Impact of Insurance on Economic Development of Bangladesh.
Insurance is one of the significant ingredients of the financial sector that can contribute to economic development and most importantly a growing insurance sector is a positive sign of a healthy economy. Bangladesh's economy holds large numbers of risks in various sectors due to natural calamities resulting from earthquakes, tsunamis, damaging winds, extreme heat, floods. Financial risks, market risks and operational risks also can be seen, for instance, risk of higher taxes, interest rate risk, risk of rising prices for raw material and energy etc. which increases the risk for the economy. However, insurance is a risk transfer mechanism where individuals and groups transfer their risk associated with life or property to the insurers who agree to indemnify insured in exchange for a fixed sum called the premium. Therefore, individuals or business enterprises can survive in the event of inability to work, loss of their assets etc., as a result, they can continue domestic production, innovation and trade which has a direct impact on the development of economics.
“Insurance companies have been witnessing an uptrend among their shares over the last couple of months. Overall turnover from insurance stocks jumped to Tk 2,504.73 crore in August, accounting for about 13.45 per cent of that month's total turnover, as per data of Dhaka Stock Exchange (DSE). This is a 143 per cent increase compared to the previous month when it had stood at Tk 1030.39 crore”. (Ahsan Habib, ‘Title: Insurance stocks on upward curve’, The Daily Star, September 15, 2020). Nowadays, people are interested in insurance stocks and the rate is increasing. But several problems negatively affect the insurance industry and it is worthwhile for knowing which are primarily responsible for low growth of the insurance industry in Bangladesh. Insurance industries are facing many obstacles due to outdated technology infrastructure, skilled human resources, lack of utmost good faith between insured and insurers, political pressure, challenging customer behaviour, shortage of insurance professionals, lack of commodity diversification and so forth. To have flourished and developed insurance industries and eradicate all the barriers, well-planned, organized and efficient insurance industry must be implemented for economic development.
Now the question is, “How does insurance impact on economic development in Bangladesh? The answer would be elaborative. Capital Formation and Increase the Amount of Investment, insurance companies receive a fixed sum of money from the insurer. This is called a premium which increases the national capital. This capital does not remain idly, rather this capital is used in various productive investment projects. Safety and Security, insurance assures financial support against future uncertainties and provide safety in business enterprises and the life of a human from a fear of sudden loss. Some may get indemnity in the event of deaths or others may get in case of losses incurred due to accident or fire. Reduction of Risk, insurance lessens the amount of risk faced by small and medium businesses or organizations. Thus they can minimize the risk of any losses and can operate their functions smoothly. Financial Resources, insurance generates financial resources by collecting premiums which are invested in government securities like bonds and stocks. Fund generation creates employment opportunities. Extension of Businesses, businesses are conducting their activities with safety and security as they are getting assurance from the insurance companies. Even they collect necessary capital, equipment and financial help as well to continue their business. As a result, the number of businesses is increasing on Bangladesh which has positive effects on the economic development of Bangladesh. Saving, life insurance encourages savings. Systematic payments of premiums generate more funds and funds tend to more investment. Economic Growth, Domestic savings and productive investment leads to economic growth and also sustainable growth. Finally, it can be said that the insurance industry has a large impact on the economic development of Bangladesh.
To conclude, two-thirds of Bangladesh’s GDP has come from e.g., transport, construction, agriculture, industry and wholesale and retail (In the financial year 2018-2019). The rest of the contribution in GDP has come from different sectors including banking & insurance. According to “World Economic League Table 2020”, Bangladesh is on its way in order to become the 25th largest economy in the world by 2034. So, revamping of insurance is necessary for having a better insurance industry in future which will contribute to the economic development of Bangladesh.
Sabrin Sultana
Session: 2017-18
Department of Banking & Insurance
