Insurance System in India - An Overview
History of Insurance Sector The oldest existing insurance company in India is the National Insurance Company , which was founded
in 1906, and is still in business.
The largest life-insurance company in India, Life Insurance Corporation of India is still owned by the
government and carries a sovereign guarantee for all insurance policies issued by it.
In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate
the insurance business.
The Government of India issued an Ordinance on 19 January 1956 nationalizing the Life Insurance sector
and Life Insurance Corporation came into existence in the same year.
The General Insurance Corporation of India was incorporated as a company in 1971 and it commence
business on 1 January 1973.
Insurance Repository
On 16th September 2013, IRDA launched 'Insurance Repository' services in India. It is a unique concept
and first to be introduced in India. This system enables policy holders to buy and keep insurance policies
in dematerialized or electronic form. Policy holders can hold all his insurance policies in an electronic
format in a single account called electronic insurance account (eIA). Insurance Regulatory and
Development Authority has issued licenses to five entities to act as Insurance Repository:
NSDL Database Management Limited, Central Insurance Repository Limited ( CIRL ), SHCIL Projects
Limited, Karvy Insurance repository Limited, CAMS Repository Services Limited
The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state
control over insurance business.Life insurance in India was completely nationalized on 19 January 1956,
through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country
were merged into one entity, the Life Insurance Corporation of India.
The government then introduced the Insurance Regulatory and Development Authority Act in 1999,
thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign
investment was also allowed and capped at 26% holding in the Indian insurance companies.(Current
49%).
The primary regulator for insurance in India is the Insurance Regulatory and Development Authority
(IRDA) which was established in 1999 under the government legislation called the Insurance Regulatory
and Development Authority Act, 1999.
Life Insurance Corporation Life Insurance in India was nationalised by incorporating Life Insurance Corporation (LIC) in 1956. All
private life insurance companies at that time were taken over by LIC.
In 1993, the Government of India appointed RN Malhotra Committee to lay down a road map for
privatisation of the life insurance sector.
Types of Life Insurance in India
Term Insurance Policies The policy holder does not get any monetary benefit at the end of the policy term except for the tax
benefits he or she can choose to avail of throughout the tenure of the policy. In the event of death of the
policy holder, the sum assured is paid to his or her beneficiaries.
Money-back Policies
Money back policies are basically an extension of endowment plans wherein the policy holder receives a
fixed amount at specific intervals throughout the duration of the policy. In the event of the unfortunate
death of the policy holder, the full sum assured is paid to the beneficiaries.
Unit-linked Investment Policies (ULIP)
Unit linked insurance policies again belong to the insurance-cum-investment category where one gets to
enjoy the benefits of both insurance and investment. While a part of the monthly premium pay-out goes
towards the insurance cover, the remaining money is invested in various types of funds that invest in debt
and equity instruments. ULIP plans are more or less similar in comparison to mutual funds except for the
difference that ULIPs offer the additional benefit of insurance.
Pension Policies
Pension policies let individuals determine a fixed stream of income post retirement.
Insurance sector in India
Insurance is an agreement in which a person makes regular payments to a company and
the company promises to pay money if the person is injured or dies, or to pay money equal
to the value of something (such as a house or car) if it is damaged, lost, or stolen or a risktransfer mechanism that ensures full or partial financial compensation for the loss or
damage caused by event(s) beyond the control of the insured party. Under an insurance
contract, a party (the insurer) indemnifies the other party (the insured) against a specified
amount of loss, occurring from specified eventualities within a specified period, provided a
fee called premium is paid. In general insurance, compensation is normally proportionate to
the loss incurred, whereas in life insurance usually a fixed sum is paid.
Some types of insurance (such as product liability insurance) are an essential component of
risk management, and are mandatory in several countries. Insurance, however, provides
protection only against tangible losses. It cannot ensure continuity of business, market
share, or customer confidence, and cannot provide knowledge, skills, or resources to
resume the operations after a disaster.
Brief history of insurance sector
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.
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 safeguarding 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. 5 crore 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 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 was incorporated as a company.
Insurance industry, as on 1.4.2000, comprised mainly two players:
(1) Life Insurance Corporation of India (LIC) General Insurers:
(2) General Insurance Corporation of India (GIC) (with effect from Dec'2000, a National
Reinsurer) GIC had four subsidiary companies, namely
i) The Oriental Insurance Company Limited
ii) The New India Assurance Company Limited
iii) National Insurance Company Limited
iv) United India Insurance Company Limited.
