Insurance System in India - An OverviewHistory of Insurance Sector - The oldest existing insurance company in India is the National Insurance Company , which was founded in 1906, and is still in business.

The largest life-insurance 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.

In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance 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 General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on 1 January 1973.

Insurance RepositoryOn 16th September 2013, IRDA launched 'Insurance Repository' services in India. It is a unique concept and first to be introduced in India. This system enables policy holders to buy and keep insurance policies in dematerialized or electronic form. Policy holders can hold all his insurance policies in an electronic format in a single account called electronic insurance account (eIA). Insurance Regulatory and Development Authority has issued licenses to five entities to act as Insurance Repository:

NSDL Database Management Limited, Central Insurance Repository Limited ( CIRL ), SHCIL Projects Limited, Karvy Insurance repository Limited, CAMS Repository Services Limited

The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.Life insurance in India was completely nationalized on 19 January 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India.

The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies.(Current 49%).

The primary regulator for insurance in India is the Insurance Regulatory and Development Authority (IRDA) which was established in 1999 under the government legislation called the Insurance Regulatory and Development Authority Act, 1999.

Life Insurance Corporation - Life Insurance in India was nationalised by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC.In 1993, the Government of India appointed RN Malhotra Committee to lay down a road map for privatisation of the life insurance sector.

Types of Life Insurance in India

Term Insurance Policies - The policy holder does not get any monetary benefit at the end of the policy term except for the tax benefits he or she can choose to avail of throughout the tenure of the policy. In the event of death of the policy holder, the sum assured is paid to his or her beneficiaries.

Money-back PoliciesMoney back policies are basically an extension of endowment plans wherein the policy holder receives a fixed amount at specific intervals throughout the duration of the policy. In the event of the unfortunate death of the policy holder, the full sum assured is paid to the beneficiaries.

Unit-linked Investment Policies (ULIP)Unit linked insurance policies again belong to the insurance-cum-investment category where one gets to enjoy the benefits of both insurance and investment. While a part of the monthly premium pay-out goes towards the insurance cover, the remaining money is invested in various types of funds that invest in debt and equity instruments. ULIP plans are more or less similar in comparison to mutual funds except for the difference that ULIPs offer the additional benefit of insurance.

Pension PoliciesPension policies let individuals determine a fixed stream of income post retirement.

Insurance sector in India Insurance is an agreement in which a person makes regular payments to a company and the company promises to pay money if the person is injured or dies, or to pay money equal to the value of something (such as a house or car) if it is damaged, lost, or stolen or a risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by event(s) beyond the control of the insured party. Under an insurance contract, a party (the insurer) indemnifies the other party (the insured) against a specified amount of loss, occurring from specified eventualities within a specified period, provided a fee called premium is paid. In general insurance, compensation is normally proportionate to the loss incurred, whereas in life insurance usually a fixed sum is paid. Some types of insurance (such as product liability insurance) are an essential component of risk management, and are mandatory in several countries. Insurance, however, provides protection only against tangible losses. It cannot ensure continuity of business, market share, or customer confidence, and cannot provide knowledge, skills, or resources to resume the operations after a disaster.

Brief history of insurance sector 

The insurance sector in India has completed all the facets of competition - from being an open competitive market to being nationalized and then getting back to the form of a liberalized market once again. The history of the insurance sector in India reveals that it has witnessed complete dynamism for the past two centuries approximately.With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life insurance started in the year 1818. 

Important milestones in the Indian life insurance business1912: The Indian Life Assurance Companies Act came into force for regulating the life insurance business.

1928: The Indian Insurance Companies Act was enacted for enabling the government to collect statistical information on both life and non-life insurance businesses.

1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies were taken over by the central government and they got nationalized. LIC was formed by an Act of Parliament, viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the Government of India.

The history of general insurance business in India can be traced back to Triton Insurance Company Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the British. 

Important milestones in the Indian general insurance business

1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to transact all general insurance business.

1957: General Insurance Council, an arm of the Insurance Association of India, framed a code of conduct for guaranteeing fair conduct and sound business patterns.

1968: The Insurance Act improved for regulating investments and set minimal solvency levels and the Tariff Advisory Committee was set up.

1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated 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 was incorporated as a company.Insurance industry, as on 1.4.2000, comprised mainly two players:

(1) Life Insurance Corporation of India (LIC) General Insurers: 

(2) General Insurance Corporation of India (GIC) (with effect from Dec'2000, a National Reinsurer) GIC had four subsidiary companies, namely 

i) The Oriental Insurance Company Limited

ii) The New India Assurance Company Limited

iii) National Insurance Company Limited

iv) United India Insurance Company Limited.

(With effect from Dec'2000, these subsidiaries have been de-linked from the parent company and made as independent insurance companies)

The Insurance sector in India is governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and Development Authority of  India (IRDAI) Act, 1999 and other related Acts. With such a large population and the untapped market area of this population, insurance happens to be a very big opportunity in India. Today it stands as a business growing at the rate of 15-20 per cent annually. Together with banking services, it adds about 7 per cent to the country's GDP .In spite of all this growth the statistics of the penetration of the insurance in the country is very poor. Nearly 80% of Indian populations are without Life insurance cover and the Health insurance. This is an indicator that growth potential for the insurance sector is immense in India. It was due to this immense growth that the regulations were introduced in the insurance sector and in continuation "Malhotra Committee" was constituted by the government in 1993 to examine the various aspects of the industry. The key element of the reform process was Participation of overseas insurance companies with 26% capital. Creating a more efficient and competitive financial system suitable for the requirements of the economy was the main idea behind this reform. Since then the insurance industry has gone through many sea changes .The competition that LIC started facing from these companies were threatening to the existence of LIC. Since the liberalization of the industry, the insurance industry has never looked back and today stand as the one of the most competitive and exploring industry in India. The entry of the private players and the increased use of the new distribution are in the limelight today. The use of new distribution techniques and the IT tools has increased the scope of the industry in the longer run. 

