INDUSTRY PROFILE:
Insurance, in law and economics, is a form of risk management
primarily used to hedge against the risk of a contingent uncertain loss. Insurance
is defined as the equitable transfer of the risk of a loss, from one entity to
another, in exchange for payment. An Insurer is a company selling the
insurance; an insured or policyholder is the person or entity buying the
insurance policy. The insurance rate is a factor used to determine the amount
to be charged for a certain amount of insurance coverage, called the premium.
Risk management, the practice of appraising and controlling risk, has evolved
as a discrete field of study and practice.
HISTORY OF INSURANCE:
Ancient world
Turning to insurance in the modern sense (i.e., insurance in a modern money
economy, in which insurance is part of the financial sphere), early methods of
transferring or distributing risk were practiced by Chinese and Babylonian
traders as long ago as the 3rd and 2nd millennia BC, respectively. The
Babylonians developed a system which was recorded in the famous Code of
Hammurabi, c. 1750 BC, and practiced by early Mediterranean sailing
merchants. If a merchant received a loan to fund his shipment, he would pay the
lender an additional sum in exchange for the lender's guarantee to cancel the
loan should the shipment be stolen.
Achaemenian monarchs were the first to insure their people and made it official
by registering the insuring process in governmental notary offices. The
insurance tradition was performed each year in Nowruz (beginning of the
Iranian New Year). The most important gift was presented during a special
ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold
coin) the issue was registered in a special office. This was advantageous to
those who presented such special gifts. For others, the presents were fairly
assessed by the confidants of the court. Then the assessment was registered in
special offices.
A thousand years later, the inhabitants of Rhodes created the 'general average',
which allowed groups of merchants to pay to insure their goods being shipped
together. The collected premiums would be used to reimburse any merchant
whose goods were jettisoned during transport, whether to storm or sinkage.
The ancient Athenian "maritime loan" advanced money for voyages with
repayment being cancelled if the ship was lost. In the 4th century BC, rates for
the loans differed according to safe or dangerous times of year, implying an
intuitive pricing of risk with an effect similar to insurance.
The Greeks and Romans introduced the origins of health and life insurance c.
600 BCE when they created guilds called "benevolent societies" which cared for
the families of deceased members, as well as paying funeral expenses of
members. Guilds in the Middle Ages served a similar purpose. The Talmud
deals with several aspects of insuring goods. Before insurance was established
in the late 17th century, "friendly societies" existed in England, in which people
donated amounts of money to a general sum that could be used for emergencies.
Medieval and Early modern
Separate insurance contracts (i.e., insurance policies not bundled with loans or
other kinds of contracts) were invented in Genoa in the 14th century, as were
insurance pools backed by pledges of landed estates. The first known insurance
contract dates from Genoa in 1343, and in the next century maritime insurance
developed widely and premiums were intuitively varied with risks.[4] These new
insurance contracts allowed insurance to be separated from investment, a
separation of roles that first proved useful in marine insurance. The first printed
book on insurance was the legal treatise On Insurance and Merchants' Bets by
Pedro de Santarém (Santerna), written in 1488 and published in 1552.[5]
Insurance became far more sophisticated in post-Renaissance Europe, and
specialized varieties developed. The will of Robert Hayman, written in 1628,
refers to two policies he has taken out with a wealthy Londoner: one of life
insurance and one of marine insurance [6]. Toward the end of the seventeenth
century, London's growing importance as a centre for trade increased demand
for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee
house that became a popular haunt of ship owners, merchants, and ships’
captains, and thereby a reliable source of the latest shipping news. It became the
meeting place for parties wishing to insure cargoes and ships, and those willing
to underwrite such ventures. Today, Lloyd's of London remains the leading
market (note that it is not an insurance company) for marine and other specialist
types of insurance, but it works rather differently than the more familiar kinds
of insurance.
Insurance as we know it today can be traced to the Great Fire of London, which
in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas
Barbon opened an office to insure buildings. In 1680, he established England's
first fire insurance company, "The Fire Office," to insure brick and frame
homes.
The concept of health insurance was proposed in 1694 by Hugh the Elder
Chamberlen from the Peter Chamberlen family. In the late 19th century,
"accident insurance" began to be available, which operated much like modern
disability insurance. This payment model continued until the start of the 20th
century in some jurisdictions (like California), where all laws regulating health
insurance actually referred to disability insurance.
The first insurance company in the United States underwrote fire insurance and
was formed in Charles Town (modern-day Charleston), South Carolina in 1732,
but it provided only fire insurance.
Insurance in India
Insurance is a federal subject in India. The insurance sector has gone through a
number of phases and changes. Since 1999, when the government opened up the
insurance sector by allowing private companies to solicit insurance and also
allowing FDI up to 26%, the insurance sector has been a booming market.
However, the largest life-insurance company in India is still owned by the
government.
History
Insurance in India has its history dating back until 1818, when Oriental Life
Insurance Company was started by Anita Bhavsar in Kolkata to cater to the
needs of European community. The pre-independence era in India saw
discrimination between the lives of foreigners (English) and Indians with higher
premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance
Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were founded.
In the year 1912, the Life Insurance Companies Act and the Provident Fund Act
were passed to regulate the insurance business. The Life Insurance Companies
Act, 1912 made it necessary that the premium-rate tables and periodical
valuations of companies should be certified by an actuary. However, the
disparity still existed as discrimination between Indian and foreign companies.
The oldest existing insurance company in India is the National Insurance
Company Ltd., which was founded in 1906. It is in business. Before that, the
industry consisted of only two state insurers: Life Insurers (Life Insurance
Corporation of India, LIC) and General Insurers (General Insurance Corporation
of India, GIC). GIC had four subsidiary companies.
With effect from December 2000, these subsidiaries have been de-linked from
the parent company and were set up as independent insurance companies:
Oriental Insurance Company Limited, New India Assurance Company Limited,
National Insurance Company Limited and United India Insurance Company
Limited.
Industry structure
Currently, a $41 billion industry, India is the world's fifth largest life insurance
market and growing at a rapid pace of 32-34% annually as per Life Insurance
Council studies.
Currently, in India only two million people (0.2 % of the total population of 1
billion) are covered under Mediclaim, whereas in developed nations like USA
about 75 % of the total population are covered under some insurance scheme.
With more and more private companies in the sector, the situation may change
soon.
Acts
The insurance sector went through a full circle of phases from being
unregulated to completely regulated and then currently being partly deregulated.
It is governed by a number of acts.
The Insurance Act of 1938[1] 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 January 19, 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.[2]
The General Insurance Business Act of 1972 was enacted to nationalise the
about 100 general insurance companies then and subsequently merging them
into four companies. All the companies were amalgamated into National
Insurance, New India Assurance, Oriental Insurance and United India
Insurance, which were headquartered in each of the four metropolitan cities.[3]
Until 1999, there were not any private insurance companies in 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.
In 2006, the Actuaries Act was passed by parliament to give the profession
statutory status on par with Chartered Accountants, Notaries, Cost & Works
Accountants, Advocates, Architects and Company Secretaries.
