The insurance sector in India has come a full circle from being an open
competitive market to nationalisation and back to a liberalised market again.
Tracing the developments in the Indian insurance sector reveals the 360-degree
turn witnessed over a period of almost two centuries.
A brief history of the Insurance sector
The business of life insurance in India in its existing form started in India in the
year 1818 with the establishment of the Oriental Life Insurance Company in
Calcutta.
Some of the important milestones in the life insurance business in India are:
1912: The Indian Life Assurance Companies Act enacted as the first
statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the
government to collect statistical information about both life and non-life
insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance
Act with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies taken over
by the central government and nationalised. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore
from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to
the Triton Insurance Company Ltd., the first general insurance company
established in the year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907: The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of
India, frames a code of conduct for ensuring fair conduct and sound
business practices.
1968: The Insurance Act amended to regulate investments and set
minimum solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalisation) Act, 1972
nationalised the general insurance business in India with effect from 1st
January 1973.
107 insurers amalgamated 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 incorporated as a company.
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.
Computerisation 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.
MAJOR POLICY CHANGES
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.
Insurance companies:
IRDA has so far granted registration to 12 private life insurance companies and
9 general insurance companies. If the existing public sector insurance
companies are included, there are currently 13 insurance companies in the life
side and 13 companies operating in general insurance business. General
Insurance Corporation has been approved as the "Indian reinsurer" for
underwriting only reinsurance business. Particulars of the life insurance
companies and general insurance companies including their web address is
given below:
LIFE INSURERS Websites
Public Sector
Life Insurance Corporation of India www.licindia.com
Private Sector
Allianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in
Birla Sun-Life Insurance Company Limited www.birlasunlife.com
HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com
ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com
ING Vysya Life Insurance Company Limited www.ingvysayalife.com
Max New York Life Insurance Co. Limited www.maxnewyorklife.com
MetLife Insurance Company Limited www.metlife.com
Om Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com
SBI Life Insurance Company Limited www.sbilife.co.in
TATA AIG Life Insurance Company Limited www.tata-aig.com
AMP Sanmar Assurance Company Limited www.ampsanmar.com
Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com
GENERAL INSURERS
Public Sector
National Insurance Company Limited www.nationalinsuranceindia.co
m
New India Assurance Company Limited www.niacl.com
Oriental Insurance Company Limited www.orientalinsurance.nic.in
United India Insurance Company Limited www.uiic.co.in
Private Sector
Bajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in
ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com
IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in
Reliance General Insurance Co. Limited www.ril.com
Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com
TATA AIG General Insurance Co. Limited www.tata-aig.com
Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com
Export Credit Guarantee Corporation www.ecgcindia.com
HDFC Chubb General Insurance Co. Ltd.
REINSURER
General Insurance Corporation of India www.gicindia.com
Protection of the interest of policy holders:
IRDA has the responsibility of protecting the interest of insurance
policyholders. Towards achieving this objective, the Authority has taken the
following steps:
IRDA has notified Protection of Policyholders Interest Regulations 2001
to provide for: policy proposal documents in easily understandable
language; claims procedure in both life and non-life; setting up of
grievance redressal machinery; speedy settlement of claims; and
policyholders' servicing. The Regulation also provides for payment of
interest by insurers for the delay in settlement of claim.
The insurers are required to maintain solvency margins so that they are in
a position to meet their obligations towards policyholders with regard to
payment of claims.
It is obligatory on the part of the insurance companies to disclose clearly
the benefits, terms and conditions under the policy. The advertisements
issued by the insurers should not mislead the insuring public.
All insurers are required to set up proper grievance redress machinery in
their head office and at their other offices.
The Authority takes up with the insurers any complaint received from the
policyholders in connection with services provided by them under the
insurance contract.
Salient Features of Insurance Sector Reform Bill:
•The bill seeks to regulate, promote and ensure orderlygrowth of the insurance
industry and provides for solvency norms and specifies that the funds of
policyholders would be retained within the country.
The minimum capital requirement for life and general insurance has been retained
at Rs 100 crore ($23.02 million) and for reinsurance firms at Rs 200 crore ($46.04
million) as provided in the earlier IRA Bill.
It has been stipulated that the aggregate foreign holding in an Indian insurance
company shall not exceed 26 per cent of the paid-up equity. Moreover, to provide
a level playing field, It has been proposed that the Indian promoters would also be
required to bring down their equity holding to 26 percent after a period of 10 years
from the commencement of business.
The Bill has proposed solvency margins of Rs. 50 crores (US $ 11.51 million) for
life and general Insurance and Rs. 100 crores (US $ 23.02 million) for reinsurance
companies.
• IRDA, in addition to other functions, would supervise the functioning of the
Tariff Advisory Committee (TAC) and specify the percentage of premium income
of the insurers to be set aside to finance schemes for promoting and regulating
professional organizations in the insurance sectors.
The four amendments, made in the Insurance Bill by the Lok Sabha, are as under:
I. The Insurance Regulatory and Development Authority (IRDA) should give priority
to health insurance.
II. Policyholders’ funds will be invested in the social sector and infrastructure. The
percent may be specified by the IRDA and such regulations will apply to all insurers
operating in the country.
III. Insurers will be expected to undertake a certain percent of business in rural areas,
and cover workers in the unorganized and informal sectors and economically
backward classes.
IV. In the event of insurers failing to fulfill the social sector obligations, a fine of Rs.
25 lakh ($0.06 million) would be imposed the first time. Subsequent failures would
result in cancellation of licenses.
