Fact Sheet : Insurance Sector In India
History of Insurance in India.
1. Life insurance in the modern form was first set up in India through a British company called the Oriental Life insurance company which was established at Calcutta in 1818.
2. In 1829 Madras Equitable Life Insurance society was established.
3. These companies collected 15-20 % more premium from Indians as they thought Indian have a below standard life.
4. In 1871 Bombay Mutual Life Assurance Society was established which started Life Insurance of Indians at a general premium rate.
5. Indian Insurance Company Act was implemented in 1912 and this was the first step of regulating insurance sector in India.
6. In 1928 Indian Insurance Company Act was implemented and its main objective was to collect statistical information related to insurance of Indians and Foreigners. Previous acts were integrated with this act in 1938. It was amended in 1950.
7. On January 19, 1956 Central Government took over the charge of all the 154 Indian, 16 non Indian and 75 Provident committees, which were working in our country at that time. In September 1956 (on 1st of September) , these companies were nationalized. On this date (September 1, 1956) Life Insurance Corporation of India was established under an Act of parliament with an initial capital of 5 crore given by Government of India.
Reforms in Insurance Sector:
1) Insurance Regulatory and Development Authority Act was enacted in 1999. This act paved the way for the entry of private insurance companies into India’s insurance market.
2) On April 19, 2000 Insurance Regulatory and Development Authority was established with main objective of protecting the interest of the holders of Insurance Policies and to regulate and promote the orderly growth of the insurance industry.
3) Insurance Amendment Act (2002) was enacted by the government. This act is related to
a) introduction of brokers as intermediaries,
b) allowing more flexibility in the eligibility qualifications for corporate agents,
c) Allowing more flexible mode of payment through credit cards, internet etc.
d) Change in the allocation of surplus between shareholders and policyholders.
e) Direct entry of co-operatives in the insurance sector
f) Smoothening of the functions of the sector
4) General Insurance Business (Nationalization) Amendment Act 2002: The government of India decided that General Insurance of India which was holding company of fourt Public sector Insurance companies should be declared as Indian Re-insurer. Actually with the enactment of IRDA act 1999 it was necessary to nominate Indian Reinsurer under Insurance act 1938. Since under the act , a Reinsurer cannot underwrite .
5) The Union Cabinet approved the Insurance (Amendment) Bill, 2008 for amendment to Insurance Act 1938, General Insurance Business Act, 1972, and Insurance Regulatory and Development Act, 1999. The Bill was introduced in Rajya Sabha on December 23, 2008 amidst protest from Left parties. The bill, aimed to bring in comprehensive amendment of insurance laws, including a proposal to raise the foreign investment ceiling from 26 per cent to 49 per cent.
Malhotra committee was constituted to make recommendation for Insurance sector. It submitted its report in January 1994. This committee made a recommendation to enhance the capital of LIC from 5 crore to 200 crore however govt. didn’t accept it.
Rather, a bill was placed by Government in parliament to enhance the capital base of LIC to 100 crore. Although Indian markets were privatized and opened up to foreign companies in a number of sectors in 1991, insurance remained out of bounds on both counts. The government wanted to proceed with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to set up a committee headed by Mr. R. N. Malhotra (the then Governor of the Reserve Bank of India).
Liberalization of the Indian insurance market was recommended in a report released in 1994 by the Malhotra Committee, indicating that the market should be opened to private-sector competition, and ultimately, foreign private-sector competition. It also investigated the level of satisfaction of the customers of the LIC. Curiously, the level of customer satisfaction seemed to be high.
The committee made a number of important and far-reaching recommendations.
Government stake in the insurance Companies to be brought down to 50%.
Private Companies with a minimum paid up capital of Rs.100 Crore should be allowed to enter the industry.
Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
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.
- 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.
Computerization 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.
Immediately after the publication of the Malhotra Committee Report, a new committee (called the Mukherjee Committee) was set up to make concrete plans for the requirements of the newly formed insurance companies. Recommendations of the Mukherjee Committee were never made public.
Insurance Regulatory and Development Authority (IRDA) Act 1999
After the report of the Malhotra Committee came out, changes in the insurance industry appeared imminent. Unfortunately, instability in Central Government, changes in insurance regulation could not pass through the parliament.
The dramatic climax came in 1999. On March 16, 1999, the Indian Cabinet approved an Insurance Regulatory Authority (IRA) Bill that was designed to liberalize the insurance sector. The bill was awaiting ratification by the Indian Parliament. However, the BJP Government fell in April 1999. The deregulation was put on hold once again. An election was held in late 1999.
A new BJP-led government came to power. On December 7, 1999, the new government passed the Insurance Regulatory and Development Authority (IRDA) Act. This Act repealed the monopoly conferred to the Life Insurance Corporation in 1956 and to the General Insurance Corporation in 1972.
The authority created by the Act is now called IRDA. It has ten members. New licenses were given to private companies. IRDA has separated out life, non-life and reinsurance insurance businesses. Therefore, a company has to have separate licenses for each line of business.
Provisions of IRDA Act 1999:
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
Life Insurance Corporation of India Ltd:
1) Before nationalization Indian insurance business was centralized in urban areas and LIC after the recommendation of Administrative reform Commission had following objectives inculcated in its objectives.
