History of Insurance in India

The history of insurance in India dates back to ancient times, with references found in the writings of Manu (Manusmriti), Kautilya (Arthashastra), and Yagnavalkya (Dharmasastra). However, modern insurance practices in India began in the 19th century.

Key Milestones in the History of Insurance in India:

• 1818: The Oriental Life Insurance Company was established in Calcutta, marking the beginning of the life insurance business in India. However, the company failed in 1834.

• 1829: The Madras Equitable was established in the Madras Presidency, becoming the first successful life insurance company in India.

• 1870: The British Insurance Act was enacted, regulating the insurance industry in India.

• 1871-1897: Several foreign insurance companies, such as the Albert Life Assurance, Liverpool and London Globe Insurance, and Royal Insurance, entered the Indian market, creating competition for Indian insurers.

• 1912: The Indian Life Assurance Companies Act was passed, providing further regulation for the life insurance industry in India.

• 1928: The Insurance Act was passed, consolidating and amending the various insurance laws in India.

• 1956: The Life Insurance Corporation of India (LIC) was established, nationalizing the life insurance industry in India.

• 1999: The Insurance Regulatory and Development Authority (IRDA) was established, regulating the insurance industry in India.

• 2000: The Insurance Act was amended to allow private sector participation in the insurance industry.

Since then, the insurance industry in India has grown significantly, with numerous private sector companies entering the market and offering a wide range of insurance products.

What is Insurance?

Insurance is a form of risk management that provides financial protection against potential losses. It involves a contract between an insurance company (insurer) and an individual or business (insured) where the insurer agrees to provide compensation for specified losses in exchange for regular payments (premiums) from the insured.

Insurance policies can cover a variety of risks, including property damage, liability, health, and life. When an insured event occurs, the insurance company reimburses the insured for the covered losses, up to the policy limits.

Insurance plays a crucial role in managing financial risks and providing peace of mind to individuals and businesses. It helps protect against unexpected events that could cause significant financial hardship.

Establishment of the Insurance Industry

The life insurance business in India was introduced in 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. However, this company failed in 1834. The Madras Equitable began transacting life insurance business in the Madras Presidency in 1829.

The British Insurance Act was enacted in 1870, which provided a regulatory framework for the insurance industry in India. During the last thirty years of the nineteenth century, several other insurance companies were established, including the Bombay Mutual (1871), the Indian Life Assurance Company (1874), and the National Insurance Company (1891).

In 1912, the Indian Life Assurance Companies Act was passed, which further regulated the life insurance industry in India. This act required life insurance companies to maintain reserves and submit annual reports to the government.

The General Insurance Business Act was passed in 1972, which nationalized the general insurance industry in India. This act transferred the ownership and management of general insurance companies to the government.

The Insurance Regulatory and Development Authority (IRDA) was established in 1999 as an independent regulatory body for the insurance industry in India. The IRDA is responsible for regulating and developing the insurance industry, protecting the interests of policyholders, and promoting fair competition among insurance companies.

Today, the insurance industry in India is a thriving sector with a wide range of insurance products and services available to meet the needs of individuals and businesses.

Nationalization of Insurance Business: Amid allegations of unfair trade practices, the government of India decided to nationalize the insurance business.

On January 19, 1956, the Life Insurance sector was nationalized, and the Life Insurance Corporation (LIC) was established in the same year.

LIC absorbed 154 Indian, 16 non-Indian insurers, and 75 provident societies, totaling 245 Indian and foreign insurers.

LIC held a monopoly until the late 1990s when the insurance sector was reopened to the private sector.

General Insurance in India

The history of general insurance can be traced back to the Industrial Revolution in the West and the subsequent growth of seafaring trade and commerce in the 17th century. It was introduced in India during the British colonial period.

Early Insurers

• The general insurance business in India was nationalized on January 1, 1973, through the General Insurance Business (Nationalization) Act of 1972.
• As a result, 107 insurers were merged into four companies: National Insurance Company Ltd., New India Assurance Company Ltd., Oriental Insurance Company Ltd., and United India Insurance Company Ltd.
• The General Insurance Corporation of India was established as a company in 1971.

