The Insurance sector in India has become a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian Insurance sector reveals the 360-degree turn witnessed over a period of almost 2 centuries.
THE BUSINESs of life Insurance in India in its existing form started in India in the establishment of the oriental life Insurance Company in Calcutta.
Some of the important milestones in the life Insurance business in India are:
- 1912: the Indian life assurance companies act enacted as the first statute to regulate the life Insurance
- 1928: the Indian Insurance companies act enacted to enable the government to collect statistica information about both life and non-life Insurance businesses.
- 1956: 2245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an act of parliament, viz. LIC Act, 1956, with capital conribuition of rs. 5 crore from the govt. of India.
Some of the important milestones in the geneal Insurance business in India are:
- 1907: the Indian mercantile Insurance ltd. Set up,the first Company to transactall classes of General Insurance businesses.
- 1957: GIC, a wing of Insurance association of India ,frames a code of conduct for ensuring faair conduct and sound business practices
- 1972:the General Insurance business act 1972, nationalized the General Insurance business in India with a effect from 31st jan.1973
107 insureres amalgamated and grouped into four companies viz.the national Insurance compant ltd,the new India assurance compamy ltd etc.
INSURANCE SECTOR REFORM
In 1993,malhotra committee headed by formerfinance secretary and rbi governer was formed to evaluate the Indian Insurance and recommend its future direction.
In 1994, the committee submitted the report and some of key recommendations in included
Govt stake in Insurance companies to be brought down to 50%
Government should take over the holdings of GIC and its subsidiaries so that the these subsidiaries can act as independent corporations
All the Insurance should be given greater freedom to operate
Private companies with a minimu paid up capital rs.1bn should be allowed to enter ith the industry
No Company should deal in both life and General Insurance through entity
Foreign companies may be allowed to operate in rural market.
Only one state level life Insurance Company shouldbe allowed to operate in each state.
The Insurance act should be changed
The Insurance regulatory body should be set up.
Controller of Insurance should be made independent.
LIC should pay interest on delays in the payments beyond 30 days.
Insurance companies must be encouraged to set up linked pension plans
Compterisation of operations and updating of technology to improve the customer serviceand increases the coverage of the Insurance industry should be openend up to completion
The committee felt the need to provide greater autonomy to Insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.
MAJOR POLICY CHANGES:
INSURANCE SECTOR HAS BEEN OPENED UP FOR COMPETITION FROM INDIAN PRIVATE Insurance companies with enactment of Insurance regulatory and development authority act,1999 . as per the provisions of irda act ,1999, 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 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.
The authority has notified the 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 holdes' interest etc.
Irda has so far granted registration to 12 private life Insurance companies and 9 General Insurance companies . if the existing pubLIC sector Insurance companies are included,there are currently 13 Insurance companies in the llife side and 13 companies operating in General Insurance business.General Insurance corporation has been approved as the "Indian reinsurer "for underwriting only reInsurance business.
INDIAN INSURANCE INDUSTRY: NEW AVENUES FOR GROWTH 2012
With an annual growth rate 15-20% and the largest number of life Insurance policies in force, the potential of the Indian Insurance industry is huge. Total value of Indian Insurance market (2004-05) is estimated at Rs. 450 billion.
According to government sources the Insurance and banking services contribution to the country's gross domestic product is 7% out of which the gross premium collection forms a significant part. The funds available with the state-owned life Insurance corporation for investments are 8% of gdp.
Till date ,only 20% of the total insurable population of India is covered under various life Insurance schemes, the penetration rates of health and other non-life Insurances in India is also well below the international level. These facts indicate the of immense growth potential of Insurance sector
The year 1999 was revolution in the Indian Insurance Sector ,as major structural changes took place with the ending of govt. monopoly and the passage of IRDA bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership.
Though existing rule says that a foreign partner can hold 26% equity in an Insurance Company, a proposal to increase the limit to 49% is pending with the government.
Innovative products, smart marketing, and aggressive distribution have enabled fledging private Insurance companies to sign up Indian customers faster than anyone expected. Indians, who had always seen Life Insurance as tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer.
The life Insurance industry in India grew by an impressive 36%,with premium income from new business at rs.253.43 billion during fiscal year 2004-05,braving stiff competition from private insurers.
This report, "Indian Insurance industry : new avenue for growth 2012''finds that the market share of the state behemoth,LIC has clocked 21.87% growth in business at rs.197.86 billion by selling 2.4 billion new policies in 2004-2005. But this was still enough to arrest the fall in its market share, as private players grew by 129% to mop up rs.55.57 billion in 2004-2005 from Rs. 24.29 billion in 2003-04.
Though the total volume of LIC's business increased in the last fiscal year (2004-05) compared to the previous one, its market share came down from 87.04 to 78.07%. The 14 private insurers increased their market share from about 13% to about 22% in a year's time.
The figures for the first two months of fiscal year 2005-06 also speak of the growing share of private insurers. The share of LIC for this period has further come down to 75%, while the private players have grabbed over 24%.
There are presently 12 General Insurance companies with 4 public sector companies and 8 private insurers. According to estimates, private Insurance companies collectively have a 10% share of non-life Insurance market.
Growth of Insurance business
India's Insurance sector is zooming to show an unprecedented progressive growth of more than 200% by the period of 2009-10. The associated chamber of commerce and industry of India has clocked out the fact that during this period, private players in the industry will see a growth of about 140%, owing to the adoption of the aggressive marketing techniques in comparison of the growth rate of 35- 40 % achieved by state owned Insurance companies. The chamber is expected to poise the business of Insurance to reach at rs.2000 billions in coming years from the present level of Rs. 500 billion. With the result of adoption of intense marketing strategies by the private players, the declination has been witnessed in respect of the share of state owned companies captured in the market. The market share outcomes has been noticed in context of such companies like GIC, LIC, which have come down to nearly 70% in the past 4-5 year from the 97 %.
The experts have forecasted the more severe competition in the insurance sector likely to be occurred in nesr future. Till recently,insurance sector was majority driven by the government sector plyers but now many private sector multinational players have come into the picture. Like HDFC,ICICI,Kotak, Mahindra and Birla Sunlife. Insurance sector has been cahracterised as the booming sector of Indian arena,which has shown the growth rate of more tan 15-20%.
Insurance in india is put under the federal subject and is governed by insurance act,1938,the Life Insurance Corpporation act,1956 and General Insurance business act,1972, IRDA Act ,1999 etc.
The roots of the insurance sector can be tracked down in the year 1818 in the formation of the life insurance corporation in Calcutta. The idea was to provide means to the English widows. During that time different premiums were charged for the Indian and English widows.
After the independence ,insurance sector in india grew at a much higher pace. In the year 1956,Indian government combined together 245 indian and foreign insurers and the provident socities under the name of nationalized monolpoly corporation.