EXTRA
History of Insurance in India
Insurance in India has a long and deep-rooted history, with its principles dating back to ancient texts.
References to risk management and resource pooling can be found in the writings of Manu
(Manusmriti), Yagnavalkya (Dharmasastra), and Kautilya (Arthasastra). These writings discuss the
concept of pooling resources for redistribution during times of calamities such as fire, floods,
epidemics, and famine—an early precursor to modern-day insurance. The earliest traces of insurance
in India are evident in the form of marine trade loans and carriers’ contracts. Over time, insurance in
India has evolved, drawing significantly from foreign practices, particularly from England. The
development of insurance in India can be categorized into two major segments: Life Insurance and
General Insurance.
Life Insurance
The life insurance business in India began in 1818 with the establishment of the Oriental Life
Insurance Company in Calcutta, which, however, failed in 1834. The Madras Equitable commenced
life insurance transactions in 1829 in the Madras Presidency. With the enactment of the British
Insurance Act in 1870, several Indian companies emerged, including:
Bombay Mutual Life Assurance Society (1871)
Oriental Life Assurance Company (1874)
Empire of India (1897)
During this period, foreign insurance companies dominated the market, posing stiff competition to
Indian insurers. Some major foreign insurers included Albert Life Assurance, Royal Insurance, and
Liverpool and London Globe Insurance.
In 1914, the Government of India began publishing insurance company returns. The Indian Life
Assurance Companies Act, 1912, was the first regulatory law governing life insurance. Later, the
Indian Insurance Companies Act, 1928, was enacted to facilitate statistical data collection on
insurance transactions by Indian and foreign insurers, including provident insurance societies.
The Insurance Act, 1938, was a comprehensive legislation aimed at protecting the interests of
policyholders and regulating insurers' activities. This was further strengthened by the Insurance
Amendment Act of 1950, which abolished Principal Agencies. However, with a large number of
insurance companies and increasing competition, allegations of unfair trade practices arose. To
address these concerns, the Government of India decided to nationalize the life insurance sector.
On January 19, 1956, an ordinance was issued, leading to the nationalization of life insurance. The
Life Insurance Corporation of India (LIC) was established in the same year, absorbing:
154 Indian insurers
16 non-Indian insurers
75 provident societies
In total, 245 insurers (Indian and foreign) were merged into LIC, granting it a monopoly until the late
1990s, when the insurance sector was reopened to private players.
General Insurance
The history of general insurance in India is closely linked to the Industrial Revolution and the growth
of maritime trade in the 17th century. Introduced as a legacy of British rule, general insurance in India
began with the Triton Insurance Company Ltd. in 1850 in Calcutta. This was followed by the
establishment of the Indian Mercantile Insurance Ltd. in 1907, which was the first Indian company
to transact all classes of general insurance business.
In 1957, the General Insurance Council, a wing of the Insurance Association of India, was formed
to regulate industry practices and promote fair conduct. The Insurance Act was amended in 1968 to
regulate investments and set minimum solvency margins. Additionally, the Tariff Advisory
Committee was established to enforce fair pricing and risk assessment.
The nationalization of the general insurance industry occurred with the General Insurance Business
(Nationalisation) Act, 1972, effective from January 1, 1973. As a result:
107 insurers were merged and grouped into four companies:
o National Insurance Company Ltd.
o New India Assurance Company Ltd.
o Oriental Insurance Company Ltd.
o United India Insurance Company Ltd.
The General Insurance Corporation of India (GIC) was incorporated in 1971 and began
operations on January 1, 1973.
Recent Developments
In recent years, the Indian government has taken significant steps to reform and consolidate the
general insurance sector. A key development is the proposed merger of three public sector general
insurance companies—excluding New India Assurance Company Ltd.—aimed at enhancing
efficiency and financial stability in the industry.
The liberalization of the insurance industry, which began in the late 1990s, has resulted in increased
competition, better services, and innovative insurance products. With the entry of private players and
foreign insurers, the insurance landscape in India continues to evolve, offering enhanced financial
security and risk mitigation solutions to the public.
Regulation of Insurance Business in India
The Indian insurance sector has undergone significant transformation over nearly two centuries. The
process of reopening the sector began in the early 1990s, leading to substantial liberalization over the
last few decades.
Formation of the IRDAI
In 1993, the Government of India appointed a committee under the chairmanship of R.N. Malhotra,
former Governor of the Reserve Bank of India, to propose reforms in the insurance sector. The
objective was to align the insurance industry with financial sector reforms. The committee submitted
its report in 1994, recommending that the private sector be allowed entry into the insurance industry.
It also proposed that foreign companies should be permitted to operate through joint ventures with
Indian partners.
Based on these recommendations, the Insurance Regulatory and Development Authority (IRDA) was
constituted as an autonomous body in 1999 to regulate and develop the insurance industry. In April
2000, IRDA was incorporated as a statutory body.
Liberalization and Foreign Investment
The insurance market was officially opened in August 2000 when IRDA invited applications for
registration. Initially, foreign companies were permitted to hold up to 26% of an Indian insurance
company's equity. This limit was later increased to 49% in 2016 and further expanded to 100% for
insurance intermediaries in 2019.
IRDAI has the authority to frame regulations under Section 114A of the Insurance Act, 1938. Since
2000, it has implemented various regulations covering aspects such as the registration of insurance
companies and protection of policyholders' interests.
