insurance sector in India has come a full circle from being an open
competitive market to
nationalisation and back to a liberalised market again.
Tracing the developments in the Indian insurance sector reveals the
360-degree turn witnessed over a period of almost two centuries.
A brief history of the Insurance sector
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
nationalised. 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.
- 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
(Nationalisation) Act, 1972 nationalised 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 reforms:
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.
Malhotra committee was set up with the objective of
complementing the reforms initiated in the financial sector. The reforms
were aimed at "creating a more efficient and competitive financial
system suitable for the
requirements of the economy keeping in mind the
structural changes currently underway and recognizing that insurance is
an important part of the overall financial system where it was necessary
to address the need for similar
In 1994, the committee submitted the report and some of the key recommendations included:
- Government stake in the insurance Companies to be brought down to 50%.
- Government should take over the holdings of GIC
and its subsidiaries so that these subsidiaries can act as independent
- All the insurance companies should be given greater freedom to operate.
- Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.
- No Company should deal in both Life and General Insurance through a single entity.
- Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
- Postal Life Insurance should be allowed to operate in the rural market.
- Only One State Level Life Insurance Company should be allowed to operate in each state.
3) Regulatory Body
- The Insurance Act should be changed.
- An Insurance Regulatory body should be set up.
- Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.
- Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.
- 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).
5) Customer Service
- LIC should pay interest on delays in payments beyond 30 days.
- Insurance companies must be encouraged to set up unit linked pension plans.
- Computerisation 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 be opened 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 their performance and enable
them to act as independent companies with
economic motives. For this purpose, it had proposed
setting up an independent regulatory body.
MAJOR POLICY CHANGES
sector has been opened up for competition from Indian private insurance
the enactment of Insurance Regulatory and Development
Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999,
Insurance Regulatory and Development Authority (IRDA) was established
on 19th April 2000 to protect the
interests of holder of insurance policy and to regulate,
promote and ensure orderly growth of the insurance industry. IRDA Act
1999 paved the way for the entry of private players into the insurance
market which was hitherto the
exclusive privilege of public sector insurance
companies/ corporations. Under the new dispensation Indian insurance
companies in private sector were permitted to operate in India with the
- Company is formed and registered under the Companies Act, 1956;
- The aggregate holdings of equity shares by a
foreign company, either by itself or through its subsidiary companies or
its nominees, do not exceed 26%, paid up equity capital of such Indian
- The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business.
- The minimum paid up equity capital for life or general insurance business is Rs.100 crores.
- The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.
The Authority has notified 27 Regulations on various
issues which include Registration of Insurers, Regulation on insurance
agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural
and Social sector, Investment and
Accounting Procedure, Protection of policy holders'
interest etc. Applications were invited by the Authority with effect
from 15th August, 2000 for issue of the Certificate of Registration to
both life and non-life insurers. The
Authority has its Head Quarter at Hyderabad.
has so far granted registration to 12 private life insurance companies
and 9 general insurance companies. If the existing public sector
insurance companies are included, there are currently 13
insurance companies in the life side and 13 companies operating in
general insurance business. General Insurance Corporation has been
approved as the "Indian
reinsurer" for underwriting only reinsurance business.
Particulars of the life insurance companies and general insurance
companies including their web address is given below:
Life Insurance Corporation of India
Allianz Bajaj Life Insurance Company Limited
Birla Sun-Life Insurance Company Limited
HDFC Standard Life Insurance Co. Limited
ICICI Prudential Life Insurance Co. Limited
ING Vysya Life Insurance Company Limited
Max New York Life Insurance Co. Limited
MetLife Insurance Company Limited
Om Kotak Mahindra Life Insurance Co. Ltd.
SBI Life Insurance Company Limited
TATA AIG Life Insurance Company Limited
AMP Sanmar Assurance Company Limited
Dabur CGU Life Insurance Co. Pvt. Limited
National Insurance Company Limited
New India Assurance Company Limited
Oriental Insurance Company Limited
United India Insurance Company Limited
Bajaj Allianz General Insurance Co. Limited
ICICI Lombard General Insurance Co. Ltd.
IFFCO-Tokio General Insurance Co. Ltd.
Reliance General Insurance Co. Limited
Royal Sundaram Alliance Insurance Co. Ltd.
TATA AIG General Insurance Co. Limited
Cholamandalam General Insurance Co. Ltd.
Export Credit Guarantee Corporation
HDFC Chubb General Insurance Co. Ltd.
General Insurance Corporation of India
Protection of the interest of policy holders:
IRDA has the responsibility of protecting the interest
of insurance policyholders. Towards achieving this objective, the
Authority has taken the following steps:
IRDA has notified Protection of Policyholders
Interest Regulations 2001 to provide for: policy proposal documents in
easily understandable language; claims procedure in both life and
setting up of grievance redressal machinery;
speedy settlement of claims; and policyholders' servicing. The
Regulation also provides for payment of interest by insurers for the
delay in settlement of claim.
The insurers are required to maintain solvency
margins so that they are in a position to meet their obligations towards
policyholders with regard to payment of claims.
It is obligatory on the part of the insurance
companies to disclose clearly the benefits, terms and conditions under
the policy. The advertisements issued by the insurers should not mislead
the insuring public.
All insurers are required to set up proper grievance redress machinery in their head office and at their other offices.
Authority takes up with the insurers any complaint received from the
policyholders in connection with services provided by them under the