INTRODUCTION
"Insurance should be bought to protect you against a calamity that would otherwise be devastating."
In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. Allows you to protect yourself against everyday risks to your health, home and financial situation.
Insurance in India started without any regulation in the nineteenth century. It was a typical story of a colonial epoch: few British insurance companies dominating the market it serves mostly large urban centers. After independence, it took a theatrical turn. Insurance was nationalized. First, companies life insurance were nationalized in 1956, and then the general insurance business was nationalized in 1972. Was only in 1999 that the private insurance companies have been allowed to return them to the business of insurance with a maximum of 26% foreign ownership.
"The insurance industry is enormous and can be quite daunting. Insurance is being sold for almost anything and everything you can imagine. Determine which is right for you can be a very daunting task."
Concepts of insurance have been extended beyond the coverage of tangible assets. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for damages can also be covered.
But if a person invests carefully secure property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is determined.
The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. The collective experience of the other countries in Asia has already deregulated their markets and has allowed foreign companies to participate. If the experience of other countries is any guide, the dominance of the Life Insurance Corporation and General Insurance Corporation is not going away anytime soon.
The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which anticipates, to his life, property and business. Insurance is mainly of two types: life insurance and general insurance. General insurance means Fire, Marine and several insurance which includes insurance against burglary or theft, surety insurance, employer's liability, and insurance of motor vehicles, livestock and crops.
LIFE INSURANCE IN INDIA
"Life insurance is the love letter ever written.
The crying of a hungry baby at night is calm. Relieves the heart of a grieving widow.
It is the comforting whisper in the silent dark hours of the night. "
Life insurance made its debut in India over 100 years ago. Its salient features are not as widely understood in our country, as it should be. There is no legal definition of a life insurance policy, it is defined as a contract of insurance whereby the insured agrees to pay certain sums called premiums, at a specific time, and in consideration thereof the insurer agreed pay certain sums of money on certain condition sand in specified in the happening of a particular event contingent on the duration of human life.
Life insurance is superior to other forms of savings!
"Death does not exist. Life Insurance exalts life and defeats death.
It is the premium paid for the freedom of life after death. "
Savings through life insurance guarantee full protection against risk of death of the saver. In life insurance, the death, the sum assured is payable (with bonuses where applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.
The essential features of life insurance are: a) it is a contract for human life, which b) provides for the payment of a lump sum, and c) the amount is paid after the expiry of the specified period, or in the death of the insured. The very purpose and object of the insured in making policies of life insurance companies is to safeguard the interests of its subsidiaries viz., Wife and children, as the case may be, even in the premature death of the insured as a result of the occurrence in any contingency. A life insurance policy is also generally accepted as security, even for a commercial loan.
NON-LIFE INSURANCE
"Every asset has a value and general insurance business relates to the protection of economic value of assets."
Non-life insurance, insurance other than life insurance, such as fire, marine, accident, medical vehicles engine and home insurance. Assets would have been created through the efforts of the owners, who may be in the form of building, vehicles, machinery and other tangible property. Since tangible property has a physical shape and consistency, is subject to many risks ranging from fire, allied perils to theft and robbery.
Few of the general insurance policies are:
Property Insurance: The home is the most valuable possession. The policy is designed to cover various risks in one policy. Provides protection of property and the interest of the insured and family.
Health insurance: coverage, which takes care of medical expenses following hospitalization from sudden illness or injury is provided.
Personal Accident Insurance: This insurance provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement of the costs of treatment and the use of hospital facilities for treatment.
Travel Insurance: The policy covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport, etc.
Liability Insurance: This policy covers directors and officers or other professionals against loss arising from claims made against them by reason of any wrongful act in their official capacity.
Car Insurance: Vehicles Act states that every motor motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and damage to one vehicle.
JOURNEY OF AN INFANT adolescence!
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 non-Indian lives as Indian lives were considered 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. The Oriental Assurance Company was founded in 1880.'s General insurance business in India, meanwhile, has its roots in the Triton (Tital) Insurance Company Limited, the first company general insurance established in 1850 in Calcutta by Britons. Until the end of the insurance business of the nineteenth century was almost entirely in the hands of foreign companies.