Restructuring of Public Sector Insurance Companies
In December 2000, the subsidiaries of the General Insurance Corporation of India (GIC) were
restructured as independent companies, and GIC was converted into a national reinsurer. Parliament
passed a bill in July 2002 to delink the four subsidiaries from GIC.
Current Status of the Insurance Sector
Today, India has:
31 General Insurance Companies, including 7 Health Insurance Companies.
24 Life Insurance Companies.
Acts and Regulations Governing the Insurance Industry
Acts Governing Both Life & General Insurance
1. Insurance Act, 1938 and Insurance Laws (Amendment) act, 2015
2. IRDA Act, 1999 & related regulations
3. Insurance Amendment Act, 2002
4. Exchange Control Regulations (FEMA)
5. Indian Stamp Act, 1899
6. Consumer Protection Act, 1986
7. Insurance Ombudsman Rules, 2017
8. Labour Law legislations
Regulations Governing Life Insurance
1. LIC Act, 1956
2. Amendments to LIC Act
Life Insurance Council and General Insurance Council
Constitution of Life Insurance Council
As per Section 64F(1) of the Insurance Act, 1938, the Executive Committee of the Life Insurance
Council consists of:
Elected Representatives: Four members elected individually by the Life Insurance Council.
One of these representatives is elected as the Chairperson.
Independent Member: One eminent person, not associated with the insurance business,
nominated by the Insurance Regulatory and Development Authority of India (IRDAI).
Stakeholder Representatives: Three representatives nominated by IRDAI, representing:
o Insurance agents
o Intermediaries
o Policyholders
Community Representation: One representative each from Self-Help Groups (SHGs) and
Insurance Co-operative Societies.
Constitution of General Insurance Council 1
According to Section 64F(2) of the Insurance Act, 1938, the Executive Committee of the General
Insurance Council comprises:
Elected Representatives: Four members elected individually by the General Insurance
Council, with one elected as the Chairperson.
Independent Member: One eminent person, not engaged in the insurance business,
nominated by IRDAI.
Stakeholder Representatives: Four representatives nominated by IRDAI, representing:
o Insurance agents
o Third-Party Administrators (TPAs)
o Surveyors and Loss Assessors
o Policyholders
Term of Office
Members of the Executive Committees serve a three-year term.
Upon completion, the Executive Committee dissolves, and fresh elections are conducted.
IRDAI’s Authority to Fill Vacancies
If the Life or General Insurance Council fails to elect a member, IRDAI can nominate a
replacement.
The nominated person is considered a duly elected member.
Governance And Operations
Bye-laws and Meetings
o Each Executive Committee can draft bye-laws for conducting business.
o Meetings are held as per these bye-laws.
Formation of Sub-Committees: The Councils can create sub-committees to manage specific
functions.
Appointment of Secretary
o The Executive Committees appoint a Secretary for both Councils.
o The Secretary’s powers and responsibilities are determined by the respective
Committee.
Functions of the Executive Committees
As per Sections 64J and 64L of the Insurance Act, 1938, the Executive Committees of both Councils
have the following responsibilities:
o Industry Standards: Assisting insurers in establishing best practices and ensuring efficient
service for policyholders.
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health insurance is considered a type of general insurance, which covers non-life assets and risks, unlike life insurance that focuses on the
insured's death.
o Expense Control: Advising IRDAI on managing insurer expenses.
o Policyholder Protection: Reporting cases where insurers act against policyholder interests.
o Regulatory Compliance: Handling any additional responsibilities approved by IRDAI and
published in the Gazette of India.
Collection of Fees: The Executive Committees can collect fees from insurers as per their bye-laws.
Powers of the Life & General Insurance Councils
To fulfill their duties, the Councils may:
o Hire Personnel: Appoint officers and staff, determining their service conditions.
o Fee Collection: Establish methods for collecting fees.
o Maintain Records: Keep updated lists of member insurers.
o Create Regulations:
Conduct of elections
Meeting procedures and quorum requirements
Submission of information by insurers
Levying and collecting fees
Any other necessary governance matters
o The Executive Committees may be authorized to exercise these powers.
Regulation of Expenses by IRDAI
Under Section 40B of the Insurance Act, 1938, IRDAI has issued two key regulations:
o IRDAI (Expenses of Management for Life Insurers) Regulations, 2016
o IRDAI (Expenses of Management for General & Health Insurers) Regulations, 2016
Purpose of These Regulations
o Set expense ceilings for insurance companies based on policyholder premiums.
o Ensure financial prudence in insurers’ expenditure.
o Protect policyholder bonuses in life insurance.
Exemption on Expense Limits
IRDAI can grant forbearance (exemptions) from expense limits:
o Up to 5 years for General and Health Insurance companies.
o Up to 10 years for Life Insurance companies.
The Councils advise IRDAI on appropriate forbearance levels.
Annual Review of Expense Limits
Under Sections 64K and 64M of the Insurance Act, 1938, the Councils must:
Meet annually by March 31 to advise IRDAI on expense limits.
Help IRDAI adjust expense limits based on market conditions.
Joint Meetings of the Life & General Insurance Councils
As per Section 64N of the Insurance Act, 1938, IRDAI can mandate joint meetings of both Councils.
These meetings address common industry issues.
A joint sub-committee may be formed to handle specific matters.
