well being through hospitalization and personal accident policies.
Definition of Insurance: Insurance may be defined as a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it and who agree to insure themselves against that risk. This means that insurance provides a pool to which the many contribute a and out of which the few who suffer losses are compensated by the insurer.
It may be noted that insurance can not prevent loss of property or goods by fire or other perils. It can merely provide financial compensation for the effects of misfortune. An insurances therefore, does not protect the material property which is the subject – matter of the insurance, but the pecuniary interest of the insured.
Chapter – 1
Development of Insurance Business and its Applicability in Bangladesh.
Since 1947 until 1971 insurance business gained momentum in this part of what was then known as East Pakistan. There were about 49 companies transacting both life and general insurance business. These companies were operating under a free competitive economy. After the emergence of the People’s Republic of Bangladesh in 1971, the government in order to make available the fruit of liberation to the general mass, nationalized the insurance industry along with the banks in 1972 by Presidential order no. 95At the same time, five insurance corporations were initially established by the government, which are following.
(i) National insurance corporation,
(ii) Teesta insurance corporation,
(iii) Karnphuli insurance corporation,
(iv) Rapsa life insurance corporation and
(v) Surma life insurance corporation.
On 14th may, 1973 the Insurance corporation Act VI, 1973 was enacted under which the previous five corporations were abolished an the following two corporations emerged:
1. Sadhran Bima Corporation for general insurance and.
2. Jiban Bibna corporation for Life insurance in Bangladesh.
Sadharon Bima Corporation for general insurance deals with any kind of non life insurance. Such as: fire insurance, cyclone insurance, flood insurance etc. On the other hand, Jiban Bima Corporation deals with the insurance of human life or life insurance.
Chapter – 2
Life Insurance
A Contract of life insurance is a contract whereby the insurer, in consideration of a certain premium, undertakes to pay to the assured, or to the nominee or assignee or the legal successor of the assured in case of his death, a stated sum of money or annuity (i.e, payment in monthly, quarterly, half- yearly or yearly instalments), on the death of the insured or on the expiry of a certain period. According to Seetion 2 (11) of the insurance Act, 1938, “life insurance business means the business of effecting contracts of insurance of upon human life.
Insurable Interest: “No insurable interest no insurance’ is a maxim of the law of insurance. Thus, a contract of life insurance is void unless the assured has an insurable interest in the life insured. Insurable interest arises out of the pecuniary relationship that exists between the insurer and the insured, so that the policyholder stands to lose by the death of the insured and continue to gain by his remaining alive. Thus, a son has no insurable interest in Ted by the son.
Presumption of insurable interest: it the following three cases, insurable interest is presumed to exist and no proof is required:
(i) In own life. In this case interest is presumed because one can protect his estate from that loss of his future gains or savings which might be the result of his premature death.
(ii) Wife in the life of her husband. In this case interest is presumed because the husband is legally bound to support his wife and hence she insurable interest in the life of her husband.
(iii) Husband in the life of her wife. In this case interest is presumed only if the
wife is literate and earning member.
In these cases there is no limit to the amount of insurable interest and one can insure for any sum whatsoever, and as often as he pleases.
No Presumption of insurable interest:
The cases where insurable interest is not presumed and an evidence of interest is required can be studied under two heads:
(i) Persons Related: In case of relations other than husband and wife, like as, father and son, uncle and nephew, sister and brother insurable interest is to be proved. If one proves that he is supported by another orelation then only he can insure that other relation’s life.
(ii) Persons not Related: The following have been held to have an insurable interest due to business or contractual relationship:
(a) A creditor in the life of his debtor ‘to the extent of the debt’.
(b) A creditor in the life of surety.
(c) A partner of a partnership firm in the life of a co- partner.
(d) An employee in the life of his employee.
(e) An employer in the life of his key employee.
Kinds of life insurance Policies: Various types of life insurance are issued to meet the varying needs of the members of the society. The more important typer are following:
(i) Whole life Policy: Under this policy the premiums are payable throughout the life of the on the death of the assured to his assignees, or nominees or heirs.
(ii) Endowment Policy: in this case, the policy runs only for a limited period or up to a particular age not exceeding the age of 70 years. Premiums are payable fill the maturity of the policy.
(iii) Limited Payment life policy: in this case, premiums are payable for a specified number of years or until death if it occurs earlier.
(iv) Convertible whole life policy: in case of such a policy the premium is low at the beginning, treating the policy as a whole life policy. Under the terms of the policy the assured is given an option to convert the policy into an endowment policy after five years.
(v) Joint life policy: This type of policy is taken upon the joint lives of two or more persons. The sum assured becomes payable at the end of a specified tern of years, or on the first death of either of the lives assured, whichever is earlier. This type of policy is particularly useful for partners in a partnership firm.
(vi) Annuity policy: this policy is an endowment policy with the difference that here the full amount of the policy is not payable in a lump sum but is payable in the form of annuities for a specified number of year or till the death of the assured.
