1.

Introduction
Insurance can be defined as a social tool for reducing or eliminating risks of death or property
loss. It is a precautionary measure taken by a prudent person to guard against unforeseen
events, loss, or misfortune. Insurance protects you financially in the event of a loss caused by
an unforeseen event. This protection can be obtained by paying a premium to an insurance
company. A pool is formed by contributions from people who want to protect themselves from
a common risk. Insurance companies collect premiums and serve as trustees for the pool. Any
loss incurred by the insured as a result of an unforeseen event is covered by this pool. Insurance
is based on the risk-sharing principle. Insurance has the advantage of spreading the risk of a
few people over a large group of people who are exposed to similar risks.

2. Definition of Insurance
Insurance is a contract between two parties in which one agrees to take on the risk of the other in
exchange for a premium and promises to pay a fixed sum of money to the other party in the
event of an uncertain event such as death or after the expiration of a specified period in the case
of life insurance, or to indemnify the other party in the case of general insurance.
The 'insurer' or 'assurer' is the party who bears the risk, while the 'insured' or 'assured' is the party
whose risk is covered.
Uncertainty is a key component of the concept. Uncertainty about the possibility of a loss is
defined as risk. Risks are unpredictable; there is uncertainty about what will happen in the future,
as well as a deviation from the desired outcome, and the odds are not in your favor.
Risk-taking is necessary in a competitive economy. Because we are all exposed to some level of
risk, the best course of action is to accept the risk and manage our affairs without being affected.
One of the benefits of insurance is that the insurer pays for any losses that occur. There is less
uncertainty, and business can be conducted without fear of losing infrastructure or capabilities.
One of the advantages for businesses is that the insurance premium is a business expense. It
lowers both your income and your tax liability. Income tax concessions are available in the case
of certain insurances, particularly those in the nature of life insurance, mediclaim insurance, and
so on. Insurers can also provide value-added services such as loss control advice and exposure
analysis. It is a technique used in the risk management process. It reduces fear and anxiety in an
individual's mind as well as in a business unit. It's a compensatory mechanism. It reinstates the
insured status. When a piece of property or a person is covered by insurance, it improves their
creditworthiness.

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3. Principles of insurance
Utmost Good Faith
Both parties engaged in an insurance contract—the insured and the insurer should act in good
faith towards each other. The insurer and the insured shall offer clear and straightforward
information regarding the terms and circumstances of the contract. This is a very basic and
primary premise of insurance contracts since the essence of the service is for the insurance
company to provide a particular level of security and solidarity to the insured person’s life.
However, the insurance firm must also watch out for anyone seeking for a way to swindle them
into free money.

Indemnity
This is the section of the contract that matters the most for the insurance policyholder since this
is the part of the contract that indicates she or he has the right to be compensated or, in other
words, indemnified for his or her loss. The amount of compensation is in direct proportion with
the suffered loss. Compensation is not paid when the incident that caused the loss doesn’t happen
during the time permitted in the contract or from the precise agreed-upon sources of loss.
Insurance contracts are formed exclusively as a method to give protection from unexpected
catastrophes, not as a means to make a profit from a loss. Therefore, the insured is protected
against losses by the idea of indemnification, but by stipulations that keep him or her from being
able to swindle and make a profit.

Insurable Interest
Insurable interest is defined as the legitimate worry of a person to get insurance for any
individual or property against unanticipated events such as death, losses, etc. A person is
assumed to have a legitimate interest in a longer life for himself, his family, and his business and
so is in need of getting insurance for these. Therefore, insurable interest is generally tied to
ownership, relationship by law, or blood, and possession.

Causa Proxima
Causa Proxima or proximal cause is referred to as the cause that is active and is efficient in
creating or setting in a chain a motion of events that ultimately brings forth a result. The
proximate cause has to be the initial cause or the last, but it is defined as the cause that is most
active in bringing forth a result. If the proximate cause of the loss is insured then the insurer is
responsible to pay the compensation to the insured.

Risk Must Attach

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A contract of Insurance can be compelled only if the risk has been connected. Premium is the
consideration for the risk run by the insurance firms. If there is no danger in the subject matter
there should be no premium.

Mitigation of Loss
Mitigation in loss is the notion that a party who has experienced a loss has to take reasonable
steps to decrease the extent of the loss sustained.

Doctrine of Subrogation
Subrogation is a phrase describing a right maintained by most insurance providers to legally
pursue a third party that caused an insurance loss to the insured. This is done in order to recover
the amount of the claim paid by the insurance company to the insured for the damage.

Doctrine of Contribution
The contribution concept applies when the insured takes more than one insurance policy for the
same subject matter. It states the same idea as in the principle of indemnity.

