HISORY OF INDIAN INSURANCE INDUSTRY

Presented by : M.S.NARAYAN, Development Officer, LIC of India, Mandya Branch, Mandya.

Genesis of Insurance in India

Manusmruthi By Dharmashastra By Arthashastra By MANU YAGNYAVALKYA KOUTILYA

These ancient scriptures talked about pooling of resources in prosperous times that could bail out societies from natural calamities like fire, floods, famine and epidemics. Earliest traces of insurance in the form of marine trade loans and carrier contracts are found in ancient Indian history.

THE PIONEERS
In India, Modern Life Insurance as an actuarial concept, was introduced in 1818 when Oriental Life Insurance Company began its operations in India. General Insurance was however a comparatively late entrant in 1850 when Triton Insurance company set up its base in Kolkata.

Milestones in Life insurance industry in India

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.

Milestones in the general insurance industry in India

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 (Nationalization) 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.

RESONS FOR NATIONALISATION

In both cases of Life and Non-Life insurance, the nationalization was justified on the ground that, (i) the State would be in a better position to apply the massive resources generated through insurance for nation building activities. (ii) the existing insurance companies tend to be urban centric and the vast majority of the population that live in the rural areas are denied the benefit of insurance and the State would have the means and the motivation to reach out to this section of the population. (iii) the governance standards in some of the companies were low and that there was a threat of insolvency.

SUCCESS OF NATIONALISATION
Nationalization did fulfil its major objectives, LIC became a household name and it operated through 10 lakh agents and succeeded in penetrating the rural areas. It extended loans to panchayats and municipal bodies for undertaking water supply and sanitation schemes and infrastructure projects. General insurance companies also rendered yeoman service by providing insurance cover for small and medium enterprise in small towns and major panchayats and initiated a number of schemes to extend cover to householders, small shop keepers and occupational groups involved in hazardous professions. The nationalized industry did give a rural and social orientation to insurance.

Turn of the Wheel

However, over a period of time it there was a realisation of a wide gap in terms of market potential and its exploitation by the nationalized industry. The companies suffered from overstaffing and poor customer service. The consumer did not benefit in the absence of competition in terms of wider choice and competitive pricing. It was felt that penetration and growth of the insurance market required a large number of companies competing with each other. It was also realized that the objectives of the nationalization of the industry can be further accomplished through appropriate regulatory measures in a free market.

The Malhotra Committee 1993

The committee examined the structure of the insurance industry and recommended and concluded that the time was ripe to dispense with state monopoly and allow private enterprise to enter the insurance sector for the following reasons: (i) Competition would result in better customer service and help improve range, quality and price of insurance products; (ii) Though nationalized industry has built up large volumes of business, overall insurance penetration is quite low and entry of private players would speed up the spread of life and general insurance; (iii) When competition exists in banking, mutual funds, merchant banks and other non-banking financial institutions, there is no reason why the insurance sector should not be exposed to competition; (iv) The dominant public opinion was in favour of introducing competition; (v) The state owned insurance companies have the financial strength and professional competence to face the competition from the private sector.

The IRA Bill

The government established an interim regulatory authority in September 1996 and decided to bring in legislation to establish an independent regulatory authority for the insurance industry and to end State monopoly in this area.

In December 1996, the government introduced the Insurance Regulatory Authority Bill 1996 for establishment of an authority to protect the interests of Policy holders and to regulate, promote and ensure orderly growth of the insurance industry.
The Insurance Regulatory Authority Bill 1998 was introduced in December 1998 to permit the entry of private Indian companies into the Insurance sector.

M.S.NARAYAN, Development Officer, LIC of India, Mandya Branch, Mandya.