Law of Insurance: A case Study


In a developing country like Bangladesh, different insurance companies are playing a very crucial role in the economic growth. Though insurance industry has significant prospects in the economy but for some reasons it has failed to achieve it’s goal to some extent. To ensure the smooth operation of the concerned insurance companies, the regularatory bodies try to pass and implement new Acts and regulations. There are sixty Two insurance companies in our country and there have been passed several acts to regulate those companies properly. There are some Acts and regulations existing in our country to regulate those insurance companies. As the need of time, the parliament of Bangladesh passed a new Insurance Act, 2010 in march, 2010, in order to reform and modernize the insurance Sector in Bangladesh. Since just after passing a new act to replace the old one, the previous Insurance Act, 1938 became inactive due to pass of insurance Act, 2010.

In the assignment, I have showed the parliament passed an act when insurance company has failed to achieve it’s goal and how the insurance company face the problems.

From beginning to end, I’ll discuss all about of my assign topic.

Definition of Insurance:

Insurance is a contract between two parties whereby one party agrees to undertake the risk another in exchange for consideration known as premium and promises to pay fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnity the other party on happening of an uncertain event in case of general insurance.

It is a contract in which one party known as the insured also known as assured, insures with another party ( person or organization) known as the insurer, assures or underwrites his property or life, or the life of another person in whom he has pecuniary interest or property in which he is interested or against some risk or liability, by paying a sum of money as the premium. At present, insurance is being used widely and becoming more and more popular both in personal life and in the business sector as a significant risk management tool which is primarily used to hedge against the risk of contingent uncertain loss.

Insurance contract provides financial protection to the insured by the insurer against a loss arising out of happening of an uncertain event.  The insured can avail this protection by paying premium to any insurance company with whom the contract has been made. Insurance works on the basic principle and concept of risk sharing when a company insures an individual entity( the insured) there legal requirements to share the risks associated with the insured by the insurer, breaking of which contract creates legal binding.

Concept and Features of Insurance:

The concept behind insurance is that a group of people exposed to similar risk come together and make contributions towards formation of a pool of funds. In case a person suffers a loss an account of such risk, he is compensated out of the same pool of funds. Contribution to the pool is made by a group of people sharing common risk and collected by the insurance companies in the form of premium.

Insurance has various effects on society through the way that it changes who bears the cost of losses and damage of the insured according to the insurance contract. The distinguished common features of any insurance are as follows:

  • Shifting or transferring of risk of losses and damages of any life, asset or property from one party to another party.
  • Sharing of losses by members of group /company.
  • One party undertakes the loss incurred on the insured property or asset of other party.
  • The risk is shared /accepted by the insurer for a consideration of money from the insured called as premium (No risk to be assumed unless premium is received in advance).
  • It is assured to the insured by the insurer that the amount will be paid on happening of the specified act or event.

Importance of Insurance:

The present insurance policy ensures compensation against financial losses. Different kinds of risk is a natural part of life which causes deadly consequences to life. Different types of insurance systems have emerged to deal with such financial risks. That’s why insurance policy is a popular financial compensation system in every society. We have discussed some importance of insurance below:

  • Brings financial security of personal life.
  • Creation of savings for the future.
  • Provide the facilities of investment to the insured.
  • Reduces the hindrances of risk.
  • Developments of foreign Trade.
  • Security of Old Age.
  • Brings Mental Satisfaction.
  • Increase Government Revenue.
  • Establishing social Security 
  • Increase awareness of the citizens about their future uncertainty.
  • Solution of unemployment Problems.

Necessity of Insurance Law:

The Practice of law surrounding insurance is majorly important both to individuals and the commercial sector. It primarily includes the regulation of business of insurance, regulation of the content of insurance policies and claim handling.

Insurance law work can be directly linked to external events and phenomena, for example claims put forward as a result of war /piracy /attacks or financial crises. Cases will stem from a whole manner of matters -both contentions and non- contentions -and also cover international cases. There are some disputes arises between the insurance company and insured person or policyholder. With the help of insurance law, settled the disputes of their. 

Insurance business is not new in Bangladesh. Almost a century back, during the British Rule in India, some companies started insurance business,  both in life and general insurance, in this region. This business has gained momentum in Bangladesh also So legal provisions were necessary to regulate insurance in Bangladesh. At present, there is a law regarding insurance which is the Insurance Act,2010.There were some laws in the immediate past regarding insurance, for example Insurance Act,1938. Insurance regulation that governs the business of insurance aimed at assuring the solvency of insurance company. There are several laws and rules available in Bangladesh to implement the insurance contract and to avail the benefit of the contract.  So legal provision were necessary to regulate insurance in Bangladesh.

