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Marine insurance was practiced in India some 3000 years ago.
Travelling by sea and land was exposed to risk. The practice of insurance was quite common during the rule of
AKBAR to AURANZEB but the nature and coverage is not well known. It was the BRITISH insurers who introduced GENERAL INSURANCE in INDIA in its modern form. The britishers opened general insurance in India around the year 1700. The first company known as the SUN INSURANCE OFFICE LTD set up in Calcutta. This was followed by several insurance companies on different parts of the world in the field of marine insurance. In 1972 the GENERAL insurance business was nationalized by the GOI by forming GIC.
In 1945 it was deemed necessary to protect the interest of the insured companies. It was a well balanced and was the first comprehensive piece of insurance legislation in this country governing both life and non life of insurance. . The act was wide and more comprehensive.INSURANCE ACT 1938 The insurance act was passed in 1938 and was brought into force from 1st July 1939. to prevent misappropriation of funds and to protect the assets. This act provided to prevent mushrooming of companies to enforce working on sound principles. Therefore a committee was appointed under the chairmanship of Shri. Kavanji Jahangir. Since 1938 there were six amendments up to 1945. There was strict control over the insurance business.
marine etc. It controls the insurance business by appointing controller of insurance . A public company 2. . The insurance companies violating these rules were penalized. This Act applies to all types of insurance business like fire. As per the amendment act the total right of control was with the central government . This Act prohibits persons to carry insurance business until he is: 1. A society registered under the co-operative Act 1912 or under any other law of any state relating to co-operative societies.Continued… On the basis of the committee’s recommendations an amendment bill was made on 18th April 1950 by the parliament. done by companies incorporated in India or elsewhere.
Prohibition of loan .Continued… A body corporate incorporated under the law of any country outside India being the nature of private company. Licensing of insurance agents 4. To prevent the growth of small insurance companies or speculative concern the Act provided for registration of all insures and a substantial deposit with the reserve bank. Registration of insurance business is a must as per the law. This law also emphasize in issues like: 1. 3. Restriction of commission and prohibition on rebating 2. Investments 5. Limitation of expenditure on commission. Right to investigate 6.
In insurance the productivity could be measured in terms of collection of premium per developmental officer. claim settlement per employee.GROWTH OF INSURANCE BUSINESS IN INDIA The five years of its existence were devoted to integration and consolidation work. There were operations abroad i. . Of these the first few years were devoted to the framing of rules and regulations and setting up of other administrative procedure. In addition to the structural reorganization and decentralization human resource development was also given importance.e LIC went abroad to the countries like MAURITIUS & FIJJI. Insurance density is very low. issue of documents per employee.
N MALHOTRA former governor of RBI . In 1993 the govt decided to make changes in the financial sector. internet. ATM.Continued… IT in the industry has not been to the desired extent. There is a need to create technology infrastructure such as computerization. electronic fund transfer. competence and technology. The aim was to bring the Indian financial system to international standards in terms of financial viability. The local demand for reforms and pressure from international community made the GOI to appoint a high powered committee in 1993 under the chairmanship of R. etc.
MAJOR RECOMMENDATIONS OF MALHOTRA COMMITTEE In 1994. the committee submitted the report and some of the key recommendations were: i) STRUCTURE : Government stake in the insurance Companies to be brought down to 50% Government should take over the holding of GIC and its subsidiaries so that these subsidiaries can act as independent corporations All the insurance companies should be given greater freedom to operate ii) COMPETITION: Private Companies with a minimum paid up capital of Rs. .1bn should be allowed to enter the industry. No Company should deal in both Life and General Insurance through a single entity. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
. GIC and its subsidiaries are not to hold more than 5% in any company (There holdings to be brought down to this level over a period of time if was more) v) CUSTOMER SERVICE: LIC should pay interest on delays in payments beyond 30 day. iv) INVESTMENTS: Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. An Insurance Regulatory body should be set up Controller of Insurance (a part of the Finance Ministry then) should be made independent. Insurance companies must be encouraged to set up unit linked pension plans.CONTINUED.. iii) REGULATORY BODY: The Insurance Act should be changed. Computerization of operations and updating of technology to be carried out in the insurance industry.
CONTINUED. But at the same time. the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. . The advantages of liberalization are expected to be in terms of: Development of nation’s infrastructure Market development through new intermediaries and distribution channels Enhanced level of customer satisfaction Competitive pricing as against tariff rates Professionalism & technology driven processes The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition.. Hence.100 crores. it was decided to allow competition by stipulating the minimum capital requirement of Rs.
