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The business of life insurance in India in its existing form started in India in the year
1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of
the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate
the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to collect
statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with the
objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over by the central
government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956,
with a capital contribution of Rs. 5 crore from the Government of India. The General
insurance business in India, on the other hand, can trace its roots to the Triton Insurance
Company Ltd., the first general insurance company established in the year 1850 in
Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India, frames a
code of conduct for ensuring fair conduct and sound business practices.
2
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1968: The Insurance Act amended to regulate investments and set minimum solvency
margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India with effect from 1st January 1973. 107 insurers
amalgamated and grouped into four companies’ viz. the National Insurance Company
Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and
the United India Insurance Company Ltd. GIC incorporated as a company.
INSURANCE SECTOR
The opening up of Insurance sector was a part of the on going liberalization in the
financial sector of India. The changing face of the financial sector and the entry of
several companies in the field of life and non life Insurance segment are one of the key
results of these liberalization efforts. Insurance business by way of generating premium
income adds significantly to be the GDP.
Over the past three years, more than thirty companies have expressed interest in doing
business in India. The IRDA (Insurance Regulatory Development Authority) is the
regulatory authority, which looks over all related aspects of the insurance business. The
provisions of the IRDA bill acknowledge many issues related to insurance sector.
The IRDA bill provides guidance for three levels of players - Insurance Company,
Insurance brokers and Insurance agent. Life Insurance sector is one of the key areas
where enormous business potential exists. In India currently the life insurance premium
as a percentage of GDP is 1.3 % against, 5.2 per cent in the US.
General Insurance is another segment, which has been growing at a faster pace. But as
per the current comparative statistics, the general insurance premium has been lower
than life insurance. General Insurance premium as a percentage of GDP was a mere 0.5
'per cent in 1996. In the General Insurance Business, General Insurance Corporation
(GIC) and its four subsidiaries viz. New India Insurance, Oriental Insurance, National
Insurance and United India Insurance, are doing major business. The General Insurance
7 Industry
/ 71has been growing at a rate of 19 percent per year.
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In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor
R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its
future, direction. The Malhotra committee was set up with the objective of
complementing the reforms initiated in the financial sector.
In 1994, the committee submitted the report and some of the key recommendations
included:
Structure:
1. Government stake in the insurance Companies to be brought down to 50%. 2.
Government should take over the holdings of GlC and its subsidiaries so that these
subsidiaries can act as independent corporations.
3. All the insurance companies should be given greater freedom to operate.
Competition:
I. Private Companies with a minimum paid up capital of Rs. 1 bn should be allowed to
enter the industry.
2. No Company should deal in both Life and General Insurance through a single entity.
3. Foreign companies may be allowed to enter the industry in collaboration with the
domestic companies.
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4. Postal
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Life Insurance should be allowed to operate in the rural market.
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Regulatory Body:
1. The Insurance Act should be changed.
2. An Insurance Regulatory body should be set up.
Controller of Insurance (Currently a part from the Finance Ministry) should be made
independent.
Investment:
1. Mandatory Investments of LIC Life Fund in government securities to be reduced from
75% to 50%.
2. GIC and its subsidiaries are not to hold more than 5% in any company (There current
holdings to be brought down to this level over a period of time.)
Customer Service:
1. LIC should pay interest on delays in payments beyond 30 days.
2. Insurance companies must be encouraged to set up unit linked pension plans.
3. Computerization of operations and updating of technology to be carried out in the
insurance industry.
The committee emphasized that in order to improve the customer
Services and increase the coverage of the insurance industry should open up to
competition. But at the same time, the committee felt the need to exercise caution as any
failure on the part of new players could ruin the public confidence in the industry. Hence,
it was decided to allow competition in a limited way by stipulating the minimum capital
requirement of Rs. 100 crores. The committee felt the need to provide greater autonomy
to insurance companies in order to improve.
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