Insurance regulation formally began in India with the approval of the Companies Act, 1912 Life Insurance and Provident Fund Act 1912. Several frauds during the 20's and 30's desecrated insurance business in India. In 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict state control over insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their control over this business, but despite the growth witnessed, insurance remained an urban phenomenon.
Born The Government of India in 1956, brought together over 240 private life insurers and mutual provident societies under one nationalized monopoly and Life Insurance Corporation (LIC) corporation. Nationalization was justified on the grounds that it would create much-needed funds for rapid industrialization. This is in accordance with the path chosen by the Government of the State lead planning and development.
The (non-life) insurance business continued to prosper with the private sector until 1972. Their operations were restricted to organized trade and industry in large cities. The general insurance industry was nationalized in 1972 With this, nearly 107 insurers were amalgamated and grouped into four companies -. National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC).
The life insurance industry was nationalized under the Life Insurance Corporation (LIC) Act of India. In some ways, the LIC has become very flourishing. Aside from being a monopoly, has some 60-70 million policyholders. Given that the middle class in India is around 250-300 million, the LIC has captured 30 percent of it odd. About 48% of customers of the LIC are from rural and semi-urban areas. This probably would not have happened if the letter of the LIC not specifically set a target to serve rural areas. A high savings rate in India is one of the exogenous factors that have helped the LIC to grow rapidly in recent years. Despite the savings rate is high in India (compared to other countries with a similar level of development), the Indians show a high degree of risk aversion. Thus, almost half of the investments are in physical assets (such as property and gold). About twenty percent are in low yield (but safe) bank deposits. In addition, about 1.3 percent of GDP are insurance related savings vehicles life. This figure has doubled between 1985 and 1995.
A point of view World - Life Insurance in India
In many countries, insurance has been a form of savings. In many developed countries, an important part of domestic savings is in the form of donation insurance plans. This is not surprising. The prominence of some developing countries is even more amazing. For example, South Africa has the second. India lies between Chile and Italy. This is even more surprising considering the levels of economic development in Chile and Italy. Therefore, we can conclude that there is an insurance culture in India despite a low per capita income. This promises well for future growth. Specifically, when the income level improves, insurance (especially life) is likely to grow rapidly.
INSURANCE SECTOR REFORM:
Committee Reports: a known Anonymous One!
Although Indian markets were privatized and opened to foreign companies in various sectors in 1991, insurance remained out of bounds in both cases. The government wanted to proceed with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to establish a committee headed by Mr. RN Malhotra (the then Governor of the Reserve Bank of India).
Malhotra Committee
The liberalization of the insurance market in India was suggested in a report published in 1994 by the Malhotra Committee, indicating that the market should be open to competition from the private sector, and finally, the competition of foreign private sector. The level of customer satisfaction of LIC was also investigated. Inquisitively, the level of customer satisfaction seemed to be high.
In 1993, Malhotra Committee - headed by former Finance Secretary and RBI Governor Mr. RN Malhotra - was formed to evaluate the insurance industry in India and recommend its future course. 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 suitable more efficient and competitive financial system to the needs of the economy taking into account the structural changes presently happening and recognizing that insurance is an important part of the global financial system in which it was necessary to address the need for similar reforms. In 1994, the committee submitted the report and some of the key recommendations include:
Structure
Commitment of the Government in insurance companies was reduced to 50%. The government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent companies. All insurance companies should be given greater freedom to operate.
Competition
Private companies with a minimum paid up capital of Rs.1 billion 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 local firms. 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.
Regulator
The Insurance Act should be changed. An Insurance Regulatory body should be set. Driver Insurance - a part of the Finance Ministry-should be made independent.
Investments
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries must not exceed 5% in any company (there current holdings to be brought to this level over a period of time).
Customer service
LIC should pay interest on delays in payments beyond 30 days. Should encourage insurance companies to establish the 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 customer services and increase the coverage of insurance policies, industry should be open to competition. At the same time, the committee felt the need to exercise caution as any failure of new competitors could ruin the public confidence in the industry. Therefore, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs 100 crores.
