History of insurance in India
Ref: IRDA/GEN/06/2007 Date: 12-07-2007
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.
1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829,
the Madras Equitable had begun transacting life insurance business in the Madras Presidency.
1870 saw the enactment of the British Insurance Act and in the last three decades of the
nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897)
were started in the Bombay Residency. This era, however, was dominated by foreign insurance
offices which did good business in India, namely Albert Life Assurance, Royal Insurance,
Liverpool and London Globe Insurance and the Indian offices were up for hard competition
from the foreign companies.
In 1914, the Government of India started publishing returns of Insurance Companies in
India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the
Government to collect statistical information about both life and non-life business transacted in
India by Indian and foreign insurers including provident insurance societies. In 1938, with a
view to protecting the interest of the Insurance public, the earlier legislation was consolidated
and amended by the Insurance Act, 1938 with comprehensive provisions for effective control
over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a
large number of insurance companies and the level of competition was high. There were also
allegations of unfair trade practices. The Government of India, therefore, decided to nationalize
insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and
Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian,
16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all.
The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private
sector.
The history of general insurance dates back to the Industrial Revolution in the west and
the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as
a legacy of British occupation. General Insurance in India has its roots in the establishment of
Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian
Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of
general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton
of India. The General Insurance Council framed a code of conduct for ensuring fair conduct
and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency
margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company Ltd., the
New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India
Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a
company in 1971 and it commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending to nearly 200
years. The process of re-opening of the sector had begun in the early 1990s and the last
decade and more has seen it been opened up substantially. In 1993, the Government set up a
committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose
recommendations for reforms in the insurance sector.The objective was to complement the
reforms initiated in the financial sector. The committee submitted its report in 1994 wherein ,
among other things, it recommended that the private sector be permitted to enter the insurance
industry. They stated that foreign companies be allowed to enter by floating Indian companies,
preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance
Regulatory and Development Authority (IRDA) was constituted as an autonomous body to
regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in
April, 2000. The key objectives of the IRDA include promotion of competition so as to
enhance customer satisfaction through increased consumer choice and lower premiums, while
ensuring the financial security of the insurance market.
The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the
power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000
onwards framed various regulations ranging from registration of companies for carrying on
insurance business to protection of policyholders’ interests.
In December, 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies and at the same time GIC was converted into a national
re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.
Today there are 24 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 23 life insurance companies operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together
with banking services, insurance services add about 7% to the country’s GDP. A well-
developed and evolved insurance sector is a boon for economic development as it provides
long- term funds for infrastructure development at the same time strengthening the risk taking
ability of the country.
Insurance Last Updated: December 2010
The US$ 41-billion Indian life insurance industry is considered the fifth largest life insurance
market, and growing at a rapid pace of 32-34 per cent annually, according to the Life Insurance
Council.
Life insurance companies have witnessed a 70 per cent jump in new premium collection during
the first five months of the financial year. According to data released by the Insurance
Regulatory and Development Authority (IRDA), insurance companies garnered US$ 11.73
billion in new business premium during April-August 2010, against US$ 6.90 billion in the
corresponding period last year.
State-owned LIC gained the most, with an increase of 88 per cent in new business premium
income. At the same time, private sector insurance recorded a 34 per cent increase in income
from sales of new policies. New business income collected by ICICI Prudential stood at US$
576.60 million during April-August. SBI Life remained in the third position after registering a 40
per cent increase in new sales to US$ 531.87 million from US$ 379.20 million in April-August
2009. HDFC Standard Life saw a robust 54 per cent increase in new business.
General Insurance
According to data released by IRDA, the general insurance industry recorded 22.76 per cent
year-on-year (y-o-y) growth in gross premium underwritten during April–October 2010. The
industry collected gross premium of US$ 5.29 billion during April–October 2010 compared with
US$ 4.31 billion in the same period last year.
The public sector players posted 21.09 per cent y-o-y growth in gross premium during April–
October 2010 over the corresponding period last year. At the same time, private players recorded
a 25.19 per cent y-o-y increase in gross premium.
The state-run insurers fared better than their private counterparts, with New India Insurance
collecting the maximum premium of US$ 916.77 million during April-October 2010, compared
to US$ 770.25 million in the same period last year, growing by 19.04 per cent.
According to the IRDA's Summary Reports of Motor Data of Public and Private Sector Insurers -
2009-10, nearly 28.4 million policies were issued and a total premium of US$ 2.31 billion was
collected.
Health Insurance
The Indian health insurance market has emerged as a new and lucrative growth avenue for both
the existing players as well as the new entrants. According to a latest research report "Booming
Health Insurance in India" by research firm RNCOS released in April 2010, all emerging trends
including the key factors driving the market growth. Furthermore, the report also identifies what
could be the possible growth areas for expansion and gives a detailed overview of the
competitive landscape. The Indian health insurance market has continued to post record growth
in the last two fiscals (2008-09 and 2009-10). Moreover, as per the RNCOS estimates, the health
insurance premium is expected to grow at a compound annual growth rate (CAGR) of over 25
per cent for the period spanning from 2009-10 to 2013-14.