(With effect from Dec'2000, these subsidiaries have been de-linked from the parent
company and made as independent insurance companies)
The Insurance sector in India is governed by Insurance Act, 1938, the Life Insurance
Corporation Act, 1956 and General Insurance Business (Nationalization) Act, 1972, Insurance
Regulatory and Development Authority of India (IRDAI) Act, 1999 and other related Acts.
With such a large population and the untapped market area of this population, insurance
happens to be a very big opportunity in India. Today it stands as a business growing at the
rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to
the country's GDP .In spite of all this growth the statistics of the penetration of the insurance
in the country is very poor. Nearly 80% of Indian populations are without Life insurance
cover and the Health insurance. This is an indicator that growth potential for the insurance
sector is immense in India. It was due to this immense growth that the regulations were
introduced in the insurance sector and in continuation "Malhotra Committee" was
constituted by the government in 1993 to examine the various aspects of the industry. The
key element of the reform process was Participation of overseas insurance companies with
26% capital. Creating a more efficient and competitive financial system suitable for the
requirements of the economy was the main idea behind this reform. Since then the
insurance industry has gone through many sea changes .The competition that LIC started
facing from these companies were threatening to the existence of LIC. Since the
liberalization of the industry, the insurance industry has never looked back and today stand
as the one of the most competitive and exploring industry in India. The entry of the private
players and the increased use of the new distribution are in the limelight today. The use of
new distribution techniques and the IT tools has increased the scope of the industry in the
longer run.
Insurance sector reforms
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N.
Malhotra, was formed to evaluate the Indian insurance industry and recommend its future
direction.
The Malhotra committee was set up with the objective of complementing the reforms
initiated in the financial sector. The reforms were aimed at "creating a more efficient and
competitive financial system suitable for the requirements of the economy keeping in mind
the structural changes currently underway and recognizing that insurance is an important
part of the overall financial system where it was necessary to address the need for similar
reforms.". In 1994, the committee submitted the report and some of the key
recommendations included:
1) Structure
Government stake in the insurance Companies to be brought down to 50%.
Government should take over the holdings 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.
2) 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.
Postal Life Insurance should be allowed to operate in the rural market.Only One State
Level Life Insurance Company should be allowed to operate in each state.
3) Regulatory Body
The Insurance Act should be changed.
An Insurance Regulatory body should be set up.
Controller of Insurance (Currently a part from the Finance Ministry) should be made
independent.
4) Investments
Mandatory Investments of LIC Life Fund in government securities to be reduced from
75% to 50%.
GIC and its subsidiaries are not to hold more than 5% in any company (There current
holdings to be brought down to this level over a period of time).
5) Customer Service
LIC should pay interest on delays in payments beyond 30 days.
Insurance companies must be encouraged to set up unit linked pension plans.
Computerization of operations and updating of technology to be carried out in the
insurance industry.
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.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. Hence, it was decided to allow
competition in a limited way by stipulating the minimum capital requirement of Rs.100
crores. The committee felt the need to provide greater autonomy to insurance companies in
order to improve their performance and enable them to act as independent companies with
economic motives. For this purpose, it had proposed setting up an independent regulatory
body.
Independent Regulatory Body - IRDAI
Insurance sector has been opened up for competition from Indian private insurance
companies with the enactment of Insurance Regulatory and Development Authority
Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and
Development Authority (IRDA) was established on 19th April 2000 to protect the interests of
holder of insurance policy and to regulate, promote and ensure orderly growth of the
insurance industry.
IRDA Act 1999 paved the way for the entry of private players into the insurance market
which
was
hitherto
the
exclusive
privilege
of
public
sector
insurance
companies/ corporations. Under the new dispensation Indian insurance companies in private
sector were permitted to operate in India with the following conditions: Company is formed
and registered under the Companies Act, 1956;
The aggregate holdings of equity shares by a foreign company, either by itself or through its
subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such
Indian insurance company. The company's sole purpose is to carry on life insurance business
or general insurance business or reinsurance business.The minimum paid up equity capital
for life or general insurance business is Rs.100 crores.The minimum paid up equity capital
for carrying on reinsurance business has been prescribed as Rs.200 crores. The Authority
has notified 27 Regulations on various issues which include Registration of Insurers,
Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to
Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders'
interest etc. Applications were invited by the Authority with effect from 15th August, 2000
for issue of the Certificate of Registration to both life and non-life insurers. The Authority has
its Head Quarter at Hyderabad.
