Nationalization Of Insurance Sector In India

India’s Insurance Nationalization 

The Government of India issued an Ordinance on 19th January, 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalization) Act was passed by the Indian Parliament, and consequently, 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. LIC and GIC Subsidiaries – Breaking of the monopoly the LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Now at present 24 insurance companies in India have started operations with the industry size expected to reach a mammoth $350-400 billion by 2020. Before that, the industry consisted of only two state insurers: Life Insurance Corporation of India, LIC and General Insurers (General Insurance Corporation of India, GIC). GIC has four subsidiaries
1.National Insurance Company Limited
2.Oriental Insurance Company Limited
3.New India Assurance Company Limited,
4.United India Insurance Company Limited.
Government Life Insurance Companies

Life Insurance Corporation of India (LIC) is a Government of India enterprise, and is  the largest life insurance company and also the largest investor of the country. LIC had been established in 1 September 1956, after the Life Insurance Corporation Act had been passed by the Parliament of India in the same year. It also provides savings features along with various insurance policies. LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. It had crossed the milestone of issuing 1,01,32,955 new policies by 2005, posting a healthy growth rate of 16.67%.

Government General Insurance

General Insurance in India too has seen increasing competition with the liberalization in the 90s.The growing Indian market has attracted all the top insurance companies worldwide. General Insurance operations of southern region of Life Insurance Corporation of India were merged with United India Insurance Company Limited in 1972. United India has been designing and implementing complex covers to large customers, as in cases of ONGC Ltd , GMR- Hyderabad International Airport Ltd, Mumbai International Airport Ltd Tirumala-Tirupati Devasthanam etc.

2.The Oriental Insurance Company Ltd– The Company was a wholly owned subsidiary of the Oriental Government Security Life Assurance Company Ltd and was formed to carry out General Insurance business. In 2003 all shares of our company held by the General Insurance Corporation of India has been transferred to Central Government.  The Gross Premium went up to Rs.58 crores in 1973 and grew to Rs. 4078 crores in 20093.National Insurance– Consequent to passing of the General Insurance Business Nationalisation Act in 1972, National became a subsidiary of General Insurance Corporation of India . It is the second largest non life insurer in India having a large market presence in Northern and Eastern India. The products cater to the diverse insurance requirements of its 14 million policyholders.4.The New India Assurance Co. Ltd.-The company like the other GIC subsidiaries is a leading  insurance group, with offices and branches throughout India and various countries abroad. There are policies to cover all types of vehicles plying on public roads such as Scooters&Motorcycle, Private cars, all types of commercial vehicles,Motor Trade (vehicles in show rooms and garages). Liability is covered for an unlimited amount in respect of death or injury and damage to third party property for Rs.7.5 lacs under Commercial vehicle and private and Rs. 1 lakh for Scooters / Motor Cycles. This policy covers loss or damage to the insured vehicle and its accessories due to fire, self-ignition, burglary, earthquake, flood, inundation, cyclone or while in transit.

History of Insurance in India

INSURANCE IN INDIA

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 19^th 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 17^th 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 1^st 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 28 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 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.

Introduction Of Insurance

Insurance has become a significant economic foreign most industrialized countries. Employers buy insurance to cover their employees against work-related injuries and health problems. Businesses also insure their property, technology used in production against damage and theft. Because it makes business operations safer, insurance encourages businesses to make economic transactions, which benefits the economies of countries. Insurance companies perform a type of monetary redistribution - they collect premiums and eventually redistribute that money as payments. Depending on the type of insurance, redistribution can take anywhere from a few months to many decades. Because of this delay between collecting and paying out funds, insurance companies invest their funds to bring in extra revenues. Such investments help businesses and governments finance their operations, and profits from those investments support the operations of insurance companies.
The earliest known type of life insurance was the burial benefits that Greek and Roman religious societies provided for their members. Neither these religious societies nor any Pre-modern systems for paying death benefits employed actuarial calculations. They were frequently financed on a post assessment basis; that is, contributions were made by all surviving members following one member's death. As a result, funds were not always available to pay claims.
 The first life-insurance company in North America was founded in 1759 in Philadelphia. It was sponsored by the Presbyterian Synod of Philadelphia and gave benefits to Presbyterian ministers and their dependents. After 1840, the religious perspective towards life insurance declined and life insurance began its glorious period.
now Take a look on these 6 commonly asked questions;-

Q1. What is Insurance ?
Insurance is a contract between the insurer and the insured wherein against receipt of certain amount, called premium, the insurer agrees to make good any financial loss that may be suffered by the insured, due to the operation of an insured peril on the subject matter of insurance.

Q.2 : Why People Opt for Insurance ?
The Life is full of uncertainties.. People opt for insurance purely for the reasons of uncertainties in life. Insurance gives the insured a kind of peace of mind as he is assured to making up the loss in the event of such uncertainities in life happen.

Q.3 How does Insurance work ?

Insurance is a technique wherein a number of people, who are exposed to similar risk, participate in the scheme and contribute in the shape of periodic premiums. Such premiums are received by the insurer who is able to pay out of the premiums received by him, for the losses of some of those who have participated in the scheme.Thus it is wonderful technique of spreading and transfer or risks.

Q.4 : What kind of Insurance Are Available in India ?Insurance business is divided into four classes , namely :-
1) Life Insurance- Popular Products in Life insurance are Endowment Assurance (Participating), and Money Back (Participating). More than 80% of the life insurance business is from these products
2) Fire Insurance.
 3) Marine Insurance and
4) Miscellaneous Insurance . Fire and Miscellaneous insurance businesses are predominant. Motor Vehicle insurance is compulsory.
Life Insurers transact life insurance business; General Insurers transact the rest i.e. Fire Insurance, Marine Insurance and Miscellaneous Insurance.

Q. 5 : What are the Primary Legislation for Insurance in India ?

In India Insurance is a federal subject. The primary legislation that deals with insurance business in India are: Insurance Act, 1938, and Insurance Regulatory & Development Authority Act, 1999.

Q. 6: What are Consumer Protections Available in India ?

Insurance Industry has Ombudsmen in 12 cities. Each Ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than Rs. 20 lakhs , in accordance with the Ombudsman Scheme. Addresses can be obtained from the offices of LIC and other insurers. 

to know about the history of insurance in India Read my next Blog....
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