History of insurance

History of insurance

The history of insurance in India is deep-rooted. Since the earliest times insurance has been carried out in some form or other. Insurance in India has developed over time and has taken ideas from other countries – England in particular.

The history of insurance in India can be divided into three phases as follows:

Phase I – Pre-liberalisation

1818–1829 First insurance company: in 1818 the Oriental Life Insurance Company in Kolkata (then Calcutta) was the first company to start a life insurance business in India. However, the company failed in 1834. In 1829 the Madras Equitable had begun transacting life insurance business in the Madras Presidency.

1870 Following the enactment of the British Insurance Act 1870, the last three decades of the nineteenth century saw the creation of the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) in the Bombay Residency.

1912 The Indian Life Assurance Companies Act 1912 was the first statutory measure to regulate life business.

1928 The Indian Insurance Companies Act 1928 gave the Government the power to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers, including provident insurance societies.

1938 To protect the interest of the insuring public, the earlier legislation was consolidated and amended by the Insurance Act 1938 which gave the Government effective control over the activities of insurers.

1950s In the 1950s, competition in the insurance business was very high and there were allegations of unfair trade practices. The Government of India therefore decided to nationalize insurance business.

1957 Formation of the General Insurance Council (GI Council): the GI Council represents the collective interests of the non-life insurance companies in India. The Council speaks out on issues of common interest, participates in discussions related to policy formation, and acts as an advocate for high standards of customer service in the insurance industry.

1972 The General Insurance Business (Nationalisation) Act 1972 (GIBNA) was passed. The General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA. It was incorporated on 22 November 1972 under the Companies Act 1956 as a private company limited by shares.

Phase II – Liberalisation

The start of reform

The international payment crisis of the 1990s forced the Government to re-think its industrial policies and regulations. The Government only had enough foreign currency reserves to finance a few days of imports.

1993 Malhotra Committee: in 1993 the Government set up a committee under the chairmanship of R N Malhotra, the former Governor of RBI, to make recommendations for the reform of the insurance sector. In its report in 1994, the committee recommended, among other things, that the private sector and foreign companies (but only through a joint venture with an Indian partner) be permitted to enter the insurance industry.

1999 Formation of the IRDA: following the recommendations of the Malhotra Committee report, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body in 1999 to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April 2000.

Phase III – Post-liberalisation

As we have seen, following the recommendations of the Malhotra Committee, the insurance sector was opened to private companies. Foreign companies were also allowed to participate in the Indian insurance market through joint ventures (JVs) with Indian companies. Under current regulations the foreign partner cannot hold more than a 26% stake in the joint venture.

The key objectives of the IRDA include the promotion of competition with a view to increasing customer satisfaction through more consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA has the power to make regulations under section 114A of the Insurance Act 1938. Since 2000 it has introduced various regulations ranging from the registration of companies for carrying on insurance business to the protection of policyholders’ interests.

The Insurance Act 1938 and GIBNA were amended which removed the exclusive privilege of GIC and its four subsidiaries to write general insurance in India. As a result, general insurance business was opened up to the private sector.

With the General Insurance Business (Nationalisation) Amendment Act 2002, effective from 21 March 2003, GIC ceased to be a holding company of its four subsidiaries. Their ownership was vested with the Government of India. GIC was notified as a reinsurance company.

Recent developments in the insurance industry

By 2010 India was the fifth largest insurance market in the world and it is still growing rapidly.

There has been a lot of change in the decade since the market was opened up to the private sector. In this section we will look at some of the important developments of the last few years.

Growing importance of IT

All insurance companies now use information technology (IT) to benefit their business and to improve convenience for their customers. Today, customers can pay their premiums and check the status and other details of their policy using the company’s website. Updates relating to the receipt of premiums or changes to their policy are sent to the customer through mobile SMS.

Bancassurance

Many banks have joined with insurance companies to cross-sell insurance products to their customers. Insurance companies benefit from the wide network and loyal customer base of banks, and the contribution that bancassurance makes to insurance sales has steadily grown over the last few years. The banks benefit through being able to provide value-added products to their customers and from the fee income they receive in return from the insurance companies. Many banks have started their own life insurance subsidiaries.

Online sales

Most of the insurance companies have now started selling insurance products online. This eliminates the need for an intermediary and reduces costs. This saving can be passed to customers in the form of reduced premiums.

Micro-insurance

Micro-insurance guidelines were issued by the IRDA in 2005. Micro-insurance products provide insurance protection to people in lower income groups, such as self-help group (SHG) members, farmers, rickshaw pullers and others against the risks that they and their assets are exposed to. The premiums for these products may be as low as Rs. 15 and are collected on a weekly basis. The minimum life insurance cover specified by the Regulator for this category is Rs. 5,000 and the maximum cover that can be provided is Rs. 50,000. People who work in agriculture and allied activities are exposed to the hazards of nature so they need protection against risks like monsoon failure, floods etc. This is where micro-insurance can come to their rescue.

Grievance redressal

• Whenever any industry is experiencing fast growth there are bound to be concerns, and the insurance industry is no different. There has been an increase in complaints from customers about the settlement of their claims and customer service in general. As we saw earlier, the IRDA has taken steps to protect the interest of the policyholders. It has asked insurance companies to set up internal customer grievance redressal cells/departments, and an Insurance Ombudsman has been established.

• The latest initiative from the IRDA is the setting up of a call centre which an insured can contact to seek the resolution of a grievance they have against their insurer. The unhappy customer can either call a toll-free number (155255) or email complaints@irda.gov.in to register their complaint.

Anand Khemka
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+91-8287041341