India Insurance Policies at a Glance
Indian insurance companies offer a comprehensive range of insurance plans, a range that is
growing as the economy matures and the wealth of the middle classes increases. The most
common types include: term life policies, endowment policies, joint life policies, whole life
policies, loan cover term assurance policies, unit-linked insurance plans, group insurance
policies, pension plans, and annuities. General insurance plans are also available to cover
motor insurance, home insurance, travel insurance and health insurance. Due to the growing
demand for insurance, more and more insurance companies are now emerging in the Indian
insurance sector. With the opening up of the economy, several international leaders in the
insurance sector are trying to venture into the Indian insurance industry.
Insurance Sector
Dear all, in view of upcoming insurance exams, were are presenting you a brief write-up on
insurance
sector
and
companies
in
this
sector.
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.
Insurance Repository in India
The Insurance Repository in India is a database of insurance policies. It allows policy holders
to make revisions to a policy with speed and accuracy. It launched on 16 September 2013. It
is the world's first of its kind. India's Insurance Regulatory and Development Authority has
issued licenses to five entities to act as Insurance Repositories:
Central Insurance Repository Limited (CIRL)
SHCIL Projects Limited
Karvy Insurance repository Limited
NSDL Database Management Limited
CAMS Repository Services Limited
E-Insurance AccountE-Insurance account is the facility available to the policy holder to
keep all of their insurance policies in a demat form by opening an account with an insurance
repository, it`s a one point of contact for all of the insurance contracts, if any change is
needed in any of the personal information then instead of going to an each insurer and
submitting the request separately to each one of them, here through an e-insurance
account, the policy holder can submit a request to an insurance repository for that change
and it will be applicable for all the policies the policyholder posses.It works in a similar
manner like we keep our securities-shares, mutual funds in an electronic form.
What type of an Insurance Policies can be kept in an E Insurance Account:
1.All of the below mention policies can be kept in an electronic form provided these have
been issued
by the companies registered with Insurance Regulatory Development
Authority(IRDA)
2.All the Life insurance policies including individual or group.
3. All the general insurance policies including individual or group.
4. Any other form of an insurance policy approved by an IRDA.
Public Sector Insurance Companies
Life Insurance Corporation of India
General Insurance Corporation of India
National Insurance Co. Ltd.
Oriental Insurance Co. Ltd.
New India Assurance Co. Ltd.
United India Insurance Co. Ltd.
Life Insurance Corporation of India
Headoffice- Mumbai
Chairman - Shri S. K. Roy
The Parliament of India enacted the Life Insurance Corporation Act on the 19th of June 1956,
and the Life Insurance Corporation of Indian was established on 1st September, 1956, with
the objective of spreading life insurance much more widely and in particular to the rural
areas with a view to reach all insurable persons in the country, providing them adequate
financial cover at a reasonable cost
General Insurance Corporation
Headoffice - Mumbai
Chairman - A K Roy
General Insurance Corporation of India (GIC Re) was approved as Indian Reinsurer on 3rd
November,2000. As an Indian reinsurer GIC has been giving reinsurance support to four
public sector & other private general insurance companies
The New India Assurance Co. Ltd.
Headoffice- Mumbai
Chairman - G.Srinivasan
It is the "largest general insurance company of India on the basis of gross premium
collection inclusive of foreign operations". It was founded by Sir Dorabji Tata in 1919, and
was nationalised in 1973
National Insurance Company Limited (NICL)
Headoffice- Kolkata
Chairman - Shri A.V. Girija Kumar
It is a state owned general insurance company in India. The company was established in
1906 and nationalised in 1972. It's portofolio consists of a multitude of general insurance
policies, offered to a wide arena of clients encompassing different sectors of the economy.[3]
Apart from being leading insurance provider in India, NICL also serves Nepal.
United India Insurance Company Limited
Headoffice - Chennai
Chairman - Milind Kharat
under Department of Financial Services, Ministry of Finance (India), is a public sector General
Insurance Company of India and one of the top General Insurers in Asia. With the net worth
of Rs 5407 crores and profit of Rs 528 crores, the company has collected gross premium of
Rs 9709 crores as of in the financial year 2013-14. The company has more than seven
decades of experience in Non-life Insurance business and was formed to its present form by
the merger of 22 companies, consequent to the nationalisation of General Insurance
companies in India.
Oriental Insurance Company Ltd
Headoffice - New Delhi
Chairman - Dr. A.K.Saxena
It was established on September 12, 1947 in the then Bombay. It was a completely owned
subsidiary of Oriental Government Security Life Assurance Company Ltd. It was created with
the mandate of executing its parent bodys general insurance operations.