The committee discussed 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. To this end, it has proposed the creation of an independent regulatory body - Regulatory and Development Authority Insurance.
Reforms in the insurance industry began with the approval of the IRDA Act in Parliament in December 1999. IRDA since its incorporation as a statutory body in April 2000 has meticulously stuck to its timetable for drawing up the regulations and registration of insurance companies in the private sector.
Since it was established as an independent statutory body the IRDA has put in a framework of globally compatible regulations. The other decision taken simultaneously to provide support 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. Approval of institutions for imparting training to agents has also ensured that insurance companies would have a trained insurance agents in place to sell their products workforce.
The Government of India liberalized the insurance sector in March 2000 the approval of the Authority 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 current guidelines, there is a cap of 26 percent equity to foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.
The opening of the sector is likely to lead to greater spread and deepening of insurance in India, which may also include the restructuring and revitalization of the public sector enterprises. In the private sector 12 life insurance and 8 general insurance companies have been registered. A lot of private insurance companies that operate in both segments life and non-life have started selling their insurance policies since 2001
Mukherjee Committee
Immediately after the publication of the Malhotra Committee, a new committee, Mukherjee Committee was created to make concrete plans for the requirements of insurance companies recently formed. Recommendations of the Mukherjee Commission never made public. But, from the information that was leaked it became clear that the committee recommended the inclusion of a number of ratios in the balance sheets of insurance companies to ensure transparency in accounting. But the Finance Minister objected to it and held by him, probably on the advice of some of the potential competitors that could affect the prospects of a developing insurance company.
LAW COMMISSION OF INDIA ON REVIEW OF THE INSURANCE ACT 1938 - 190 Report of the International Law Commission
The Law Commission on June 16, 2003 published a consultation paper on the review of the Insurance Act 1938. The previous exercise to amend the Insurance Act 1938 was carried out in 1999 at the time of the enactment of the Law Insurance Regulatory Development Authority, 1999 (IRDA Act).
The Commission carried out this year in the context of policy change that has allowed private insurance companies, both in the areas of life and non-life. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation in order to remove the portions that have become redundant as a result of recent changes.
The main areas of change, the consultation paper proposes that:
a.merging of the provisions of the IRDA Act with the Insurance Act to avoid multiplicity of laws;
b.deletion of redundant and transitory provisions of the Insurance Act, 1938;
c.Amendments reflect the change in policy to allow private insurance companies and strengthening the regulatory mechanism;
d.Providing strict rules concerning the conditions of 'solvency margin' and investments by the public and insurance companies in the private sector;
e.Providing for a full-fledged grievance redressal mechanism that includes:
The constitution of Grievance redressal Authority (GRA) comprising legal one and two technical members to deal with complaints / claims of policyholders against insurers (the GRAs are expected to replace the current system of the insurer appointed Ombudsman);
Appointment of officers of the award by the IRDA to determine and implement penalties on defaulting insurers, brokers and insurance agents;
Having an appeal against the decisions of the IRDA, GRAs and adjudicating officers to an Insurance Appellate Tribunal (IAT) comprising a judge (sitting or retired) of the Court / Supreme Judge of the Supreme Court as chairman and two members who have sufficient experience in insurance;
Provide a legal appeal to the Supreme Court against the decisions of the IAT.
LIFE AND NON-LIFE INSURANCE - Development and Growth!
The year 2006 proved to be a landmark for the insurance industry as a regulator of the Law of the Regulatory Authority for Insurance Development year laid the groundwork for the general insurance pricing freedom since 2007, while many companies has announced plans to attack the sector.
Both domestic and foreign players continued their robust long pending demand to increase the FDI limit from 26 percent to 49 percent, and towards the fag end of the year, the government sent the bill Integral Insurance Group of Ministers for consideration amid strong reservation from Left parties. The bill is likely to be taken in the Budget session of Parliament.