According to a report published by Yes Bank and an industry body in November 2009, the
medical insurance sector would account for US$ 3 billion in the next three years.
Health insurance premium collections were US$ 1.75 billion in 2009-10 compared with US$
893.76 million in the previous year, IRDA said in its annual report for 2009-10. It should,
however, be noted that figures for 2009-10 include policies served by third party administrators
(TPAs) as well as those directly served by insurers whereas figures for 2008-09 include policies
served by TPAs only.
Bancasssurance
Private insurers have adopted bancassurance in a much bigger way than the state-owned Life
Insurance Corporation (LIC) in recent years. Bancassurance is distribution of insurance products
through a bank's network.
In 2008-09, private insurers forked out US$ 44.64 million as commission for bancassurance,
while the payout by LIC for this distribution model was only US$ 26,075, as per official data.
According to Towers Watson India, Bancassurance Benchmarking survey 2009-10, released in
May 2010, bancassurance will play a crucial role in the overall development of the Indian
insurance sector with the channel expected to generate 40 per cent of private insurers premium
income by 2012, compared to the current 25-28 per cent. In general insurance, presently 17 per
cent of premium income comes from bancassurance.
LIC HFL Financial Services, a subsidiary of housing mortgage lender LIC Housing Finance, has
tied up with public sector insurer United India Insurance for distribution of non-life products of
the latter.
Investments
The Indian insurance unit of Dutch financial services firm ING plans to invest US$ 51 million in
2010/11 to fund expansion in India.
Private life insurer Future Generali India will expand its distribution network by opening around
100 branches in addition to its existing network of 91 branches during 2010. It will also increase
the agency force by 21,000 to 65,000 people.
Max Bupa, the health insurance JV between UK's Bupa and the Max Group said on December 7
it would invest over US$ 100.35 million in the next four years to expand its business. Max Bupa
Health Insurance Chief Executive Damien Marmion said in the next 3-4 years the equity base of
the company should be US$ 156.11 million.
Investment Policy
According to a guidance note released by IRDA, 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 long-term financial instruments, which basically provide risk protection. The
commission and expenses have also been reduced by evenly distributing them throughout the
lock-in period. Moreover, IRDA said that insurers will provide a mortality cover or a health
cover to all ULIPS, other than pension and annuity products, thereby increasing the risk cover
component on them.
IRDA has ordered life insurers to offer customers a guaranteed return of 4.5 per cent per annum
on pension and annuity plans.
In a move that would result in lower capital requirement for life insurers, the IRDA has asked
them to initiate the process of calculating ‘economic capital’ from March 2010.
Exchange rate used:
1 USD = 44.49 INR (as of November 2010)
1 USD = 44.84 INR (as of December 2010)
The Indian Insurance Industry
India insurance is a flourishing industry, with several national and international players
competing and growing at rapid rates. Thanks to reforms and the easing of policy regulations, the
Indian insurance sector been allowed to flourish, and as Indians become more familiar with
different insurance products, this growth can only increase, with the period from 2010 - 2015
projected to be the 'Golden Age' for the Indian insurance industy.
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 India insurance
industry.
India Insurance: History
The history of the Indian insurance sector dates back to 1818, when the Oriental Life Insurance
Company was formed in Kolkata. A new era began in the India insurance sector, with the
passing of the Life Insurance Act of 1912.
The Indian Insurance Companies Act was passed in 1928. This act empowered the government
of India to gather necessary information about the life insurance and non-life insurance
organizations operating in the Indian financial markets.
The Triton Insurance Company Ltd formed in 1850 and was the first of its kind in the general
insurance sector in India. Established in 1907, Indian Mercantile Insurance Limited was the first
company to handle all forms of India insurance.
Indian Insurance: Sector Reform
The formation of the Malhotra Committee in 1993 initiated reforms in the Indian insurance
sector. The aim of the Malhotra Committee was to assess the functionality of the Indian
insurance sector. This committee was also in charge of recommending the future path of
insurance in India.
The Malhotra Committee attempted to improve various aspects of the insurance sector, making
them more appropriate and effective for the Indian market.
The recommendations of the committee put stress on offering operational autonomy to the
insurance service providers and also suggested forming an independent regulatory body.
The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial
policy changes in the insurance sector of India. It led to the formation of the Insurance
Regulatory and Development Authority (IRDA) in 2000.
The goals of the IRDA are to safeguard the interests of insurance policyholders, as well as to
initiate different policy measures to help sustain growth in the Indian insurance sector.
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. Detailed information on IRDA is available at their web-site
www.irdaindia.org
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.
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