HISTOR HISTORY Y AND DEVELOPMENT OF INSURANCE IN INDIA (Insurance Law Project
Su!"#tte$ To % Ms& Ast'a Sr#astaa
Su!"#tte$ )* % S're*a ))ALL)(H +t' Se"ester A,--./..012
CONTENT
S.NO.
TOPIC
PAGE NO.
ACKNOWLEDGEMENT
I am hereby submitting my Insurance Law project titled ‘ History and Development of Insurance in India .’
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Any attempt at any level can’t be satisfactorily completed without the support and guidance of learned people.
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It gives me immense pleasure to acknowledge all those who have rendered encouragement and support for the successful completion of this work.
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I am grateful to my teacher Ms. Astha
Srivastava.
She gave me moral support and
guided me in different matters regarding the topic and very kindly suggested the outlines of this project and gave different ideas in making it. I thank her for her overall supports.
!A"#I"$ %&' S!()%A **A ++*,!-
INTRODUCTION
WHAT IS INSURANCE: •
Insurance may be described as a social device to reduce or eliminate risk of life and property. 'nder the plan of insurance a large number of people associate themselves by sharing risk attached to individual. he risk which can be insured against include fire the peril of sea death incident / burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved.
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Insurance is actually a contract between 0 parties whereby one party called insurer undertakes in e1change for a fi1ed sum called premium to pay the other party &" happening of a certain event.
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Insurance is a contract whereby in return for the payment of premium by the insured the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events. 2ith the help of Insurance large number of people e1posed to similar risks makes contributions to a common fund out of which the losses suffered by the unfortunate few due to accidental events are made good.
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An insurer is a company selling the insurance3 an insured or policyholder is the person or entity buying the insurance. he insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage called the premium.
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According to 4.*. Maclean 5Insurance is a method of spreading over a large number of persons a possible financial loss too serious to be conveniently borne by an individual.
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India had the nineteenth largest insurance market in the world in 0667. Strong economic growth in the last decade combined with a population of over one billion makes it one of the potentially largest markets in the future. Insurance in India has gone through two radical transformations. *efore 89:; insurance was private with minimal government intervention. In 89:; life insurance was nationali
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*ut unlike life insurance a different structure was created for the industry. &ne holding company was formed with four subsidiaries. As a part of the general opening up of the economy after 8990 a government>appointed committee recommended that private companies should be allowed to operate. It took si1 years to implement the recommendation. he private sector was allowed into the insurance business in 0666. !owever foreign ownership was restricted. "o more than 0; percent of any company can be foreign>owned.
THE IMPORTANCE OF INSURANCE •
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Insurance benefits society by allowing individuals to share the risks faced by many people. *ut it also serves many other important economic and societal functions. *ecause insurance is available and affordable banks can make loans with the assurance that the loan’s collateral ,property that can be taken as payment if a loan goes unpaid- is covered against damage. his increased availability of credit helps people buy homes and cars. Insurance also provides the capital that communities need to ?uickly rebuild and recover economically from natural disasters such as tornadoes or hurricanes.
Insurance itself has become a significant economic force in most industriali
related injuries and health problems. *usinesses also insure their property including technology used in production against damage and theft. *ecause it makes business operations safer insurance encourages businesses to make economic transactions which benefits the economies of countries. In addition millions of people work for insurance companies and related businesses. In 899; more than 0.@ million people worked in the insurance industry in the 'nited States and anada. Insurance as an investment that offers a lot more interms of returns risk cover / as also that ta1 concessions / added bonuses "ot all effects of insurance are positive ones. he possibility of earning insurance payments motivates some people to attempt to cause damage or losses. 2ithout the possibility of collecting insurance benefits for instance no one would think of arson the willful destruction of property by fire as a potential source of money.
HISTORICAL BACKGROUND OF INSURANCE IN INDIA •
In India insurance has a deep>rooted history. It finds mention in the writings of Manu ,Manusmrithi- %agnavalkya ,Bharmasastra- and #autilya ,Arthasastra-. he writings talk in terms of pooling of resources that could be re>distributed in times of calamities such as fire floods epidemics and famine. his was probably a pre>cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries )ngland in particular.
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!istory of Insurance in India can be broadly bifurcated into three erasC a-
Dre "ationalisation
b- "ationalisation c- Dost "ationalisation. •
8E8E was the advent of life insurance business in India with the establishment of the riental !ife Insurance Company in alcutta. his ompany however failed in 8E7@. In 8E09 the Madras )?uitable had begun transacting life insurance business in the Madras Dresidency. 8E=6 was the enactment of the *ritish Insurance Act and in the last three decades of the nineteenth century the *ombay Mutual ,8E=8- &riental ,8E=@- and )mpire of India ,8E9=- were started in the *ombay (esidency. his era however was dominated by foreign insurance offices which did good business in India namely Albert +ife Assurance (oyal Insurance +iverpool and +ondon $lobe Insurance and the Indian offices were up for hard competition from the foreign companies.