(vii) Education /Marriage Endowment Policy: Such a policy is effected for the purpose of meeting the education or marriage expenses of children. As is usual, here also assured insures his own life but the purpose is different.
Surrender value: it is applicable only on the life insurance. The ‘surrender value’ denotes that value or consideration which the insurer is prepared to pay at any particular time during the currency of the policy, after it has run for a specified period, in total discharge of the contract, in case the assured wishes to surrender his policy and extinguish his claim upon it. In brief, the surrender value is the cash value of the policy which is payable to the policy holder if he decides to terminate the contract after a specific period or term.
Paid – up value: if, after the policy has acquired a ‘surrender value’ a policy – holder discontinues the payment of the premium, the policy does not become wholly void but continues to subsist as a ‘paid-up policy’ entitled to the ‘paid-up-value’ of the policy. Of course, such a value is payable only at the maturity of the policy; and it is for this reason that this value is always higher than the ‘surrender value’ which is playable immediately on surrendering the policy.
Chapter – 3
Fire insurance
Fire insurance means insurance against any loss of or damage to property by fire. A contract of fire insurance is a contract whereby the insurer, in consideration of the premium paid, undertakes to indemnify the insured against financial loss which the latter may sustain by reason of certain defined subject-matter being damaged or destroyed by fire during a specified period.
Character is tries: the characteristics of a contract of fire insurance are as follows:
1. It is a contract of indemnity. The insured suffering the loss in fire policy can.
2. It is a contract of utmost good faith. The proposer is under an obligation to supply detailed information regarding the subject-matter to be insured. He must disclose all material facts correctly and fully, otherwise the contract is avoidable at the instance of the insurer.
3. It is a contract from year to year and therefore a fire insurance policy can be issued for a period of a one year only.
4. The principles of ‘Subrogation’ and ‘contribution’ apply to contract of fire insurance.
5. It covers loss caused proximately by fire.
6. Unlike a life insurance policy, a fire policy does not carry any surrender value or paid- up value.
7. The assured must have insurable interest in the subject- matter, i.e. the property insured, both at the time of contract as well as at the time of loss.
8. Procedure for Effecting Fire insurance:
For taking out a fire policy the proponent has to fill a proposal from giving necessary description such as location, amount, age, nature of possession etc. Of the property. While filling up the proposal form, the proposer must observe utmost good faith and disclose all the material facts. On receiving the proposal form the insurer assesses the risk to be insured. The properly is fully inquired and examined by the surveyors who determine the degree of risk precisely. If the insurer thinks that the property is insurable, he gives his acceptance of the proposal subject to the payment of premium. Finally a fire insurance policy duly stamped and containing the terms and conditions of insurance will be issued by the insurer to the assured.
Chapter – 4
Marine insurance
A contract of marine insurance is a contract whereby the insurer undertaker to indemnify the assured, in the manner and to the extent there by agreed, against marine losses, that is to say, the losses incidental to marine adventure.
Subject – matter of a contract of marine insurance: Every lawful marine adventure may be the subject – matter of a contract of marine insurance. The more popular types of marine insurance are as follows:
(i) Hull insurance: insurance of vessel and its equipments (i.e., furniture and fittings, machinery, tools, coal and engine stores etc.) are included in hull insurance.
(ii) Cargo insurance: The insurance of cargo includes goods and merchandise and not the personal belongings of the crew and passengers.
(iii) Freight insurance: in many instances, under the terms of contract, the shipping company is unable to earn freight, whether paid in advance or otherwise, if the cargoes are not safely transported. As such, if the cargoes are destroyed or the ship is lost on the way, the shipping company losses the freight. To guard against such an eventuality the shipping company may effect freight insurance.
(iv) Liability insurance: Liability insurance includes liability to a third party by reason of hazards like collision etc.
Maritime perils: As observed earlier, marine insurance policies protect the assured against maritime perils. According to Section 2 (e), “maritime perils means the perils consequent on, or incidental to, the navigation of the sea, that is to say, perils of the seas, fire, was perils, pirates and rovers, thieves, captures, seizures, restraints and detainments of princes and peoples, jettisons, barratry and any other perils which are either of the like kind or may be specified by the policy”.
Characteristics of Marine Insurance Contracts: The characteristics of a contract of marine insurance are as follows’.
(i) It is a contract of indemnity.
(ii) It is a contract based upon the utmost good faith, and if the utmost good faith be not observed by either party, the contract may be avoided by the other party.
(iii) The doctrine of ‘Subrogation’ and ‘contribution’ apply to a contract of marine insurance.
(iv) A marine policy is invariably subject to the ‘ average clause’
(v) All marine insurance contracts are subject to certain “express and implied warranties”.
(vi) In a marine insurance contract, the assured must have insurable interest in the subject – matter insured at the time of the loss, though he may not have insurable interest when the insured is effected.
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