Terms of Policy

4. Formation of an Insurance Company

There are two processes to forming a new insurance company: The company's authorization to
engage in the business of making insurance contracts is based on two factors: first, the
incorporation, or official recognition of a new juristic person; and second, the company's
authorization to engage in the business of making insurance contracts. The incorporation gives
the group a legal identity, but the juristic person's rights are restricted until it obtains the state's
permission to conduct the business for which it was founded.
The first phase is usually completed with the granting of a certificate of incorporation, and the
second with the issuance of a license or certificate of permission to conduct business in the
insurance industry.
" The first phase represents state control over collective activity in general, and is not unique to
insurance companies. It's not surprising, then, that the insurance commissioner in a number of
states has no official authority over the formation of insurance companies, which occurs in the
same way as the formation of other businesses; that is, the certificate of incorporation is issued
by the secretary of state or other officials who are authorized to issue such certificates for
business corporations in general, rather than by the insurance commissioner. The enterprise must
first be approved by the insurance commissioner ixl certain particulars in the second group of
states, even if the application for incorporation is presented directly to the secretary of state, and
the certificate of incorporation is issued by him.

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In a third and somewhat larger group of states, the application is made directly to the insurance
commissioner, who acts independently of the secretary of state. The application is usually
subject to the approval of the attorney-general as to the formal legality of the application, and the
insurance commissioner handles both the incorporation and the authorization to do business. It's
difficult to make broad generalizations because different statutes have often allowed distinct
procedures of incorporation for different types of businesses.

5. Classification of insurance
There are two type of insurance namely life and non-life insurance. In life insurance, the
protection is given for the life of a human being while in the case of General (non-life) insurance
the protection is extended for assets and properties.
Life Insurance
 This is not a contract of indemnity.
 Because it is very difficult to ascertain the financial or monetary value of human life.
 Intention may be Risk cover and or savings.
 It is life time contract.
 Death is certain, only timing is uncertain.
 Earning capacity of the insured is relevant.
 Premium is based on sum insured, age at the time of entry.
 Premium is calculated with reference to mortality table.
General Insurance
 This is essentially an arrangement of indemnity
 It is easy to ascertain the economic value of an asset.
 Intention is only to cover the risk.
 It is yearly contract, subject to renewal.
 Event is totally uncertain.
 Economic value of asset is relevant.
 It is not relevant.
 Premium is calculated with reference to experience of past losses, probable risk factors
and fixed tariff plans.

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6. Types of Insurance Policies
Life Insurance
Life insurance is a contract in which the insurer undertakes to pay the assured, or the person for
whose benefit the policy is obtained, the assured quantity of money, in exchange for a particular
premium, either in a lump sum or by regular periodic payments, if a specified event involving
human life occurs.
In other words, life insurance is a business endeavor to give protection against man-made
economic risks. It is a contract between the insurer and the insured to pay a certain sum of
money in exchange for a premium if any future event on the assured's life occurs. Life insurance
has the following characteristics:
 It's a legal agreement between the insurer and the insured.
 Human hazard insurance is covered by a life insurance policy.
 It is a guarantee to pay the insured amount in exchange for a premium.
 Insurance premiums are sometimes paid all at once or on a regular basis.
 If the premium is not paid on time, the insurance contract may be discharged, and the
insurer will be released from liability.
 On the occurrence of the event stated in the policy, the insurer pays the money insured to
the insured or assignee.
 The proposal to change the terms of an insurance policy is completed in the prescribed
format.
 The insurer is the only one who signs the policy.

Fire Insurance
Fire insurance is a contract in which the insurer agrees to compensate the insured for any
financial loss incurred as a result of the destruction or damage to property or goods caused by
fire over a specified period of time in exchange for a fee. The contract specifies the maximum
amount that the insured can claim in the event of a loss, as agreed by the parties at the time of the
contract. This amount, however, does not represent the loss. Only after the fire has occurred can
the loss be determined. The insurer is responsible for making good the actual amount of loss up
to the policy's maximum amount.

Because the insured must have an insurable interest in the property both at the time of contract
and at the time of loss, a fire insurance policy cannot be assigned without the insurer's
permission.

Insurable interest in things might come from (1) ownership, (2) possession, or (3) contract. A
person with a limited interest in a property or goods can insure them to protect both his own and
other people's interests.

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Marine Insurance
The oldest type of insurance is marine insurance. The Marine Insurance Act of 1963, which went
into effect on August 1, 1963, codified the law relating to marine insurance. The Act is divided
into 92 sections and a schedule that includes a form of marine insurance policy and construction
rules.
Hull Insurance: It covers the vessel's and its equipment's insurance. Furniture and fixtures,
machinery, tools, and fuel, to name a few. It is generally influenced by the ship's owner.
Cargo Insurance: Cargo insurance covers the ship's cargo or goods, as well as the crew's and
passengers' personal belongings.
Freight Insurance: Freight insurance protects you against the loss of your cargo. In many cases,
the owner of the goods is only obligated to pay the freight if the goods are safely delivered at the
port of destination under the terms of the contract. The shipping company loses the freight if the
ship is lost on the way or if the cargo is damaged or stolen. To protect against such risks, freight
insurance is purchased.
Liability Insurance: Liability insurance is a type of insurance in which the insurer agrees to
compensate the insured for any losses incurred as a result of liability to a third party caused by
ship collisions and other similar risks.