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In 898@ the $overnment of India started publishing returns of Insurance ompanies in India. T"e Indian !ife Assurance Companies Act# $%$& was the first statutory measure to regulate life business. In 890E the Indian Insurance Companies Act was enacted to enable the $overnment to collect statistical information about both life and non>life business transacted in India by Indian and foreign insurers including provident insurance societies. In 897E with a view to protecting the interest of the Insurance public the earlier legislation was consolidated and amended by the Insurance Act 897E with comprehensive provisions for effective control over the activities of insurers.
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An &rdinance was issued on 89th 4anuary 89:; nationali'in( t"e !ife Insurance sector and +ife Insurance orporation came into e1istence in the same year. he +I absorbed 8:@ Indian 8; non>Indian insurers as also =: provident societiesF0@: Indian and foreign insurers in all. he +I had monopoly till the late 96s when the Insurance sector was reopened to the private sector.
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Nationali'ation of )eneral Insurance: In 89=0 the $eneral Insurance *usiness ,"ationali
onse?uently $eneral Insurance business was nationali
REGULATION OF INSURANCE BUSINESS IN INDIA his millennium has seen insurance come a full circle in a journey e1tending to nearly 066 years. he process of re>opening of the sector had begun in the early 8996s and the last decade and more has seen it been opened up substantially. In 8997 the $overnment set up a committee under the chairmanship of (" Malhotra former $overnor of (*I to propose recommendations for reforms in the insurance sector. he objective was to complement the reforms initiated in the financial sector. he committee submitted its report in 899@ wherein among other things it recommended that the private sector be permitted to enter the insurance industry. hey stated that foreign companies be allowed to enter by floating Indian companies preferably a joint venture with Indian partners. Gollowing the recommendations of the Malhotra ommittee report in 8999 the Insurance (egulatory and Bevelopment Authority ,I(BA- was constituted as an autonomous body to regulate and develop the insurance industry. he I(BA was incorporated as a statutory body in April 0666. he key objectives of the I(BA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums while ensuring the financial security of the insurance market. he I(BA opened up the market in August 0666 with the invitation for application for registrations. Goreign companies were allowed ownership of up to 0;H. he Authority has the power to frame regulations under Section 88@A of the Insurance Act 897E and has from 0666 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests. In Becember 0666 the subsidiaries of the $eneral Insurance orporation of India were restructured as independent companies and at the same time $I was converted into a national re>insurer. Darliament passed a bill de>linking the four subsidiaries from $I in 4uly 0660. oday there are 0@ general insurance companies including the )$ and Agriculture Insurance orporation of India and 07 life insurance companies operating in the country. *eside I(BA Act and Insurance Act 897E there are some common Act(egulation to the $eneral and +ife Insurance *usiness in India and some Acts have been made for specific re?uirement of +ife Insurance$eneral Insurance
INSURANCE SECTOR REFORMS •
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In 8997 Malhotra ommittee> headed by former Ginance Secretary and (*I $overnor (.". Malhotra> was formed to evaluate the Indian insurance industry and recommend its future direction.he Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. he reforms were aimed at creating a more efficient and competitive financial system suitable for the re?uirements of the economy keeping in mind the structural changes currently underway and recognising that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. In 899@ the committee submitted the report and some of the key recommendations includedC i-
Structure C $overnment stake in the insurance ompanies to be brought down to :6H. $overnment should take over the holdings of $I and its subsidiaries so that these subsidiaries can act as independent corporations. All the insurance companies should be given greater freedom to operate.
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C!"et#t#nC Drivate ompanies with a minimum paid up capital of (s.8bn should be allowed to enter the sector. "o ompany should deal in both +ife and $eneral Insurance through a single entity. Goreign companies may be allowed to enter the industry in collaboration with the domestic companies. Dostal +ife Insurance should be allowed to operate in the rural market. &nly one State +evel +ife Insurance ompany should be allowed to operate in each state.
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Re$u%atr& B'&( he Insurance Act should be changed. An Insurance (egulatory body should
be set up. ontroller of Insurance> a part of the Ginance Ministry> should be made independent. iv-
In)est!ents C Mandatory Investments of +I +ife Gund in government securities to be reduced from =:H to :6H. $I and its subsidiaries are not to hold more than :H in any company ,there current holdings to be brought down to this level over a period of time-
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Cust!er Ser)#ce( +I should pay interest on delays in payments beyond 76 days. Insurance companies must be encouraged to set up unit linked pension plans. omputerisation of operations and updating of technology to be carried out in the insurance industry.
