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Insurance and Banking: FDI and Indian Government Policy Related To Insurance
Insurance and Banking: FDI and Indian Government Policy Related To Insurance
02/09/15
INSURANCE REGULATION IN
INDIA
Insurance in India started without any regulations
in the nineteenth century
After the independence, the Life Insurance
Company was nationalized in 1956, and then the
general insurance business was nationalized in
1972
Only in 1999 private insurance companies were
allowed back into the business of insurance with a
maximum of 26 per cent of foreign holding
(World Bank Economic Review 2000).
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Contd.
Insurance in India used to be tightly regulated and
monopolized by state-run insurers.
The Insurance Regulatory and
Development Authority (IRDA)
Act of 1999 was passed
The insurance business was
opened
on two fronts
Firstly, domestic private-sector
companies were permitted to
enter both life and non-life insurance business
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Regulation contd
Secondly, foreign Companies were allowed to
participate, albeit with a cap on shareholding
at 26%
Since its inception IRDA has been taking steps
to promote insurance sector and also protect
interest of people
A number of reforms have been introduced by
IRDA regarding regulation of agents,deciding
about premium, marketing strategies etc
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Milestones of insurance
in theregulation
20thpromulgated
regulations
1912 First piece of insurance
Indian Life Insurance Company Act, 1912
Century
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INSURANCE IN INDIA
Insurance in India remains at an early stage of development
It can be postulated that by 2014 the penetration of life
insurance in India will increase to 4.4% and that of non-life
insurance to 0.9%
Indian insurance market is the 19th largest globally and ranks
5th in Asia
The public sector Insurance companies have continued to
dominate the insurance market
Enjoying over 90 per cent of the market share. In fact, the
LIC, which is the only public sector life insurer, enjoys over
98 per cent of the market share in Life insurance
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Type of
Business
NOS OF
PUBLIC
SECTOR
COMPANIES
NOS OF
PRIVATE
SECTOR
COMPANIES
TOTAL
Life insurance
01
12
13
General
insurance
06
08
14
Reinsurance
01
01
Total
08
20
28
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10
LIFE
INSURANCE
2001-
PRIVATE
SECTOR
PUBLIC
SECTOR
GENERAL
INSURANCE
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PRIVATE
SECTOR
PUBLIC
SECTOR
0.54
99.46
3.6
8
96.32
1.99
98.0
1
8.6
4
91.3
6
11
Contd..
The Indian insurance market it accounts for only
2.5% of premiums in Asia, it has the potential to
become one of the biggest insurance markets in the
region
India is among the most promising emerging
insurance markets in the world
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12
FDI IN
INSURANCE
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14
SWOT ANALYSIS
STRENGHTS
WEAKNESS
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15
SWOT CONTD
STRENGHTS
India has a large population
with an increase in its per
capita income
Indias middle income is
rapidly increasing emerging
as a profitable market
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WEAKNESS
A key challenge for Indias
non-life insurance sector will
be to reform the existing tariff
structure. From a pricing
perspective, the Indian non-life
segment is still heavily
regulated
Reinsurance is only provided
by GIC
While the insurance business is
highly concentrated in India,
the share of foreign companies
is low
16
OPPORTUNITIES
THREATS
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17
OPPORTUNITIES
there is plenty of room for
growth in personal accident,
health and other liability
classes
Rising household income and
risk awareness will be the key
catalysts to spurring more
demand for these lines of
business in the future
Health insurance could
potentially have an
important role in driving
insurance market
development forward
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THREATS
CUMALATIVE CATASTROPHIC
LOSES 1985-2003
18
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SUGGESTIONS
To begin with, India needs to further liberalize investment
regulations on insurers to strike a proper balance between insurance
solvency and investment flexibility
Furthermore, both the life and non-life insurance sectors would
benefit from less invasive regulations
In addition, price structures need to reflect product risk. Obsolete
regulations on insurance prices will have to be replaced by riskdifferentiated pricing structures
There is huge untapped potential, for example, in the largely
undeveloped private pension market. At the moment, less than 11%
of the working population in India is eligible for participation in any
formal old-age retirement scheme. Private insurers will have a key
role to play in serving the large number of informal sector workers.
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CONTD..
Price liberalization will be needed to improve underwriting
efficiency and risk management
International reinsurance
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21
CONCLUSION
On the regulatory side, there are outstanding issues concerning
solvency regulations, further liberalizing of investment rules,
caps on foreign equity shareholdings5 as well as the
enforcement of price tariffs in the non-life insurance sector
The proliferation of bancassurance is rapidly changing the
way insurance products are distributed in India. This will also
have strong implications on the process of financial
convergence and capital market development in India
Health insurance is still underdeveloped in India but offers
huge potential, as there will be increasing needs to purchase
private health cover to supplement public programmes
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22
CONCLUSION.
Likewise, the deficiencies in current pension schemes should
offer significant opportunities to private providers
With the majority of the population still residing in rural areas,
the development of rural insurance will be critical in driving
overall insurance market development over the longer term
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23
THANK YOU
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