GIC was separated from 4 state owned general insurance companies in 2001 and was made exclusively are insurance company . New companies came into India’s insurance horizon from 2000 onward. (2) lack of customer focus and low service levels and (3) expectation of additional funding for infrastructure. could be (1) low insurance penetration.Opening up of Indian insurance sector for competition Three major reasons for inviting competition in the sector where Government had monopoly.
Current Chairman. As per the act “it is an act to provide for the establishment of an authority to protect the interest of holders of insurance policies to regulate. promote and ensure orderly growth of insurance industry and for matters connected therewith and incidental thereto. IRA bill was accordingly introduced in Parliament in 1996.INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY As per the recommendations of Malhotra Committee the government constituted an interim Insurance Regulatory Authority on 23rd Jan 1996.C S RAO . The bill was retitled as INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY and was introduced and passed in parliament in 1999.
Adjudication of disputes between insurers and intermediaries. To specify the form and manner of accounts to be maintained. modify. To protect the interest of the policyholders in all matters relating to nomination. certificate of registration. surrender of insurable interest. Promoting and regulating professional regulation connected with the and reinsurance business.DUTIES. settlement and other terms and conditions of insurance. to review. . POWERS AND FUNCTIONS OF IRDA SECTION 14 Issue to the applicant.. Specifying requisite qualification and practical training for insurance intermediary and agents. Specifying code of conduct for surveyors and loss assessors to promote efficiency in the conduct of insurance business. withdraw suspend or cancel such registration.
Continued…. To constitute insurance advisory committee. To give the guidelines for the rural or social sector insurance to be undertaken by insurance companies. .
Development and growth of insurance industry in India .
The first statutory measure in India to regulate the life insurance business was in 1912 with the passing of the Indian Life Assurance Companies Act. the Oriental Life Insurance Company in 1818 in Calcutta. the Madras Equitable Life Insurance Society in 1829 and the Oriental Life Assurance Company in 1874.1. Indians were charged an extra premium of up to 20% as compared to the British. BGIMS 16 3/14/2012 . till the establishment of the Bombay Mutual Life Assurance Society in 1871. However. Formation of the Insurance Industry in India: Insurance law in India had its origins in the United Kingdom with the establishment of a British firm. followed by the Bombay Life Assurance Company in 1823. 1912 (“Act of 1912”) (which was based on the English Act of 1909).
The Act of 1938 along with various amendments over the years continues till date. The first general insurance company Triton Insurance Company Ltd. While there were a number of attempts to introduce such legislation over the years. was promoted in 1850 by British nationals in Calcutta. The first general insurance company established by an Indian was Indian Mercantile Insurance Company Ltd. Eventually.Continued. 1938 (“Act of 1938”). the need was felt to bring such kinds of insurance within the purview of the Act of 1912. non-life insurance was finally regulated in 1938 through the passing of the Insurance Act.. General insurance on the other hand also has its origins in the United Kingdom. with the growth of fire. accident and marine insurance. in Bombay in 1907. BGIMS 3/14/2012 17 .
However. provided the approval of the Central Government was obtained. Such company. during any period of their temporary residence in India. NATIONALIZATION OF INSURANCE BUSINESS IN INDIA The Life Insurance Corporation (“LIC”) was formed in Sept 18 ember 1956 by the Life Insurance Corporation Act. firm or person would not be permitted to insure the life of any “person ordinarily resident outside India”. 1956 (“LIC Act”) which granted LIC the exclusive privilege to conduct life insurance business in India. an exception was made in the case of any company. firm or persons intending to carry on life insurance business in India in respect of the lives of “persons ordinarily resident outside India”.2. The exception was however not absolute and a curious prohibition existed. BGIMS 3/14/2012 .
19 BGIMS 3/14/2012 . 1956 (“Companies Act”) in November 1972 and it commenced business on January 1. Prior to 1973. through the introduction of the General Insurance Business (Nationalization) Act. offering general insurance in India. 1972 (“GIC Act”). The general insurance business was also nationalized with effect from January 1. The GIC was established by the Central Government in accordance with the provisions of the Companies Act. 1973. 1973. Under the provisions of the GIC Act. there were a hundred and seven companies. the shares of the existing Indian general insurance companies and undertakings of other existing insurers were transferred to the General Insurance Corporation (“GIC”) to secure the development of the general insurance business in India and for the regulation and control of such business.Continued…. including foreign companies.
the Oriental Insurance Company Ltd. motor and miscellaneous insurance business is under taken by the four subsidiaries. and the United India Assurance Company Ltd.”).”). (“National Co. (“Oriental Co. GIC undertakes mainly re-insurance business apart from aviation insurance.”). (“New India Co. (“United Co.”).Continued… These companies were amalgamated and grouped into four subsidiary companies of GIC viz. marine. 20 BGIMS 3/14/2012 . the New India Assurance Company Ltd. The bulk of the general insurance business of fire. the National Insurance Company Ltd.
