Insurance since Ancient times
In India, Insurance has well established history of more than thousand years. In Rigveda, there is a concept called Yogakshema, which means prosperity, well being and security of people. Also Insurance was mentioned in Manusmrithi, Dharmashastra and Arthashastra. In those times insurance refers to pooling of resources that could be re-distributed in times of natural calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance.
Modern Day Insurance
The modern form of Life Insurance came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil.
The insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them.
Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies such as The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore.
Life Insurance Companies Act, 1912
In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.
Insurance Act 1938
From 44 companies with total business-in-force as Rs.22.44 Crores, it rose to 176 companies with total business-in-force as Rs.298 Crores in 1938. With a view to protect the interests of the Indian Insurance companies, the earlier legislation was amended with the enactment of the Insurance Act 1938, which consists comprehensive provisions for effective control over the activities of insurers or insurance organizations.
The Insurance Act 1938 was the first legislation governing the life insurance and non-life insurance and to provide strict state control over insurance business.
Birth of Life Insurance Corporation of India
On 19th of January, 1956, that life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization. Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill.
The Parliament of India passed the Life Insurance Corporation Act on June 1956, and the Life Insurance Corporation of India was created on September 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.
The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
History of General (non-life) Insurance
The history of general insurance dates back to the Industrial Revolution in the west during the 17th century. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd. at Kolkata in the year 1850 by the Britishers. In 1907, the Indian Mercantile Insurance Ltd. was established and was the first company to transact all classes of general insurance business.
In 1957, General Insurance Council (GIC), a wing of the Insurance Associaton of India was established The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices across Non-Life or General insurance sector.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also established in the same year.
With the passing of the General Insurance Business (Nationalization) Act in 1972, general insurance business was nationalized. A total of 107 insurers were amalgamated and grouped into four companies namely National Insurance Company Ltd. at Kolkata, the New India Assurance Company Ltd. at Mumbai, the Oriental Insurance Company Ltd at New Delhi and the United India Insurance Company Ltd at Chennai.
The Government set up a committee in 1993 under the chairmanship of R.N. Malhotra, former Governor of RBI (Reserve Bank of India), to propose recommendations for initiation and implementation of reforms in the Indian insurance sector. The objective of setting up this committee was to complement the pace of reforms initiated in the financial sector.
The aforesaid committee submitted its report in 1994 wherein it was recommended that the private sector be permitted to enter the Indian insurance sector. It also recommended the participation of foreign companies by allowing them to enter into an MOU (Memorandum of Understanding) by floating Indian companies, preferably a joint venture with Indian partners.
Birth of IRDA
Following the recommendations of the Malhotra Committee report, the Insurance Regulatory and Development Authority (IRDA) Act, in 1999 was passed by the Indian Parliament.
The IRDA opened up the Indian insurance market in August 2000 by inviting application for registration proposals. Foreign companies were allowed entry into Indian insurance sector with an upper ceiling on ownership of up to 26% participation. The IRDA has been granted the powers to frame regulations under Section 114A of the Insurance Act, 1938.
From 2000 onwards, IRDA has framed various regulations for carrying on insurance business to protection of Indian policyholders’ interests including the registration of Life & Non-Life (General) Insurance companies.
Insurance – a thriving sector
At present 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 massive one and is thriving 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.