INSURANCE SECTOR REFORMS

• In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor
R.N. Malhotra- was formed to evaluate the Indian insurance industry and recommend its
future direction.The Malhotra committee was set up with the objective of complementing
the reforms initiated in the financial sector. The reforms were aimed at creating a more
efficient and competitive financial system suitable for the requirements 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 1994, the committee submitted the report and some of the key recommendations included:
i) Structure:
Government stake in the insurance Companies to be brought down to 50%. Government should
take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as
independent corporations. All the insurance companies should be given greater freedom to
operate.
ii) Competition:
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the
sector. No Company should deal in both Life and General Insurance through a single entity.
Foreign companies may be allowed to enter the industry in collaboration with the domestic
companies. Postal Life Insurance should be allowed to operate in the rural market. Only one
State Level Life Insurance Company should be allowed to operate in each state.
iii) Regulatory Body:
The Insurance Act should be changed. An Insurance Regulatory body should be set up.
Controller of Insurance- a part of the Finance Ministry- should be made independent.
iv) Investments:
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to
50%. GIC and its subsidiaries are not to hold more than 5% in any company (there current
holdings to be brought down to this level over a period of time)
v) Customer Service:
LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be
encouraged to set up unit linked pension plans. Computerisation of operations and updating of
technology to be carried out in the insurance industry.
• The committee emphasised that in order to improve the customer services and increase
the coverage of insurance policies, industry should be opened up to competition. But at
the same time, the committee felt the need to exercise caution as any failure on the part of
new players could ruin the public confidence in the industry. Hence, it was decided to
allow competition in a limited way by stipulating the minimum capital requirement of
Rs.100 crores.
• 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- The Insurance Regulatory and Development Authority.
• Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in
Parliament in December 1999. The IRDA since its incorporation as a statutory body in
April 2000 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 IRDA has put in a framework of globally compatible regulations. The 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 IRDA online service
for issue and renewal of licenses to agents. The 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
• The Government of India liberalised the insurance sector in March 2000 with the
passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all
entry restrictions for private players and allowing foreign players to enter the market with
some limits on direct foreign ownership. Under the current guidelines, there is a 26
percent equity cap for foreign partners in an insurance company. There is a proposal to
increase this limit to 49 percent.
• The 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 revitalizing of the public
sector companies. In the private sector 12 life insurance and 8 general insurance
companies have been registered. A host of private Insurance companies operating in both
life and non-life segments have started selling their insurance policies since 2001.
 REASONS FOR FAILURE IN INSURANCE SECTOR IN INDIA
1. In India many people were illiterates so they don’t know about insurance benefits and
they don’t know what are the existing insurance policies which were giving more
benefits.
2. In India more than 45% people were living below poverty line and they could not even
thing about the insurances.
3. 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.
4. In the beginning stages of insurance there was less awareness about insurance policies.
5. Because 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
6. India is developing country so if compared to Japan, USA, and UK we have less density
in insurance sector.
7. The insurance agents are not succeeding to that extent in motiving the people about
insurances and insurance policies.
8. Still many business organizations and manufacture organizations are not showing interest
to insure their property.
9. Claim settlement is also one of the back drop (late process in climes).
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 8% in GDP.
• Government has arranged for disaster management and for funds. NGO’s and
public institution assists with fund raising and relief assistance. Beside
government provides for social security programs. There is considerable impact
upon government in these respects. Insurance substantially steps in to provide
these services. The effect would be to reduce the strain on the tax payers and
assist in efficient allocation of societal resources.
• Facilitates track, business and commerce by flexible adaptation to changing risk
needs particularly of the burgeoning services sector.
• Like any other financial institution insurance companies generate saving from the
insurance sector. Within 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.
• 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 context
 for consulting, broking and education in the post privatization phase with newer
employment opportunities.

• The insurance industry on its own accord is interested in loss minimization. It’s
expertise in understanding losses assists it to share the experience across the
economy thus enabling better loss control and preservation of national assets.
• 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 L.I.C. and G.I.C. has been dwarfed
by government’s actions and other high profile institutions like I.C.I.C.I., I.D.B.I.,
and U.T.I. Of late A.I.G. is visible in the media and its investment announcements
are being followed keenly by institutional investors in India. I.N.G. saving trust
and Zurich 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. From
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. Now
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;

* Strengthening of supervision and regulation;

* Market participation in decision-making;
* High solvency standard' and Developing alternative channels.