Legal Frame Work In Bangladesh:

Insurance is such a contract where the insurer offers a contract and the insured pays premium. The insured need to show the insurable interest upon the insured subject matter of the insurance. It is a way to compensate a person.

Every industry needs to be regulated and maintained property to ensure the conflict free operation in any country.  There are several laws and rules available in Bangladesh to implement the Insurance contract and to avail the benefit of the contract. In this regard, parliament of Bangladesh, on 03 March 2010, passed two insurance laws in a bid to further strengthen the regulatory frame work and make the industry operationally vibrant. The new laws, came into effect on 18 March, 2010, are Insurance Act,2010 and IDRA 2010.Furthermore several judgments provides by the Supreme Court of Bangladesh enriched the legal arena of insurance.

Major Insurance Acts:

  • Insurance Act,1938
  • Insurance Rules, 1958
  • Bangladesh Insurance (Nationalization) Order,1972
  • Insurance Corporation Act,1973
  • Insurance (Amendment) Ordinance, 1984
  • Insurance Act,2010

Overview of the Acts:

Bangladesh’s insurance industry is started a new journey with two new laws. The parliament passed two insurance laws in a bid to further strengthen the regulatory framework and make the industry operationally vibrant. The new laws are Insurance Act, 2010 and Insurance Development and Regulatory Authority Act, 2010. The government has taken the pragmatic step to boost the insurance sector. This two Acts were passed to regulate the insurance industry and protect customer’s interest.

Insurance Act 2010:

All the Previous laws relating to insurance were repealed by this Act. It contains 160 sections under seven chapter. It is an updated law. It provides the provisions applicable to insurer, insured punishment for violation of the law. On the other, it provides provision for Islamic law also. The Insurance Act, 2010 has some notable addition, which were absent in the previous Insurance Act, 1938. Therefore, the entire insurance industry is facing some new practice while implementing the new act in insurance business by creation of new regulatory Authority. The new insurance Act, 2010 is making way for the Micro Insurance business opportunities in the insurance sector of Bangladesh which has a great prospect for the small and medium enterprises especially in the rural areas. The insurance act has not only brought the new addition, but also some new eye-catching changes in some significant areas that existed in the previous insurance law, such as capital requirements, provision for foreign investment, reinsurance in abroad, and penalty for violation of law.

The Insurance Development and Regulatory Authority Act, 2010:

The control over insurance companies includes their functions relating to investments, taxation, and reporting are regulated by this Act. Insurance Development and Regulatory Act, 2010 also has been passed for establishing a stronger insurance sector in Bangladesh in the era of globalization, domestic market should be well organized while the  legal  framework should be effective to address the changed circumstances in the business and socio economic entities. So it has paved the way for better regulation of the sector by reducing business risk and harmonizing local and international laws.

Case Laws:

[Janata Insurance Co. Ltd. Vs. Islam Steel Mills Limited and another]

In this case a question arose that whether the person is insured or not.

Judgment: The court held, the policies were owned by the plaintiffs and the premiums were paid out of their accounts, and thus the plaintiffs being the beneficiaries of the policies are legally entitled to claim the moneys covered by the policies under section -46 of the Insurance Act, 1938.


Insurance sector in Bangladesh is contributing to the growth and developing process of the business and property by protecting all variety of assets from all types of hazards. However, the size of insurance industry in Bangladesh is small but over institutionalized. Only by achieving competitiveness, this sector can contribute more to the development of the economy of the country. In spite of all constrains both at macro and micro environment good growth rate and tremendous growth potential reconfirm the brightest prospects of the insurance sector in Bangladesh-

Insurance industry is playing a significant role in the economic improvement of Bangladesh through its risk sharing operations which motivate investment in any important business.  The government has now embarked on a reform programme in the insurance sector to promote a vibrant insurance sector in our country. As a first step towards achieving the objective, the Insurance Act, 2010, in replacement of the previous Insurance Act, 1938 and the Insurance Development and Regulatory Authority Act, 2010 also has been passed for establishing a stronger insurance sector in Bangladesh. Existing insurance laws should be improved incorporating upcoming challenges of the insurance industry.

In order to meet the challenges caused by changes, the insurance Act, 2010 should be kept as flexible as practicable so that any change in operational procedure, accounting, actuarial standard that would be needed in future inline without change in the international and domestic environment could be made without further amendment to the ordinance. The new Insurance Act, 2010 promised to bring the positive changes and we are looking forward for the beginning of Globally Competitive Modern Insurance Sector in Bangladesh.


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