Infiltration rates of health and other non-life insurance in India are well below the international level. These facts indicate a huge potential for growth in the insurance sector. The hike in FDI limit on the 49 percent was given by the Government last year. This has not been put to work as legislative changes are required for this hike. Since the opening of the insurance sector in 1999, foreign investments of Rs. 8700000000 have leaned towards the Indian market and 21 private companies have been granted licenses.
The participation of private insurers in various industry segments has increased on account of both their capturing a part of the business, which was signed earlier by the public sector insurers and also creating additional business boulevards. To this effect, the insurance companies in the public sector have been unable to leverage their inherent strengths to capture additional premium. For premium growth in 2004-05, 66.27 per cent has been captured by private insurers despite having market share of 20 percent.
The life insurance industry recorded a premium income of Rs.82854.80 crore in 2004-05, against Rs.66653.75 crore in the previous year, registering a growth of 24.31 percent. The contribution of the first year premium, single premium and renewal premium to the total premium was Rs.15881.33 crore (19.16 percent); Rs.10336.30 crore (12.47 percent); and Rs.56637.16 crore (68.36 percent), respectively. In 2000-01, when the industry was opened to private players, the life insurance premium was Rs.34, 898.48 million rupees which constituted of Rs. 6996.95 crore in the first year premium, Rs. 25191.07 crore of renewal premium and Rs. 2740.45 crore of single premium. Post opening, single premium had declined from Rs.9, 194.07 million rupees in 2001-02 to Rs.5674.14 crore in 2002-03 with the withdrawal of the guaranteed return policies. Although rose marginally 2003-04000000 Rs.5936.50 rupees (4.62 per cent growth) 2004-05, however, witnessed a significant change in income from single premiums increased from Rs. 10336.30 crore showing 74.11 per cent growth during 2003-04.
The market size of life insurance in force increased economic growth and the consequent increase in per capita income. This resulted in a favorable growth in total premium both for LIC (18.25 per cent) and for new insurers (147.65 per cent) in 2004-05. The fastest growing new insurance companies should be viewed in the context of a very low base in 2003 -. 04 However, the new insurers have improved their market share of 4.68 in 2003-04 to 9.33 in 2004-05.
The segment wise break up of fire, marine and miscellaneous segments in case of insurance companies in the public sector was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, ie a growth (-) 1.43 percent, 1.81 percent and 6.58 percent. The public sector insurers reported growth in Motor and Health segments (9 and 24 percent). These segments represent 45 and 10 percent of the business underwritten by the public sector insurers. Fire and "Others" accounted for 17.26 and 11 percent of written premium. Aviation Liability, "Others" and Fire recorded negative growth of 29, 21, 3.58 and 1.43 percent. In no other country that opened while India have foreign companies been able to capture a market share of 22 percent in the life segment and 20 percent in the general insurance segment. The participation of foreign insurers in other Asian markets competition is not more than 5 to 10 percent.
The life insurance sector grew new premium at a rate never seen before, while the general insurance sector grew at a faster pace. Two new players entered the life insurance - life Shriram and Bharti Axa Life - taking the total number of players in the lives of 16 There was a new entrant in the field of non-life in the form of an insurance independent health -. Star Health and Allied Insurance, taking non-life players to 14.
A large number of companies, mostly banks nationalized (about 14), such as Bank of India and Punjab National Bank have announced plans to enter the insurance industry and some of them have also formed joint ventures.
The proposed FDI cap change is part of the comprehensive amendments to insurance laws -. The Insurance Act 1999, LIC Act, 1956 and IRDA Act, 1999 After the proposed amendments to insurance laws LIC would be able to maintain reserves while insurance companies would be able to raise resources other than equity.
About 14 banks are in line to enter the insurance sector and the year 2006 saw several announcements of joint ventures, while others scout partners. Bank of India has partnered with Union Bank and Japanese insurance major Dai-ichi Mutual Life while PNB tied up with Vijaya Bank and director of foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur Investment Corporation and Sompo Japan Insurance Inc. have been tied to form a company of non-life insurance, while the Bank of Maharashtra has been associated with Shriram Group and the Sanlam Group South Africa Company for non-life insurance.