(1) To extend the sphere of life insurance
(2) Cover every person eligible for insurance
(3) Special attention to the weaker sections of society
(4) Provide insurance on affordable cost
(5) Mobilize maximum savings of people by making insured savings more attractive
(6) Make efforts to meet the life insurance requirements of various segments of society
2) LIC has its headquarters in Mumbai and 7 zonal offices at Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Kanpur and Bhopal, operates through 101 divisional offices and 2048 branch offices.
3) LIC has also offices in England, Mauritius and Fiji.
4) An Overseas subsidiary of the LIC named MIL (International ) E.C. Bahrain was established in 1989.
5) LIC is also associated with Joint ventures abroad in the field of insurance. One of them is Kenya India Assurace Company Ltd. Nairobi and Life Insurance Corporation ( Nepal) Ltd. ( A JV of LIC India and Vishal Group Ltd of Nepal) . Besides LIC Lanka is also a joint venture with Ms. Bartleet & Company .
6) LIC is today the largest life insurance company which not only has offices in several countries but also has diversified its business into Mutual Fund and Housing Finance.
7) The Life fund of LIC stands at Rs 6, 86,616 crore and its Asset Base stands at Rs 8,03,820 crore making it one of the largest financial institutions of the country.
8) During the year 2007-08, LIC completed 375.90 lacs new policies with first premium income of Rs.43812.86 Crores with this the total number of inforce policies of LIC crossed the mark of 23 crore in individual insurance. More than 2.21 Crore persons were covered during the year 2007-08 under various social security schemes managed by LIC. Newly introduced Scheme “Aam Admi Bima Yojna also registered excellent response and more than 46 lakhs heads of the rural landless households have been covered till date under this scheme.
9) As at 31st March 2008, LIC has invested Rs 82,022 crore in the Infrastructure and Social Sector. LIC has been ranked as the most trusted service Brand in the Economic Times Brand Equity Survey for the fifth consecutive year in 2008. LIC’s overall ranking across all categories has gone up from 27th to 12th in this survey. LIC has won various other prestigious awards during the year which consist- Reader’s Digest Trusted Brand -2008,Skoch Challengers Award, Most Preferred Life Insurance Co. of the Year by CNBC-Awaj-(Third time in a row),Outlook Money-NDTV Profit Best Life Insurance Award 2007,Golden Peacock Award for Corporate Governance etc.
10) LIC Credit Card: Life Insurance Corporation of India (LIC) fulfilled its long cherished dream to have its own credit card by launching “LIC Card” at its Headquarters “Yogakshema” in Mumbai on March 30, 2009. LIC of India has formed a separate company “LIC Cards Services Limited” (LIC CSL) to bring out its own credit card in the market in line with the corporate vision to emerge as a trans-nationally competitive financial institution. LIC Card has been brought out by LIC Cards Services Limited as a white labeled card. This white labeled Card is managed by Corporation Bank. It is a VISA branded Card valid internationally.
11) LIC Credit Card is a unique offering from LIC CSL loaded with numerous benefits and features for the customers. LIC Card is a ‘photo card’ having the photo of the cardholder and signature digitally imprinted on the card for greater security. LIC Card is designed to serve various synergetic benefits to the customers of LIC of India. Initially, the Card will be issued in Mumbai & New Delhi on limited scale.
12) LIC –Jeevan varsha: Jeevan Varsha is a Close-ended Guaranteed Additions plan. The Plan provides guaranteed benefits on death as well as maturity and has a few unique features. The Plan was open for sale from 16th February 2009 to 31st March 2009. It is a Money Back Plan with only 2 Policy terms i.e., 9 years and 12 years, with Premium paying term restricted to only 9 years for both . This has been done keeping in view the preference of the people for short duration policies. Further it offers attractive Guaranteed Additions of Rs. 65/- per thousand S.A. per year for 9-year term and Rs. 70/- per thousand S.A. for a policy of 12-year term.
13) LIC’s Health Protection Plus : Recently ( April 2009) LIC has launched a unique Health Insurance Plan “HEALTH PROTECTION PLUS” . LIC’s Health Protection Plus plan is a unique long term health insurance plan that offers health insurance covers for the entire family (husband, wife and the children) – Hospital Cash Benefit (HCB) and Major Surgical Benefit (MSB) along with a ULIP component (investment in the form of Units) that is specifically designed to meet Domiciliary Treatment Benefit (DTB) / Out Patient Department (OPD) expenses for the insured members.
Ashraya Bima Yojana :
It was introduced in Union Budget 2001-02. It was stated in Budget ” The policy will provide compensation of up to 30 per cent of last drawn annual pay for a period of one year to workers who lose their jobs. It is proposed that the policy will initially cover all employees drawing a salary up to Rs 10,000 per month. The four Government owned general insurance companies will administer this policy on a “No Profit No Loss” basis and will announce full details including premium rates of the proposed policy by the end of June 2001.”
Insurance in India : wikipedia link
with inputs from Wikipedia, LIC India, Financial Express, Live Mint
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