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INSURANCE INDUSTRY IN INDIA

The insurance sector in India has completed all the facets of competition from being an open competitive market to being nationalized and then getting back to the form of a liberalized market once again. The history of the insurance sector in India reveals that it has witnessed complete dynamism for the past two centuries approximately. With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818. In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize

insurance business. An Ordinance was issued on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.

Important milestones in the Indian life insurance business 1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business. 1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses. 1938: The earlier legislation consolidated the Insurance Act with the aim of safe guarding the interests of the insuring public. 1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs.5crore and that too from the Government of India. The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British. Important milestones in the Indian general insurance business 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business. 1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns. 1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee was set up. 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated and grouped into four companys 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 was 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 IRDA Bill The Insurance Regulatory and Development bill is now the cynosure of all the global insurance players. Numerous players, both Indian and foreign, have announced their intention to start their insurance shops in India. IRDA, under the chairmanship of Mrs. Rangachary, opened the window for applying; licenses in India on the 16th of August, Dabur-All state the PrudentialICICI were the first of the block to apply on the very first day. But before anyone starts to talk about the insurance sector in India, it is important to know the figures that entice each and everybody in the sector. 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.

Current scenario of Indian Insurance Industry Indian insurance industry is one of the premium sectors showing upward growth, which is a US$ 41-billion industry in India. India is the fifth largest life insurance market in the merging insurance economies globally and is growing at 32-34 per cent annually. With increasing competitiveness amongst these, the players are bringing out newer products to attract more customers into their kitty. Foreign direct investment (FDI) up to 26 per cent is permitted under the automatic route subject to obtain a license from the official regulator, Insurance Regulatory and Development Authority (IRDA). The total number of life insurance companies operating in India is currently 22. Insurance companies in India IRDA has till now provided registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are considered then there are presently 13 insurance companies in the life side and 13 companies functioning in general insurance business. General Insurance Corporation has been sanctioned as the "Indian reinsures" for underwriting only reinsurance business. Life Insurance companies in India Life Insurance Companies Aviva Life Insurance Bajaj Allianz Life Insurance Birla Sun-Life Insurance HDFC Standard Life Insurance ING Vysya Life Insurance Life Insurance Corporation Max New York Life Insurance MetLife Insurance Om Kotak Mahindra Life Insurance Reliance Life Insurance Sahara India Life Insurance SBI Life Insurance TATA AIG Life Insurance

General Insurance Companies in India Agriculture Insurance Amsure Insurance ANZ Insurance BajajAllianz General Insurance Cholamandalam General Insurance Employee State Insurance Export C redit Guarantee Corporation ICICI Lombard General Insurance IFFCO-Tokio General Insurance National Insurance Oriental Insurance Peerless Smart Financial Royal Sundaram Alliance TATA AIG General Insurance