Malhotra Committee

• In 1993, the government formed a committee led by R.N. Malhotra, former governor of the Reserve Bank of India (RBI), to propose reforms for the insurance sector in India.
• The committee’s objective was to align with the reforms initiated in the financial sector.
• In its report submitted in 1994, the committee recommended allowing the private sector to enter the insurance industry.
• The report also suggested that foreign companies be permitted to enter by establishing Indian companies, preferably through joint ventures with Indian partners.

Establishment of IRDA

• In accordance with the recommendations of the Malhotra Committee report, the Insurance Regulatory and Development Authority (IRDA) was established in 1999.
• IRDA is an autonomous body responsible for regulating and developing the insurance industry in India.
• It has played a crucial role in promoting competition, protecting policyholders’ interests, and ensuring the financial soundness of insurance companies.

Insurance Regulatory and Development Authority (IRDA)

The Insurance Regulatory and Development Authority (IRDA) is an autonomous body responsible for regulating and developing the insurance industry in India. It was established in April 2000 as a statutory body.

Objectives of IRDA:

• Promote competition in the insurance industry to enhance customer satisfaction through increased consumer choices and lower premiums.
• Ensure the financial security of the insurance market.

Powers of IRDA:

• Frame regulations under Section 114A of the Insurance Act of 1938.
• Since 2000, it has framed various regulations covering:
  • Registration of companies for carrying on insurance business.
  • Protection of policyholders’ interests.

Restructuring of General Insurance Corporation of India (GIC):

• In December 2000, the subsidiaries of GIC were restructured as independent companies.
• GIC was converted into a national re-insurer.

Current Insurance Landscape in India:

• 34 general insurance companies, including the Export Credit Guarantee Corporation (ECGC) and Agriculture Insurance Corporation of India.
• 24 life insurance companies operating in India.

Significance of Insurance Sector:

• Insurance is a rapidly growing sector, contributing around 7% to India’s GDP, along with banking services.
• Provides long-term funds for infrastructural development and strengthens the country’s risk-taking ability.
• A well-developed insurance sector plays a crucial role in economic development.

History of Insurance in India - Timeline

1818: Life insurance business introduced in India through Oriental Life Insurance Company (Calcutta).

1829: Madras Equitable started transacting life insurance in the Madras Presidency.

1834: Failure of the Oriental Life Insurance Company.

1870: British Insurance Act enactment.

1871: Set up of Bombay Mutual.

1874: Set up of Oriental.

1897: Set up of Empire of India.

1914: Government of India published returns of the Insurance Companies in India.

1928: Indian Insurance Companies Act enactment to enable the government to collect statistical data about the life and non-life business transacted in the country by both Indian and foreign insurers.

1938: Consolidation of earlier legislation and amendment of the Insurance Act.

19th January 1956:

• An ordinance was issued to nationalize the life insurance sector.
• The Life Insurance Corporation (LIC) was established.

1907:

• Indian Mercantile Insurance Ltd. was set up.

1957:

• The General Insurance Council was formed.

1968:

• The Insurance Act was amended to regulate investments and set minimum solvency margins.

1972:

• The General Insurance Business (Nationalization) Act was passed.

1971:

• General Insurance Corporation of India was incorporated as a company.

01st January 1973:

• The insurance business was nationalized.

1993:

• The RN Malhotra committee was formed to propose recommendations for reforms in the insurance sector in India.

1999:

• The Insurance Regulatory and Development Authority (IRDA) was established.

2000:

• IRDA was incorporated as a statutory body.

August 2000:

• IRDA opened the market with an invitation for applications for registrations.

December 2000:

• Subsidiaries of the General Insurance Corporation of India were restructured as independent companies.
• GIC was converted into a national re-insurer.

July 2002:

• A bill to de-link the four subsidiaries from GIC was passed in parliament.

Presently:

• 34 general insurance companies, including the Export Credit Guarantee Corporation of India (ECGC) and Agriculture Insurance Corporation of India, and 24 life insurance companies are operational in India.