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he committee emphasised that in order to improve the customer services and increase the coverage of insurance policies industry should be opened up to competition. *ut at the same time the committee felt the need to e1ercise caution as any failure on the part of new players could ruin the public confidence in the industry. !ence it was decided to allow competition in a limited way by stipulating the minimum capital re?uirement of (s.866 crores.
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he 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. Gor this purpose it had proposed setting up an independent regulatory body> he Insurance (egulatory and Bevelopment Authority.
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(eforms in the Insurance sector were initiated with the passage of the I(BA *ill in Darliament in Becember 8999. he I(BA since its incorporation as a s tatutory body in April 0666 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. Since being set up as an independent statutory body the I(BA has put in a framework of globally compatible regulations. he other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the I(BA online service for issue and renewal of licenses to agents. he approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products.
PRESENT SCENARIO •
he $overnment of India liberalised the insurance sector in March 0666 with the passage of the Insurance (egulatory and Bevelopment Authority ,I(BA- *ill lifting all entry restrictions for private players and allowing foreign players to enter the
market with some limits on direct foreign ownership. 'nder the current guidelines there is a 0; percent e?uity cap for foreign partners in an insurance company. here is a proposal to increase this limit to @9 percent.
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he opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalilife segments have started selling their insurance policies since 0668.
REASONS FOR FAILURE IN INSURANCE SECTOR IN INDIA
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In India many people were illiterates so they don’t know about insurance benefits and they don’t know what are the e1isting insurance policies which were giving more benefits.
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In India more than @:H people were living below poverty line and they could not even thing about the insurances.
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In the initial stages there was a rumor that insurance is a death policy and it can be claimed only after the death so no one showed interest in insurance.
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In the beginning stages of insurance there was less awareness about insurance policies.
:. *ecause of less disaster in India compared to japan so it can be the reason why people showed less interest to insure their life and properties ;.
India is developing country so if compared to 4apan 'SA and '# we have less density in insurance sector.
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he insurance agents are not succeeding to that e1tent in motiving the people about insurances and insurance policies.
E. Still many business organi
ROLE OF INSURANCE IN INDIA*S FUTURE •
Insurance would assist business to operate with less volatility and risk of failure and provide for greater financial and societal stability from the growth pangs of an estimated growth rate over EH in $BD.
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$overnment has arranged for disaster management and for funds. "$&’s and public institution assists with fund raising and relief assistance. *eside government provides for social security programs. here is considerable impact upon government in these respects. Insurance substantially steps in to provide these services. he effect would be to reduce the strain on the ta1 payers and assist in efficient allocation of societal resources.
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Gacilitates track business and commerce by fle1ible adaptation to changing risk
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needs particularly of the burgeoning services sector. +ike any other financial institution insurance companies generate saving from the insurance sector. 2ithin the economy and make available the same in well directed areas of the economy deserving investment a sector with potential for business as is the case with Indian insurance provides incentive to develop it all the more faster.
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It enable risk to be managed more efficiently through risk pricing and risk transfer and this is an area which provides unlimited opportunities in the Indian conte1t for consulting broking and education in the post privati
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he insurance industry on its own accord is interested in loss minimi
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In its risk pricing and investment decisions the insurance industry sets the tone for investment by others in the economy. Informed assessment by the insurance companies thus signals allocation of resources by others contributing to efficiency in allocation. In India visibility of +.I.. and $.I.. has been dwarfed by government’s actions and other high profile institutions like I..I..I. I.B.*.I. and '..I. &f late A.I.$. is visible in the media and its investment announcements are being followed keenly by institutional investors in India. I.".$. saving trust and Jurich are active in asset management and are being keenly followed by retail investors.
CONCLUSION •
In this study we can conclude that Indian insurance sector is having increasing growth rate. Grom the above trend analysis we can observe that trend percentages are increasing so we can conclude it is improving year to year and it is so sad to say that still India has less density percentage in the world wide when compared it might be the reasons we discuss above. "ow India is also improving it density percentages year to year. So let us hope better that India can also improve in insurance sector.
Indian federal government considers insurance as one of major sources of funds for infrastructure development. The government has identified the following as major thrust areas: * Timely and reliable statistical data and information about policies and markets to instill a degree of credibility; * A code of good practices based on international best practices to raise the standard of Indian insurance sector; * trengthening of supervision and regulation; * !arket participation in decision"making; * #igh solvency standard$ and %eveloping alternative channels.
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