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"Insurance should be bought to protect you against a calamity that would otherwise be devastating."
In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their misfortune. Allows you to protect yourself against everyday risks to your health, home and financial situation.
Insurance in India started without any regulation in the nineteenth century. It was a typical story of a colonial epoch: few British insurance companies dominating the market it serves mostly large urban centers. After independence, it took a theatrical turn. Insurance was nationalized. First, companies life insurance were nationalized in 1956, and then the general insurance business was nationalized in 1972. Was only in 1999 that the private insurance companies have been allowed to return them to the business of insurance with a maximum of 26% foreign ownership.
"The insurance industry is enormous and can be quite daunting. Insurance is being sold for almost anything and everything you can imagine. Determine which is right for you can be a very daunting task."
Concepts of insurance have been extended beyond the coverage of tangible assets. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for damages can also be covered.
But if a person invests carefully secure property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is determined.
The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. The collective experience of the other countries in Asia has already deregulated their markets and has allowed foreign companies to participate. If the experience of other countries is any guide, the dominance of the Life Insurance Corporation and General Insurance Corporation is not going away anytime soon.
The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which anticipates, to his life, property and business. Insurance is mainly of two types: life insurance and general insurance. General insurance means Fire, Marine and several insurance which includes insurance against burglary or theft, surety insurance, employer's liability, and insurance of motor vehicles, livestock and crops.
LIFE INSURANCE IN INDIA
"Life insurance is the love letter ever written.
The crying of a hungry baby at night is calm. Relieves the heart of a grieving widow.
It is the comforting whisper in the silent dark hours of the night. "
Life insurance made its debut in India over 100 years ago. Its salient features are not as widely understood in our country, as it should be. There is no legal definition of a life insurance policy, it is defined as a contract of insurance whereby the insured agrees to pay certain sums called premiums, at a specific time, and in consideration thereof the insurer agreed pay certain sums of money on certain condition sand in specified in the happening of a particular event contingent on the duration of human life.
Life insurance is superior to other forms of savings!
"Death does not exist. Life Insurance exalts life and defeats death.
It is the premium paid for the freedom of life after death. "
Savings through life insurance guarantee full protection against risk of death of the saver. In life insurance, the death, the sum assured is payable (with bonuses where applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.
The essential features of life insurance are: a) it is a contract for human life, which b) provides for the payment of a lump sum, and c) the amount is paid after the expiry of the specified period, or in the death of the insured. The very purpose and object of the insured in making policies of life insurance companies is to safeguard the interests of its subsidiaries viz., Wife and children, as the case may be, even in the premature death of the insured as a result of the occurrence in any contingency. A life insurance policy is also generally accepted as security, even for a commercial loan.
NON-LIFE INSURANCE
"Every asset has a value and general insurance business relates to the protection of economic value of assets."
Non-life insurance, insurance other than life insurance, such as fire, marine, accident, medical vehicles engine and home insurance. Assets would have been created through the efforts of the owners, who may be in the form of building, vehicles, machinery and other tangible property. Since tangible property has a physical shape and consistency, is subject to many risks ranging from fire, allied perils to theft and robbery.
Few of the general insurance policies are:
Property Insurance: The home is the most valuable possession. The policy is designed to cover various risks in one policy. Provides protection of property and the interest of the insured and family.
Health insurance: coverage, which takes care of medical expenses following hospitalization from sudden illness or injury is provided.
Personal Accident Insurance: This insurance provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement of the costs of treatment and the use of hospital facilities for treatment.
Travel Insurance: The policy covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport, etc.
Liability Insurance: This policy covers directors and officers or other professionals against loss arising from claims made against them by reason of any wrongful act in their official capacity.
Car Insurance: Vehicles Act states that every motor motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and damage to one vehicle.
JOURNEY OF AN INFANT adolescence!
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 non-Indian lives as Indian lives were considered 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. The Oriental Assurance Company was founded in 1880.'s General insurance business in India, meanwhile, has its roots in the Triton (Tital) Insurance Company Limited, the first company general insurance established in 1850 in Calcutta by Britons. Until the end of the insurance business of the nineteenth century was almost entirely in the hands of foreign companies.
