Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.
There are different kinds of insurance. Like Auto insurance, Health Insurance, Fire insurance to protect against varied risks. Mainly however, insurance is divided into two broad Categories:
- Life Insurance
- General Insurance
History of Life Insurance
The technique of pooling of resources to be re-distributed in times of calamities and emergencies like fire, floods, famine and epidemics is not new in India. This concept of insurance finds mention in the writings of Manu’s Manusmiriti, Yagnavalkya’s Dharmasastra and Kautilya’s Arthasastra. Insurance records in the form of Marine trade loans and carrier’s contracts exist dating ancient times. Over time, the concept of Insurance evolved in India drawing heavily from other countries, particularly England.
Timeline of Life Insurance Companies
- 1818: establishment of the Oriental Life Insurance Company in Calcutta. This company failed in 1834.
- 1829: the Madras Equitable started transacting life insurance business in the Madras Presidency.
- 1870: British Insurance Act enacted, Industry back then was dominated by foreign insurance offices which did good business in India.
- 1914: the Government of India started publishing returns of Insurance Companies in India.
- 1912: The Indian Life Assurance Companies Act, the first statutory measure to regulate life business was enacted.
- 1928: Indian Insurance Companies Act was enacted. This act enabled 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.
- 1938: Insurance Act, 1938 amended previous act and consolidated it with comprehensive provisions for effective control over the activities of insurers.
- 1950: The Insurance Amendment Act abolished Principal Agencies. However, due to fierce competition and allegations of unfair trade practices, The Government of India, decided to nationalize insurance business.
- 1956 Insurance sector nationalized and Life Insurance Corporation came into existence.
Life Insurance Corporation
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 in the insurance sector in India till the late 90s when the Insurance sector was reopened to the private sector.
History of General Insurance in India
Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century gave rise to the concept of General Insurance.
Timeline of General Insurance Cos.
- 1850: General Insurance has its roots in the establishment of Triton Insurance Company Ltd., in Calcutta by the British.
- 1907: Indian Mercantile Insurance Ltd, was set up and was the first company to transact all classes of general insurance business.
- 1957: the General Insurance Council, a wing of the Insurance Associaton of India was formed. It framed a code of conduct for ensuring fair conduct and sound business practices.
- 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins.
- 1972 General Insurance Business (Nationalization) Act was passed and with it, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were 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.
- 1971: The General Insurance Corporation of India was incorporated as a company, it commence business on January 1st 1973.
- 1990s: The process of re-opening of the sector had began and the last decade and more has seen it been opened up substantially.
- 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 of Malhotra committee was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 and recommended that the private sector be permitted to enter the insurance industry, preferably in a joint venture with Indian partners.