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2.

1 INSURANCE IN INDIA

Insurance in India refers to the market for insurance in India which covers
both the public and private sector organizations. It is listed in the Constitution of
India in the Seventh Schedule as a Union List subject, meaning it can only be
legislated by the central government.
The insurance sector has gone through a number of phases by allowing
private companies to solicit insurance and also allowing foreign direct investment.
India allowed private companies in insurance sector in 2000, setting a limit
on FDI to 26%, which was increased to 49% in 2014. However, the largest lifeinsurance company in India, Life Insurance Corporation of India is still owned by
the government and carries a sovereign guarantee for all insurance policies issued
by it.
The insurance industry of India consists of 52 insurance companies of which
24 are in life insurance business and 28 are non-life insurers. Among the life
insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart
from that, among the non-life insurers there are six public sector insurers. In
addition to these, there is sole national re-insurer, namely, General Insurance
Corporation of India. Other stakeholders in Indian Insurance market include agents
(individual and corporate), brokers, surveyors and third party administrators
servicing health insurance claims.
Out of 28 non-life insurance companies, five private sector insurers are
registered to underwrite policies exclusively in health, personal accident and travel
insurance segments. They are Star Health and Allied Insurance Company Ltd,

Apollo Munich Health Insurance Company Ltd, Max Bupa Health Insurance
Company Ltd, Religare Health Insurance Company Ltd and Cigna TTK Health
Insurance Company Ltd. There are two more specialized insurers belonging to
public sector, namely, Export Credit Guarantee Corporation of India for Credit
Insurance and Agriculture Insurance Company Ltd for crop insurance.

MARKET SIZE

India's life insurance sector is the biggest in the world with about 36 crore
policies which are expected to increase at a compound annual growth rate (CAGR)
of 12-15 per cent over the next five years. The insurance industry plans to hike
penetration levels to five per cent by 2020, and could top the US$ 1 trillion mark in
the next seven years.
The total market size of India's insurance sector is projected to touch US$
350-400 billion by 2020 from US$ 66.4 billion in FY13.The general insurance
business in India is currently at Rs 77,000 crore (US$ 12.41 billion) premium per
annum industry and is growing at a healthy rate of 17 per cent.
Investment corpus in India's pension sector is anticipated to cross US$ 1
trillion by 2025, following the passage of the Pension Fund Regulatory and
Development Authority (PFRDA) Act 2013, according to a joint report by CII-EY
on Pensions Business in India.

Indian insurance companies are expected to spend Rs 117 billion (US$ 1.88
billion) on IT products and services in 2014, an increase of five per cent from
2013, as per Gartner Inc. Also, insurance companies in the country could spend Rs
4.1 billion (US$ 66.11 million) on mobile devices in 2014, a rise of 35 per cent
from 2013.

2.2 HISTORY OF INSURANCE IN INDIA

In India, insurance has a deep-rooted history. Insurance in various forms has


been mentioned in the writings of Manu
(Dharmashastra)

(Manusmrithi),

Yagnavalkya

and Kautilya (Arthashastra). The fundamental basis of the

historical reference to insurance in these ancient Indian texts is the same i.e.
pooling of resources that could be re-distributed in times of calamities such as fire,
floods, epidemics and famine. The early references to Insurance in these texts have
reference to marine trade loans and carriers' contracts.
Insurance in its current form has its history dating back until 1818,
when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to
cater to the needs of European community. The pre-independence era in India saw
discrimination between the lives of foreigners (English) and Indians with higher
premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance
Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were
founded. In the year 1912, the Life Insurance Companies Act and the Provident
Fund Act were passed to regulate the insurance business. 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. However, the
disparity still existed as discrimination between Indian and foreign companies. The
oldest existing insurance company in India is the National, which was founded
in 1906, and is still in business.

The Government of India issued an Ordinance on 19 January 1956


nationalizing the Life Insurance sector and Life Insurance Corporation came into
existence in the same year. The Life Insurance Corporation (LIC) absorbed 154
Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and
foreign insurers in all. In 1972 with the General Insurance Business
(Nationalisation) Act was passed by the Indian Parliament, and consequently,
General Insurance business was nationalized with effect from 1 January 1973. 107
insurers were amalgamated and grouped into four companies, namely National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental
Insurance Company Ltd and the United India Insurance Company Ltd. The
General Insurance Corporation of India was incorporated as a company in 1971
and it commence business on 1 January 1973.
The LIC had monopoly till the late 90s when the Insurance sector was
reopened to the private sector. Before that, the industry consisted of only two state
insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General
Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary
companies. With effect from December 2000, these subsidiaries have been delinked from the parent company and were set up as independent insurance
companies: Oriental Insurance Company Limited, New India Assurance Company
Limited, National Insurance Company Limited and United India Insurance
Company Limited.

Some of the important milestones in the life insurance business in


India are:
1818: Oriental Life Insurance Company, the first life insurance company on
Indian soil started functioning.
1870: Bombay Mutual Life Assurance Society, the first Indian life
insurance company started its business.
1912: The Indian Life Assurance companies Act enacted as the first statute
to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the
government to collect statistical information about both life and non-life
insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act
with the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies are taken over
by the central government and nationalized. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore
from the Government of India. The General insurance business in India, on
the other hand, can trace its roots to the Triton Insurance Company Ltd., the
first general insurance company established in the year 1850 in Calcutta by
the British.

Some of the important milestones in the general insurance


business in India are:

1907 - The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.
1957 - General Insurance Council, a wing of the Insurance Association of
India, frames a code of conduct for ensuring fair conduct and sound
business practices.
1968 - The Insurance Act amended to regulate investments and set
minimum solvency margins and the Tariff Advisory Committee set up.
1972 - The General Insurance Business (Nationalization) Act, 1972
nationalized the general insurance business in India with effect from 1st
January1973.
107 insurers amalgamated and grouped into four companies viz. the
National Insurance Company Ltd., the New India Assurance Company Ltd.,
the Oriental Insurance Company Ltd. and the United India Insurance
Company Ltd. GIC incorporated as a company.

2.3 GROWTH OF INSURANCE SECTOR IN INDIA


India's insurance sector is zooming to show an unprecedented progressive
growth of more than 200% by the period of 2009-12. The Associated Chambers 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 per cent, owing to the
adoption of the aggressive marketing techniques in comparison of the growth rate
of 35 per cent-40 per cent achieved by the state owned insurance companies. The
chamber is expected to poise the business of insurance to reach at Rs.2000 billions
in coming 2 years from the present level of Rs. 500 billion. With the result of
adoption of the intense marketing strategies by the private players, the declination
has been witnessed in respect of the share of the state owned insurance companies
captured in the market. The market share fallout has been noticed in context of
such companies like GIC, LIC, which have come down to nearly 70 per cent in the
past 4-5 years from the 97 per cent.
The experts have fore casted the more severe competition in the insurance
sector likely to be occurred in the near future. Till recently, insurance sector was
majority driven by the government sector players but now many private sector
multinational players have come into the picture. Like HDFC, ICICI, Kotak,
Mahindra and Birla Sunlife. Insurance sector has been characterized as the
booming sector of the Indian arena, which has shown the growth rate of more than
15 per cent to 20 per cent. Insurance in India is put under the federal subject and is
governed by the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and
General Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and
Development Authority (IRDA) Act, 1999 and by various other acts.