Insurance regulation formally began in India with the approval of the Companies Act, 1912 Life Insurance and Provident Fund Act 1912. Several frauds during the 20's and 30's desecrated insurance business in India. In 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict state control over insurance business. The insurance business grew at a faster pace after independence. Indian companies strengthened their control over this business, but despite the growth witnessed, insurance remained an urban phenomenon.
Born The Government of India in 1956, brought together over 240 private life insurers and mutual provident societies under one nationalized monopoly and Life Insurance Corporation (LIC) corporation. Nationalization was justified on the grounds that it would create much-needed funds for rapid industrialization. This is in accordance with the path chosen by the Government of the State lead planning and development.
The (non-life) insurance business continued to prosper with the private sector until 1972. Their operations were restricted to organized trade and industry in large cities. The general insurance industry was nationalized in 1972 With this, nearly 107 insurers were amalgamated and grouped into four companies -. National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC).
The life insurance industry was nationalized under the Life Insurance Corporation (LIC) Act of India. In some ways, the LIC has become very flourishing. Aside from being a monopoly, has some 60-70 million policyholders. Given that the middle class in India is around 250-300 million, the LIC has captured 30 percent of it odd. About 48% of customers of the LIC are from rural and semi-urban areas. This probably would not have happened if the letter of the LIC not specifically set a target to serve rural areas. A high savings rate in India is one of the exogenous factors that have helped the LIC to grow rapidly in recent years. Despite the savings rate is high in India (compared to other countries with a similar level of development), the Indians show a high degree of risk aversion. Thus, almost half of the investments are in physical assets (such as property and gold). About twenty percent are in low yield (but safe) bank deposits. In addition, about 1.3 percent of GDP are insurance related savings vehicles life. This figure has doubled between 1985 and 1995.
A point of view World - Life Insurance in India
In many countries, insurance has been a form of savings. In many developed countries, an important part of domestic savings is in the form of donation insurance plans. This is not surprising. The prominence of some developing countries is even more amazing. For example, South Africa has the second. India lies between Chile and Italy. This is even more surprising considering the levels of economic development in Chile and Italy. Therefore, we can conclude that there is an insurance culture in India despite a low per capita income. This promises well for future growth. Specifically, when the income level improves, insurance (especially life) is likely to grow rapidly.
INSURANCE SECTOR REFORM:
Committee Reports: a known Anonymous One!
Although Indian markets were privatized and opened to foreign companies in various sectors in 1991, insurance remained out of bounds in both cases. The government wanted to proceed with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to establish a committee headed by Mr. RN Malhotra (the then Governor of the Reserve Bank of India).
Malhotra Committee
The liberalization of the insurance market in India was suggested in a report published in 1994 by the Malhotra Committee, indicating that the market should be open to competition from the private sector, and finally, the competition of foreign private sector. The level of customer satisfaction of LIC was also investigated. Inquisitively, the level of customer satisfaction seemed to be high.
In 1993, Malhotra Committee - headed by former Finance Secretary and RBI Governor Mr. RN Malhotra - was formed to evaluate the insurance industry in India and recommend its future course. 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 suitable more efficient and competitive financial system to the needs of the economy taking into account the structural changes presently happening and recognizing that insurance is an important part of the global financial system in which it was necessary to address the need for similar reforms. In 1994, the committee submitted the report and some of the key recommendations include:
Structure
Commitment of the Government in insurance companies was reduced to 50%. The government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent companies. All insurance companies should be given greater freedom to operate.
Competition
Private companies with a minimum paid up capital of Rs.1 billion 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 local firms. 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.
Regulator
The Insurance Act should be changed. An Insurance Regulatory body should be set. Driver Insurance - a part of the Finance Ministry-should be made independent.
Investments
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries must not exceed 5% in any company (there current holdings to be brought to this level over a period of time).
Customer service
LIC should pay interest on delays in payments beyond 30 days. Should encourage insurance companies to establish the 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 customer services and increase the coverage of insurance policies, industry should be open to competition. At the same time, the committee felt the need to exercise caution as any failure of new competitors could ruin the public confidence in the industry. Therefore, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs 100 crores.
