By, Niyati Mashru Paresha Patel

Historical Perspective
The history of life insurance in India dates back to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the nonIndian lives as Indian lives were considered more riskier for coverage.

The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the provident fund Act of 1912.

Important milestones in the life insurance business in India:

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 taken over by the central government and nationalized. LIC formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.

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 in India nationalised through The General Insurance Business (Nationalisation) Act, 1972 with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companiesthe National Insurance Company Limited, the New India Assurance Company Limited, the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

Reforms Of Insurance Sector

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 reforms were aimed at creating a more efficient and competitive financial system. In 1994, the committee submitted the report and some of the key recommendations included are as under:

i) Structure
ii) Competition iii) Regulatory Body iv) Investments v) Customer Service

 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.

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.

Present Scenario :
The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. 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.

Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001. With largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. Its a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services, it adds about 7 per cent to the countrys GDP. Yet, nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and at the same time strengthens the risk taking ability.

Insurance is a federal subject in India. There are two legislations that govern the sector- The Insurance Act- 1938 and the IRDA Act- 1999. The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again.

Types:
Insurance in India can be broadly categorized into two types: life and general. Life insurance can be further classified into term life insurance, whole life insurance, money back plan, endowment policy and pension plan. Health, home, accident, motor and travel insurances fall under the general insurance category. State-owned companies like Life Insurance Corporation of India, as well as private insurance providers, like ICICI Prudential and Bajaj Allianz, provide life and general insurances in India.

Insurance Market :
Non-Life Insurance Market: In December 2000, the GIC subsidiaries
were restructured as independent insurance companies. At the same time, GIC was converted into a national re-insurer. In July 2002, Parliamant passed a bill, delinking the four subsidiaries from GIC. Presently there are 12 general insurance companies with 4 public sector companies and 8 private insurers.

Life Insurance Market : The Life Insurance market in India is an

underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products was 19 percent of the total 400 million of the insurable population.

New Avenues for Growth 2012

With an annual growth rate of 15-20% and the largest number of life insurance policies in force, the potential of the Indian insurance industry is huge. The life insurance industry in India grew by an impressive 36%, with premium income from new business at Rs. 253.43 billion during the fiscal year 2004-2005, braving stiff competition from private insurers.

This report, Indian Insurance Industry: New Avenues 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 2004-05. There are presently 12 general insurance companies with four public sector companies and eight private insurers. According to estimates, private insurance companies collectively have a 10% share of the non-life insurance market.

Important Keys :
Gains of Liberalization in Indian Insurance Sector. Indian Insurance Market Segmentation By Products Size of the Market and Market Share Of Life Insurers, In INR (crore) Market Share Of Non-Life Insurers Forecast of Life Insurance Growth Up to 2012 Forecast of Non-Life Insurance Growth Up to 2012

 Market Revenue of Both Public and Private Insurers Policies and Measures Taken By IRDA To Develop The Insurance Market Research and Development Activities Regulation of insurance and reinsurance companies Major Challenges That Indian Insurance Sector is Facing Profiles of the Major Players