7. Claims and mitigation:

Despite the fact that it appears to be self-evident, we frequently see insureds fail to take any
mitigating action after an event, which increases and sometimes even causes losses that could
have been avoided. As a result of the insured's failure to take mitigating action, the insured's
business may suffer direct losses. Mitigation is defined as when an insured suffers a loss and is
required by their insurance policy to take all reasonable steps within their power to minimize the
loss. The majority of insureds who do nothing to mitigate their loss believe they are doing the
right thing, which is obviously not the case. There is a belief that if an insured fails to mitigate
their loss and as a result causes additional losses, the subsequent loss will not be caused by the
insured peril. Instead, the proximate cause would be the insured's failure to mitigate, which is
essentially not an unforeseen loss and therefore not covered by an insurance policy. The insured
cannot be expected to prevent a loss that has already occurred after an insurable event has
occurred. The insured, on the other hand, should be expected to avoid further avoidable losses as
a result of the original event. In the case of a fire, for example, the insured cannot prevent the
damage that has already occurred, but they can take steps to minimize future losses. This could
include, for example, relocating their business to a new location in order to continue operating. A
forward-thinking Insureds with a lot on the line would almost always have a BCP – Business
Continuity Plan – that could be used as a blueprint to get the business back up and running in the
event of a disaster. It's critical that insureds understand what's expected of them during a loss so
that when it's time to file a claim, they'll know they've done everything they can to avoid further
loss. When expectations are clear from the start, future potential issues with their claim are
eliminated, which could otherwise be a straightforward loss. In the event that the insured has the
ability to prevent the loss from occurring entirely, they should do so rather than allowing a claim
to arise. In other words, if the insured had known the loss was coming and chose not to prevent
it, the indemnity clause would not have been triggered. This, I believe, is a topic for another day,

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but it does demonstrate that, even if they are covered by an insurance policy, an insured has
obligations to minimize losses.

8. Insurance Development and Regulatory

Authority
On January 26, 2011, the Insurance Development and Regulatory Authority (IDRA) was
established under the provisions of the Insurance Development and Regulatory Authority Act
2010. The Insurance Act of 2010 was enacted by the Bangladeshi government in order to grow
and regulate the insurance industry. IDRA was formed with the goal of overseeing the insurance
industry and protecting policyholders' interests. The authority is trying to develop and regulate
the insurance industry in a methodical manner in order to implement the 'National Insurance
Policy 2014'.
The Insurance Development and Regulatory Authority Act 2010 gives the authority to regulate
institutions in the insurance and reinsurance industries in order to promote the industry's growth.
IDRA's mandate is to provide registration and certificates for insurers, re-insurers, and
mediators, as well as renewal, amendment, removal withheld, and cancellation of such
registrations. IDRA's main responsibilities include inspecting, inquiring into, and investigating
insurance institutions, developing new policies, controlling funds and investments, maintaining
solvency margin and determining the proposed premium rate, giving insurers an advantage,
resolving disputes or claims, and providing procedures for preparing actuarial reports.
Source: Insurance Development & Regulatory Authority (IDRA) http://www.idra.org.bd/#

9. Prospects and challenges of insurance

business in Bangladesh
Bangladesh's insurance market has been steadily growing and attracting a lot of attention in
recent years. Even yet, the sector is riddled with issues. This study reflects the severity and
likelihood of the insurance industry's issues and prospects from the perspective of the insurance
companies themselves. According to the report, the most pressing human resource management
concern is inadequate agent qualification, while the most pressing operational problem is a
shortage of technical workers. The most serious marketing and ethical issues were customers'
lack of comprehension of insurance terms and policies, as well as unhealthy competition. Only
human resource management issues were found to differ in severity between life and general
insurance firms; these issues were considered to be more essential for life insurance companies,
particularly those owned by governments. Among all types of life insurance firms, state-owned
life insurance companies have the most marketing, operational, and ethical issues. With the
country's economic growth, this industry has a lot of promise. People are likely to appreciate the
benefits of insurance in life business as their income and literacy levels rise, increasing demand
for insurance services. The most likely prospects were determined to be increased demand for

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insurance, insurance company mergers, and insurance company underwriting capacity.
Furthermore, the expansion of fire and marine insurance, as well as micro-insurance services, is
very likely. Effective marketing campaigns with ethical competition must be performed in order
to stimulate demand. Recruitment of more qualified personnel at the management level, effective
training and orientation of agents/employees, development of information technology, service
diversity within the business, and a fully functional regulatory structure, among other things, are
all necessary.

10. Conclusion
The regulatory and supervisory authorities must address the expanding presence in the market of
insurance companies and financial conglomerates, as well as financial convergence. The relevance of the
insurance industry for financial stability problems has been expanding which has ramifications for
insurance supervision as it requires increased focus on a broad set of risks. Supervisors at the national and
international levels must work together to ensure that these entities are effectively supervised so that
policyholders are protected and financial markets remain stable; to reduce supervisory gaps and avoid
unnecessary supervisory duplication; and to minimize the risk of contagion from one sector or jurisdiction
to another.

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