History of Insurance – Overview

In India, the history of insurance finds its roots in the mentions of the writings of Manu
(Manusmrithi), Kautilya (Arthasastra), and Yagnavalkya (Dharmasastra).

The writings suggest pooling of resources that could be re-distributed in times of calamities
like epidemics, floods, fire, famine, etc.

Ancient Indian history has preserved the earliest traces of insurance as in the marine trade
loans and carriers’ contracts. In all, the insurance sector in India has taken its shape inspired
by the other countries, especially, from England.

Establishment – Insurance Industry

The advent of the life insurance business in India was introduced in 1818 with the
establishment of the Oriental Life Insurance Company in Calcutta. However, the company
failed in 1834. The Madras Equitable had begun transacting life insurance business in the
Madras Presidency in 1829.

The enactment of the British Insurance Act took place in 1870. Besides, in the last thirty
years of the nineteenth century, the Bombay Mutual (1871), Oriental (1874), and Empire of
India (1897) were set up in the Bombay Residency.

However, this period was particularly dominated by the foreign insurance companies like
Albert Life Assurance, Liverpool and London Globe Insurance, and Royal Insurance.

The Indian Life Assurance Companies Act of 1912 was the first statutory entity to regulate
the life insurancebusiness in the country. The government of India began publishing the
returns of the Insurance Companies in India in 1914.

The Indian Insurance Companies Act was enacted in 1928 in order to enable the government
to collect statistical data about both life and non life businesses carried out in India by the
Indian as well as foreign insurers including the provident insurance societies.

In 1938, the earlier legislation was consolidated and amended by the Insurance Act of 1938
with a view to protect the interest of the insurance public.

The Insurance Amendment Act of 1950 abolished Principal Agencies. Moreover, there were
a large number of insurance companies and the level of competition was high as well. Amid
allegations of unfair trade practices, the government of India therefore decided to nationalize
the insurance business.

Nationalization of Insurance Business

On 19th January, 1956, nationalizing the Life Insurance sector and Life Insurance
Corporation came into force in the same year.
Subsequently, the LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident
societies – 245 Indian and foreign insurers in all.

The LIC had a monopoly till the late 90s when the Insurance sector was reopened for the
private sector.

General Insurance in India

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 the British occupation.

General Insurance in India has its roots in the establishment of the Triton Insurance Company
Ltd. in 1850 in Calcutta by the British.

In 1907, the Indian Mercantile Insurance Ltd. was established. It was the first company to
transact all the classes of general insurance business.

In 1957, the General Insurance Council was formed. It is a wing of the Insurance Association
of India. The council framed a code of conduct for ensuring fair and sound business practices.

The amendment of the Insurance Act took place in 1968 to regulate investments and set
minimum solvency margins.

Early Insurers
o The general insurance business was nationalized with effect from 01st January 1973
by passing the General Insurance Business (Nationalization) Act in 1972.
o 107 insurers were amalgamated and grouped into four companies as National
Insurance Company Ltd., New India Assurance Company Ltd., Oriental Insurance
Company Ltd., and United India Insurance Company Ltd.
o The General Insurance Corporation of India was incorporated as a company in 1971.

Malhotra Committee
In 1993, the government set up a committee under RN Malhotra (former governor of the
RBI) to propose recommendations to reform the insurance sector in India.

The objective of the committee was to complement the reforms initiated in the financial
sector.

The committee subsequently submitted its report in 1994, in which it recommended that the
private sector be permitted to enter the insurance industry.
The report also stated that the private sector be permitted to enter the insurance industry. It
said that the foreign companies be allowed to enter by floating Indian companies, preferably
a joint venture with the Indian partners.

Establishment of IRDA
As per the recommendations of the Malhotra Committee report in 1999, the IRDA (Insurance
Regulatory and Development Authority) was set up. It is an autonomous body responsible for
the regulation and development of the insurance industry in India. In April 2000, the IRDA
was incorporated as a statutory body.

The prime objectives of the IRDA includes the promotion of competition in the insurance
industry so as to enhance customer satisfaction through an increase in consumer choices and
lower premiums. The IRDA also ensures financial security of the insurance market.

The IRDA has the power to frame regulations under Section 114A of the Insurance Act of
1938. Since 2000, it has framed various regulations covering registration of companies for
carrying on insurance business, protection of policyholders’ interests, and so on.

In December 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies. At the same time, the GIC was converted into a
national re-insurer.

Presently, there are 34 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating in India.

Insurance is a colossal sector and is growing at a faster rate of 15-20%. Along with the
banking services, insurance contributes around 7% to the country’s GDP.

The insurance sector provides long term funds for the infrastructural development as well as
strengthens the risk taking ability of the country. Hence, a well-evolved and much developed
insurance sector plays a significant role in economic development.

History of Insurance – Timeline

Year Event

1818 Life Insurance business introduced in India through Oriental Life Insurance Company
(Calcutta)

1829 Madras Equitable started transacting life insurance in the Madras Presidency

1834 Failure of the Oriental Life Insurance Company

1870 British Insurance Act enactment

1871 Set up of Bombay Mutual

1874 Set up of Oriental

1897 Set up of Empire of India

1914 Government of India published returns of the Insurance Companies in India

1928 Indian Insurance Companies Act enactment to enable the government to collect statistical
data about the life and non-life business transacted in the country by both Indian as well as
foreign insurers

1938 Consolidation of the earlier legislation and amendment of the Insurance Act

19th January Issuance of an ordinance to nationalize the life insurance sector and the LIC (Life Insurance
1956 Corporation) was set up

1907 Indian Mercantile Insurance Ltd. was set up

1957 Formation of the General Insurance Council

1968 Amendment of the Insurance Act to regulate the investments and set minimum solvency
margins

1972 General Insurance Business (Nationalization) Act passed

1971 General Insurance Corporation of India incorporated as a company

01st January Insurance business nationalized

1973

1993 RN Malhotra committee formed to propose recommendations for reforms in the insurance
sector in India

1999 Insurance Regulatory and Development Authority (IRDA) established

2000 IRDA incorporated as a statutory body

August 2000 IRDA opened the market with the invitation for application for registrations

December Subsidiaries of the General Insurance Corporation of India were restructured as independent
2000 companies

GIC was converted into a national re-insurer

July 2002 Bill to de-link the four subsidiaries from GIC passed in parliament
Presently 34 general insurance companies including the Export Credit Guarantee Corporation of
India (ECGC) and Agriculture Insurance Corporation of India and 24 life insurance
companies are operational in India