The committee discussed 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. To this end, it has proposed the creation of an independent regulatory body - Regulatory and Development Authority Insurance.
Reforms in the insurance industry began with the approval of the IRDA Act in Parliament in December 1999. IRDA since its incorporation as a statutory body in April 2000 has meticulously stuck to its timetable for drawing up the regulations and registration of insurance companies in the private sector.
Since it was established as an independent statutory body the IRDA has put in a framework of globally compatible regulations. The other decision taken simultaneously to provide support 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. Approval of institutions for imparting training to agents has also ensured that insurance companies would have a trained insurance agents in place to sell their products workforce.
The Government of India liberalized the insurance sector in March 2000 the approval of the Authority 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 current guidelines, there is a cap of 26 percent equity to foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.
The opening of the sector is likely to lead to greater spread and deepening of insurance in India, which may also include the restructuring and revitalization of the public sector enterprises. In the private sector 12 life insurance and 8 general insurance companies have been registered. A lot of private insurance companies that operate in both segments life and non-life have started selling their insurance policies since 2001
Mukherjee Committee
Immediately after the publication of the Malhotra Committee, a new committee, Mukherjee Committee was created to make concrete plans for the requirements of insurance companies recently formed. Recommendations of the Mukherjee Commission never made public. But, from the information that was leaked it became clear that the committee recommended the inclusion of a number of ratios in the balance sheets of insurance companies to ensure transparency in accounting. But the Finance Minister objected to it and held by him, probably on the advice of some of the potential competitors that could affect the prospects of a developing insurance company.
LAW COMMISSION OF INDIA ON REVIEW OF THE INSURANCE ACT 1938 - 190 Report of the International Law Commission
The Law Commission on June 16, 2003 published a consultation paper on the review of the Insurance Act 1938. The previous exercise to amend the Insurance Act 1938 was carried out in 1999 at the time of the enactment of the Law Insurance Regulatory Development Authority, 1999 (IRDA Act).
The Commission carried out this year in the context of policy change that has allowed private insurance companies, both in the areas of life and non-life. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation in order to remove the portions that have become redundant as a result of recent changes.
The main areas of change, the consultation paper proposes that:
a.merging of the provisions of the IRDA Act with the Insurance Act to avoid multiplicity of laws;
b.deletion of redundant and transitory provisions of the Insurance Act, 1938;
c.Amendments reflect the change in policy to allow private insurance companies and strengthening the regulatory mechanism;
d.Providing strict rules concerning the conditions of 'solvency margin' and investments by the public and insurance companies in the private sector;
e.Providing for a full-fledged grievance redressal mechanism that includes:
The constitution of Grievance redressal Authority (GRA) comprising legal one and two technical members to deal with complaints / claims of policyholders against insurers (the GRAs are expected to replace the current system of the insurer appointed Ombudsman);
Appointment of officers of the award by the IRDA to determine and implement penalties on defaulting insurers, brokers and insurance agents;
Having an appeal against the decisions of the IRDA, GRAs and adjudicating officers to an Insurance Appellate Tribunal (IAT) comprising a judge (sitting or retired) of the Court / Supreme Judge of the Supreme Court as chairman and two members who have sufficient experience in insurance;
Provide a legal appeal to the Supreme Court against the decisions of the IAT.
LIFE AND NON-LIFE INSURANCE - Development and Growth!
The year 2006 proved to be a landmark for the insurance industry as a regulator of the Law of the Regulatory Authority for Insurance Development year laid the groundwork for the general insurance pricing freedom since 2007, while many companies has announced plans to attack the sector.
Both domestic and foreign players continued their robust long pending demand to increase the FDI limit from 26 percent to 49 percent, and towards the fag end of the year, the government sent the bill Integral Insurance Group of Ministers for consideration amid strong reservation from Left parties. The bill is likely to be taken in the Budget session of Parliament.
