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Published by: E.GOPINADH on Dec 13, 2009
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Insurance sector in India is one of the booming sectors of the economy and isgrowing at the rate of 15-20 per cent annum. Together with banking services, itcontributes to about 7 per cent to the country's GDP. Insurance is a federal subject inIndia and Insurance industry in India is governed by Insurance Act, 1938, the LifeInsurance Corporation Act, 1956 and General Insurance Business (Nationalisation)Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 andother related Acts.The origin of life insurance in India can be traced back to 1818 with theestablishment of the Oriental Life Insurance Company in Calcutta. It was conceivedas a means to provide for English Widows. In those days a higher premium wascharged for Indian lives than the non-Indian lives as Indian lives were consideredriskier for coverage. The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian andnon-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act.By 1938, there were 176 insurance companies in India. But a number of fraudsduring 1920s and 1930s tainted the image of insurance industry in India. In 1938, thefirst comprehensive legislation regarding insurance was introduced with the passingof Insurance Act of 1938 that provided strict State Control over insurance business.Insurance sector in India grew at a faster pace after independence. In 1956,Government of India brought together 245 Indian and foreign insurers and providentsocieties under one nationalised monopoly corporation and formed Life InsuranceCorporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capitalcontribution of Rs.5 crore.The (non-life) insurance business/general insurance remained with the privatesector till 1972. There were 107 private companies involved in the business of generaloperations and their operations were restricted to organised trade and industry in largecities.The General Insurance Business (Nationalisation) Act, 1972 nationalised thegeneral insurance business in India with effect from January 1, 1973. The 107 private1
insurance companies were amalgamated and grouped into four companies: NationalInsurance Company, New India Assurance Company, Oriental Insurance Companyand United India Insurance Company. These were subsidiaries of the GeneralInsurance Company (GIC).In 1993, the first step towards insurance sector reforms was initiated with theformation of Malhotra Committee, headed by former Finance Secretary and RBIGovernor R.N. Malhotra. The committee was formed to evaluate the Indian insuranceindustry and recommend its future direction with the objective of complementing thereforms initiated in the financial sector.2
Insurance in India can be traced back to the Vedas. For instance, yogakshema,the name of Life Insurance Corporation of India's corporate headquarters, is derivedfrom the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans.Burial societies of the kind found in ancient Rome were formed in theBuddhist period to help families build houses, protect widows and children. BombayMutual Assurance Society, the first Indian life assurance society, was formed in 1870.Other companies like Oriental, Bharat and Empire of India were also set up in the1870-90s. It was during the swadeshi movement in the early 20th century thatinsurance witnessed a big boom in India with several more companies being set up.As these companies grew, the government began to exercise control on them.The Insurance Act was passed in 1912, followed by a detailed and amended InsuranceAct of 1938 that looked into investments, expenditure and management of thesecompanies' funds.By the mid-1950s, there were around 170 insurance companies and 80 provident fund societies in the country's life insurance scene. However, in the absenceof regulatory systems, scams and irregularities were almost a way of life at most of these companies. As a result, the government decided nationalizes the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 to takeover around 250 life companies.3

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