Insurance sector reformsIn 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 recognizing 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: 

1) 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.

2) Competition

Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.

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.

3) Regulatory Body 

The Insurance Act should be changed. An Insurance Regulatory body should be set up. Controller of Insurance (Currently a part from the Finance Ministry) should be made

independent.

4) 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).

5) 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. Computerization of operations and updating of technology to be carried out in the

insurance industry. 

The committee emphasized that in order to improve the customer services and increase the coverage of the insurance 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. 

Independent Regulatory Body - IRDAI Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of

holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. 

IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: Company is formed and registered under the Companies Act, 1956;

The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company. The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business.The minimum paid up equity capital for life or general insurance business is Rs.100 crores.The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores. The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad.

India Insurance Policies at a GlanceIndian insurance companies offer a comprehensive range of insurance plans, a range that is growing as the economy matures and the wealth of the middle classes increases. The most common types include: term life policies, endowment policies, joint life policies, whole life policies, loan cover term assurance policies, unit-linked insurance plans, group insurance policies, pension plans, and annuities. General insurance plans are also available to cover motor insurance, home insurance, travel insurance and health insurance. Due to the growing demand for insurance, more and more insurance companies are now emerging in the Indian insurance sector. With the opening up of the economy, several international leaders in the insurance sector are trying to venture into the Indian insurance industry. 

Insurance SectorDear all, in view of upcoming insurance exams, were are presenting you a brief write-up on insurance sector and companies in this sector.

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This 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, England in particular.

Insurance Repository in IndiaThe Insurance Repository in India is a database of insurance policies. It allows policy holders to make revisions to a policy with speed and accuracy. It launched on 16 September 2013. It is the world's first of its kind. India's Insurance Regulatory and Development Authority has issued licenses to five entities to act as Insurance Repositories:

Central Insurance Repository Limited (CIRL) SHCIL Projects Limited Karvy Insurance repository Limited NSDL Database Management Limited CAMS Repository Services Limited

E-Insurance AccountE-Insurance account is the facility available to the policy holder to keep all of their insurance policies in a demat form by opening an account with an insurance repository, it`s a one point of contact for all of the insurance contracts, if any change is needed in any of the personal information then instead of going to an each insurer and submitting the request separately to each one of them, here through an e-insurance account, the policy holder can submit a request to an insurance repository for that change and it will be applicable for all the policies the policyholder posses.It works in a similar manner like we keep our securities-shares, mutual funds in an electronic form.What type of an Insurance Policies can be kept in an E Insurance Account:1.All of the below mention policies can be kept in an electronic form provided these have been issued   by the companies registered with Insurance Regulatory Development Authority(IRDA)2.All the Life insurance policies including individual or group.3. All the general insurance policies including individual or group.4. Any other form of an insurance policy approved by an IRDA. 

Public Sector Insurance CompaniesLife Insurance Corporation of India General Insurance Corporation of India National Insurance Co. Ltd. Oriental Insurance Co. Ltd. New India Assurance Co. Ltd. United India Insurance Co. Ltd. 

Life Insurance Corporation of IndiaHeadoffice- MumbaiChairman - Shri S. K. Roy The Parliament of India enacted the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of Indian was established on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable costGeneral Insurance CorporationHeadoffice - MumbaiChairman - A K RoyGeneral Insurance Corporation of India (GIC Re) was approved as ‘Indian Reinsurer’ on 3rd November,2000. As an Indian reinsurer GIC has been giving reinsurance support to four public sector & other private general insurance companiesThe New India Assurance Co. Ltd.Headoffice- MumbaiChairman - G.Srinivasan 

It is the "largest general insurance company of India on the basis of gross premium collection inclusive of foreign operations".  It was founded by Sir Dorabji Tata in 1919, and was nationalised in 1973National Insurance Company Limited (NICL)Headoffice- KolkataChairman - Shri A.V. Girija KumarIt is a state owned general insurance company in India. The company  was established in 1906 and nationalised in 1972. It's portofolio consists of a multitude of general insurance policies, offered to a wide arena of clients encompassing different sectors of the economy.[3] Apart from being leading insurance provider in India, NICL also serves Nepal.

United India Insurance Company Limited 

Headoffice - ChennaiChairman - Milind Kharatunder Department of Financial Services, Ministry of Finance (India), is a public sector General Insurance Company of India and one of the top General Insurers in Asia. With the net worth of Rs 5407 crores and profit of Rs 528 crores, the company has collected gross premium of Rs 9709 crores as of in the financial year 2013-14. The company has more than seven decades of experience in Non-life Insurance business and was formed to its present form by the merger of 22 companies, consequent to the nationalisation of General Insurance companies in India.

Oriental Insurance Company LtdHeadoffice - New DelhiChairman - Dr. A.K.Saxena It was established on September 12, 1947 in the then Bombay. It was a completely owned subsidiary of Oriental Government Security Life Assurance Company Ltd. It was created with the mandate of executing its parent body’s general insurance operations.