Infiltration rates of health and other non-life insurance in India are well below the international level. These facts indicate a huge potential for growth in the insurance sector. The hike in FDI limit on the 49 percent was given by the Government last year. This has not been put to work as legislative changes are required for this hike. Since the opening of the insurance sector in 1999, foreign investments of Rs. 8700000000 have leaned towards the Indian market and 21 private companies have been granted licenses.
The participation of private insurers in various industry segments has increased on account of both their capturing a part of the business, which was signed earlier by the public sector insurers and also creating additional business boulevards. To this effect, the insurance companies in the public sector have been unable to leverage their inherent strengths to capture additional premium. For premium growth in 2004-05, 66.27 per cent has been captured by private insurers despite having market share of 20 percent.
The life insurance industry recorded a premium income of Rs.82854.80 crore in 2004-05, against Rs.66653.75 crore in the previous year, registering a growth of 24.31 percent. The contribution of the first year premium, single premium and renewal premium to the total premium was Rs.15881.33 crore (19.16 percent); Rs.10336.30 crore (12.47 percent); and Rs.56637.16 crore (68.36 percent), respectively. In 2000-01, when the industry was opened to private players, the life insurance premium was Rs.34, 898.48 million rupees which constituted of Rs. 6996.95 crore in the first year premium, Rs. 25191.07 crore of renewal premium and Rs. 2740.45 crore of single premium. Post opening, single premium had declined from Rs.9, 194.07 million rupees in 2001-02 to Rs.5674.14 crore in 2002-03 with the withdrawal of the guaranteed return policies. Although rose marginally 2003-04000000 Rs.5936.50 rupees (4.62 per cent growth) 2004-05, however, witnessed a significant change in income from single premiums increased from Rs. 10336.30 crore showing 74.11 per cent growth during 2003-04.
The market size of life insurance in force increased economic growth and the consequent increase in per capita income. This resulted in a favorable growth in total premium both for LIC (18.25 per cent) and for new insurers (147.65 per cent) in 2004-05. The fastest growing new insurance companies should be viewed in the context of a very low base in 2003 -. 04 However, the new insurers have improved their market share of 4.68 in 2003-04 to 9.33 in 2004-05.
The segment wise break up of fire, marine and miscellaneous segments in case of insurance companies in the public sector was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, ie a growth (-) 1.43 percent, 1.81 percent and 6.58 percent. The public sector insurers reported growth in Motor and Health segments (9 and 24 percent). These segments represent 45 and 10 percent of the business underwritten by the public sector insurers. Fire and "Others" accounted for 17.26 and 11 percent of written premium. Aviation Liability, "Others" and Fire recorded negative growth of 29, 21, 3.58 and 1.43 percent. In no other country that opened while India have foreign companies been able to capture a market share of 22 percent in the life segment and 20 percent in the general insurance segment. The participation of foreign insurers in other Asian markets competition is not more than 5 to 10 percent.
The life insurance sector grew new premium at a rate never seen before, while the general insurance sector grew at a faster pace. Two new players entered the life insurance - life Shriram and Bharti Axa Life - taking the total number of players in the lives of 16 There was a new entrant in the field of non-life in the form of an insurance independent health -. Star Health and Allied Insurance, taking non-life players to 14.
A large number of companies, mostly banks nationalized (about 14), such as Bank of India and Punjab National Bank have announced plans to enter the insurance industry and some of them have also formed joint ventures.
The proposed FDI cap change is part of the comprehensive amendments to insurance laws -. The Insurance Act 1999, LIC Act, 1956 and IRDA Act, 1999 After the proposed amendments to insurance laws LIC would be able to maintain reserves while insurance companies would be able to raise resources other than equity.
About 14 banks are in line to enter the insurance sector and the year 2006 saw several announcements of joint ventures, while others scout partners. Bank of India has partnered with Union Bank and Japanese insurance major Dai-ichi Mutual Life while PNB tied up with Vijaya Bank and director of foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur Investment Corporation and Sompo Japan Insurance Inc. have been tied to form a company of non-life insurance, while the Bank of Maharashtra has been associated with Shriram Group and the Sanlam Group South Africa Company for non-life insurance.
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