History of Insurance in India started from the prehistoric period as Insurance in its primitive form has been known to exist from as back as 3000 BC. Various civilizations were known for practicing the basic concept of insurance – pooling and sharing in an unorganized manner.
While considering the history of insurance in India, the principle of insurance was reflected in the joint family concept, widely followed in many regions, and is considered as one of the best forms of life insurance down the ages.
Sorrows and losses from unfortunate events were shared by family members and that helped to give them a security feeling. The breakup of the joint family system and the emergence of the nuclear family in the modern era, coupled with the stress of family life paved a path for the evolution of alternative methods for insurance.
History of Insurance in modern India
Modern Insurance in India began around 1800 AD with agencies of foreign insurance starting a marine Insurance business. Some Important milestones in insurance history are listed below.
- 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: Nationalization of life insurance: Life insurance business was nationalized on 1st September 1956 and the Life Insurance Corporation of India (LIC) was formed through the LIC Act, 1956. A capital contribution of Rs. 5 crores from the Government of India was also made. There were 170 companies and 75 provident fund societies doing life insurance business in India at that time. From 1956 to 1999, the LIC held exclusive rights to do the life insurance business in India.
- 1972: Nationalization of non-life insurance: With the enactment of General Insurance Business Nationalization Act (GIBNA) in 1972, the non-life insurance business was also nationalized and the General Insurance Corporation of India (GIC) and its four subsidiaries were set up. At that point of time, 106 insurers in India doing non-life insurance business were amalgamated with the formation of four subsidiaries of the GIC of India.
Indian Insurance Sector Reforms
The formation of the Malhotra Committee in 1993 initiated reforms in the Indian insurance sector and is considered as one of the milestones in the history of Insurance in India.
The aim of the Malhotra Committee was to assess the functionality of the Indian insurance sector. This committee was also in charge of recommending the future path of insurance in India.
The Malhotra Committee attempted to improve various aspects of the insurance sector, making them more appropriate and effective for the Indian market.
The Insurance Regulatory and Development Authority Act of 1999 brought about several crucial policy changes in the insurance sector of India. It led to the formation of the Insurance Regulatory and Development Authority (IRDA) in 2000.
The goals of the IRDA are to safeguard the interests of insurance policyholders, as well as to initiate different policy measures to help sustain growth in the Indian insurance sector.
Important Milestones in the history of Indian Insurance industry.
- 1993 Malhotra Committee established
- 1994 Recommendations of the Malhotra Committee published
- 1995 Mukherjee Committee established
- 1996 Setting up of (interim) Insurance Regulatory Authority (IRA)recommendations of the IRA
- 1997 Mukherjee Committee Report submitted but not made public
- 1997 The government gives greater autonomy to Life Insurance Corporation, General Insurance Corporation, and its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at channeling funds to the infrastructure sector
- 1998 The cabinet decides to allow 40 percent foreign equity in private insurance companies—26 percent to foreign companies and 14 percent to non-resident Indians and Foreign Institutional Investors
- 1999 The Standing Committee headed by Murali Deora decides that foreign equity in private insurance should be limited to 26 percent. The IRA bill is renamed the Insurance Regulatory and Development Authority Bill
- 1999 Cabinet clears Insurance Regulatory and Development Authority Bill
- 2000 President gives assent to the Insurance Regulatory and Development Authority Bill
Life insurance industry today
Currently, 24 life insurance companies and 29 non-life insurance companies in the Indian market compete with each other on price and service to attract customers. Out of the 24 life insurance companies, Life Insurance Corporation of India (LIC) is the sole public sector company fully owned by Government of India. All the policies issued by LIC of India enjoys Sovereign guarantee of Indian Parliament.
The country’s insurance market is expected to quadruple in size over the next 10 years from its current size of US$ 60 billion. During this period, the life insurance market is slated to cross US$ 160 billion.
The general insurance business in India is currently at Rs 78,000 crore (US$ 11.7 billion) premium per annum and is growing at a healthy rate of 17 percent.
India’s insurance market lags behind other economies in the baseline measure of insurance penetration. At only 3.9 percent, India is well behind the 11.9 percent for Korea, 11.5 percent for the UK, 11.1 percent for Japan, and 7.5 percent for the US. Indian Insurance Industry is expected to grow to the US $ 280 billion by Financial Year 2020.
The Indian insurance market is considered to have a huge business opportunity waiting to be harnessed. India currently accounts for less than 1.5 percent of the world’s total insurance premiums and about 2 percent of the world’s life insurance premiums despite being the second most populous nation.
The country is the fifteenth largest insurance market in the world in terms of premium volume and has the potential to grow exponentially in the coming years.
Anish L J is a ‘Financial Planner’ and member of Chartered Insurance Institute(CII), London and Insurance Institute of India. He is also a finance, insurance and software consultant. He thoroughly follows the developments in finance, insurance, and other related sectors.