the Indian Government introduced various reforms in the financial sector paving the way for the liberalization of the Indian economy. Both LIC and GIC have played a significant role in the development of the insurance market in India and in providing insurance coverage in India through an extensive network.3. being long tenure funds. For example. with the nationalization of insurance industry. 21 . Entry of private players Since 1956. enjoyed the monopoly for general insurance business. currently. the LIC held the monopoly in India's life insurance sector. From 1991 onwards. 100 divisions and over 2. A huge gap in the funds required for infrastructure was felt particularly since much of these funds could be filled by life BGIMS insurance funds. the LIC has a network of 7 zones.000 agents and over 100 million lives are covered. LIC has over 550.000 branches. GIC. It was a matter of time before this liberalization affected the insurance sector. with its four subsidiaries.
Continued. The Committee submitted its report to the Indian Government in January 1994. promote and ensure orderly growth of the insurance industry BGIMS 3/14/2012 22 . the Reserve Bank of India to review the prevailing structure of regulation and supervision of the insurance sector and to make recommendations for strengthening and modernizing the regulatory system. The Indian Parliament passed the Insurance Regulator y and Development Act.. Malhotra. a former Governor of India's apex bank. to protect the interests of the policy holders. in 1993. 1999 (“IRD Act”) on December 2. R. the Government of India set up an eight-member committee chaired by Mr. N. Two of the key recommendations of the Committee included the privatization of the insurance sector by permit ting the entry of private players to enter the business of life and general insurance and the establishment of an Insurance Regulatory Authority . 1999 with the aim “to provide for the establishment of an Authority. Consequently. It took a number of years for the Indian Government to implement the recommendations of the Malhotra Committee. to regulate.
Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire .ULIP Unit Linked Insurance Polices (ULIPS) ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs.equity. An ULIP . THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR. fixed-return or a mixture of both. REMEMBER THAT IN A UNIT LINKED POLICY.is a financial product that offers you life insurance as well as an investment like a mutual fund.Unit Linked Insurance Plan . .
according to IRDA.Latest developments by June 2010 The US$ 41-billion Indian life insurance industry is considered the fifth largest life insurance market.55 million new policies in 2009-10 with LIC selling 8.52 million and private companies 2.03 million policies. LIC held 65 per cent market share in terms of new business income collection with the private sector contributing the . according to the Life Insurance Council. and growing at a rapid pace of 32-34 per cent annually. Moreover. At the end of March 2010. insurers sold 10. while private players posted a 47 per cent growth in new business premium. Life Insurance Corporation of India (LIC) registered an 83 per cent increase in new business income in March 2010.
with New India Insurance collecting the maximum premium of US$ 294. The public sector players posted 13. The industry collected gross premium of US$ 7.64 billion collected in 2008-09.84 billion in 2009-10 compared with US$ 6. private players recorded a 12.5 million in April and May 2010.85 per cent growth in gross premium in 2009-10. compared to US$ 253. according to B Mathur.91 billion in 2008-09. At the same time.42 per cent growth in gross premium collected during 2009-10. total premium collected in 2009-10 was US$ 24. growing by 16. According to IRDA. A growth of 18 per cent is expected in total premium income and is likely to cross the US$ 64. Life Insurance Council.93 billion mark.64 billion.34 per cent .46 per cent over US$ 19. According to data released by IRDA. Secretary General. the general insurance industry recorded 13. The four state-run insurers fared better than their private counterparts.82 per cent increase in gross premium till March 2010.15 million in the previous year. an increase of 25.
64 million as commission for bancassurance.5 per cent per annum on pension and annuity plans. IRDA said that insurers will provide a mortality cover or a health cover to all ULIPS. other than pension and annuity products. According to a guidance note released by IRDA. IRDA has ordered life insurers to offer customers a guaranteed return of 4. while the payout by LIC for this distribution model was only US$ 26. the regulator has increased the lock-in period for all unit-linked insurance plans (ULIPS) to five years from the current three years. . thereby making them longterm financial instruments. as per official data. private insurers forked out US$ 44. thereby increasing the risk cover component on them. In 2008-09. The commission and expenses have also been reduced by evenly distributing them throughout the lock-in period. Bancassurance is distribution of insurance products through a bank's network. which basically provide risk protection. Moreover.075. Bancasssurance Private insurers have adopted bancassurance in a much bigger way than the state-owned Life Insurance Corporation (LIC) in recent years.
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