With the de-regulation in Indian Insurance industry, the monopoly of public sector companies in life insurance and general insurance has come to an end. This has augmented the innovative practices initiated by the private players. Growth in the interactive technology such as internet has further created a wave of excitement in the insurance market. Indian economy and Indian Insurance sector is committed to a double digit growth. Here’s a glimpse of Insurance Industry over 190 years.
Background :
Insurance is a Rs 450 billion industry in India. The value of the market is determined by gross premium incomes. The life insurance segment writes about 80% of the overall market value.Indian Insurance market was at its all time high in 2003 with a growth of about 17.4% over the pervious year. Since 2001 Insurance is growing at the rate of 15-20 % annually. The growth in the insurance industry is affected by volatility in real estate rates, GDP rates and long term interest rates. Fluctuations in exchange rates also affect the growth in this sector. The gross premium as a percentage of the GDP has gone up from 2.3 in the year 2000 to 4.8 in 2006. Together with banking services, it adds about 7% to the country’s GDP.
History of Indian Insurance :
A] Ancient Historical Times :
Insurance is as old as human society itself. The ancient origin of insurance is Emerigon, whose brilliant and learned Traite des Assurances, first published in 1783, is still read with respect and admiration. The result shows that insurances were known to the ancients such as Romans, Phoenicians Rhodians, although the business of underwriting commercial risks was probably not highly developed. The histories of Livy and Suetonius shows that the contractors who undertook to transport provisions and military stores to the troops in Spain stipulated that the government should assume all risk of loss by reason of perils of the sea or capture and this was probably the first time when insurance process was known. There were friendly societies organized, for the purpose of extending aid to their unfortunate members from a fund made up of contributions from all. These societies undoubtedly existed in China and India in the earliest times. The earliest traces of Insurance in the ancient Indian history was in the form of marine trade loans or carrier’s contracts, which can be found in Kautilya’s Arthashastra, Yajnyavalkya’s Dharmashastra and Manu’s Smriti. These works show that the system of credit and the law of interest were well developed in India. They were based on clear appreciation of hazard involved and the means of safeguarding against it.
B] British-India Period :
Insurance in India without any regulations started in the nineteenth century. It was a typical story of a colonial era where a few British insurance companies dominated the market serving mostly large urban centers. Company started by Europeans in Calcutta was the first life insurance company on Indian Soil.
Bombay Mutual Life Assurance Society indicated the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. 1930s was the last of the old-style crises in the Indian economy because it marked the beginning of the end of the colonial state and an acceleration of the pace of industrialization as entrepreneurs moved their capital out of the countryside. Independent India reduced its vulnerability to external economic shocks by close control of foreign exchange and by promoting a massive change in the export schedule. Till the end of nineteenth century insurance business was almost entirely in the hands of overseas companies.
C] Post Independence era of Indian Insurance :
The insurance business grew at a faster pace after independence. Indian companies strengthened their hold on this business but despite the growth that was witnessed, insurance remained an urban phenomenon. During Mrs. Gandhi’s tenure (from 1966-1968), there was a split within the business community of protectionists and those who wanted more open trade. But what maintained the momentum was the commitment of Two Ministers, Ashok Mehta and Subramaniam towards liberalization of the economy. This was seconded with high hope of getting increased foreign aid.
Deregulation actually helped the poorest in India as it would eventually create more employment and faster growth. Yet the intense fears of liberalization in the lower middle class and among working class employees of the state sector, pose serious risks in freeing the economy. It might be preferable to introduce liberalization during an economic upswing when the risk of switching jobs is less traumatic. The three liberalization episodes in Indian economic policy have followed clear cyclical patterns. Economic policy has swung broadly between controls and greater openness, with a tendency toward decontrolling larger and more important segments of the economy.
D] Nationalization Phase of Indian Insurance :
1944 : The Nationalization of insurance industry gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.
1956 : 154 Indian insurance companies, 16 non-Indian companies and 75 provident societies were taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 Crore from the Government of India.
1972 : The General Insurance Business (Nationalisation) Act, which nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated 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.
Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too was taken by means of a comprehensive bill. However, it was only in 1956, LIC was nationalised, 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 cost.And as of 2007, LIC is India’s leading Insurance company, with 2000 branches, which probably is the highest number of branches across India insurance sector.
E] Liberalization of Indian Insurance :
1994 : Insurance sector invited private participation to induce a spirit of competition amongst the various insurers and to provide a choice to the consumers.
1997 : Insurance regulator IRDA was set up as there felt the need:
a) To set up an independent regulatory body, that provides greater autonomy to insurance companies in order to improve their performance,
b) To Enable them to act as independent companies with economic motives.
c) To Protect the interest of holders of insurance policies.
d) To Amend the Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and the General insurance Business (Nationalisation) Act, 1972
e) To end the monopoly of the Life Insurance Corporation of India and General Insurance Corporation and its subsidiaries .
In the first year of insurance market liberalization (2001) as much as 16 private sector companies including joint ventures with leading foreign insurance companies have entered the Indian insurance sector. Of this, 10 were under the life insurance category and six under general insurance. Thus in all there are 25 players (12-life insurance and 13-general insurance) in the Indian insurance industry till date.
F] Indian Insurance in 21st Century :
2000 : IRDA starts giving licenses to private insurers : ICICI prudential and HDFC Standard Life insurance first private insurers to sell a policy
2001 : Royal Sundaram Alliance first non life insurer to sell a policy
2002 : Banks allowed to sell insurance plans. As TPAs enter the scene, insurers start setting non-life claims in the cashless mode
2007 : First Online Insurance portal, www.insurancemall.in set up by an Indian Insurance Broker, Bonsai Insurance Broking Pvt Ltd.
The Government of India liberalised the insurance sector in March 2000 with the passage of the 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.
Minimum capital requirement for direct life and Non-life Insurance company is INR1000 million and that for reinsurance company is INR 2000 million. In the 2004-05 budget, the Government proposed for increasing the foreign equity stake to 49%, this is yet to be effected. Under the current guidelines, there is a 26 percent equity cap for foreign partners in direct insurance and reinsurance Company.(World Bank Economic Review-2000).
Online Insurance In India :
Internet access in India has doubled every year over the last five years and forecasts predict this growth to quadruple every year over the next three years. According to emarketer report on India online, in 2007, about 33.2 million people in India accessed internet and that’s about 2.9% of Indian population. This figure is going to be 71.6 million people, which will be about 6% of population by 2011. Considering limited access of human-insurance agents in rural areas, there will more demand of purchasing insurance online from these areas, followed by semi-urban areas. The insurance portals that are active in online distribution are www.icicilombard.com, www.bajajallianz.co.in, www.insurancemall.in, www.bimaonline.com, www.insurancepandit.com. Recently, Compare – Choose – Buy portals like Bonsai Insurance Broker’s www.insurancemall.in, have been developed for providing comparison of different types of insurance policies, their premiums and their purchase online. The policy details are stored digitally and all transactions are made over secure channels. E-insurance offers a new gateway of incomes and provides additional market penetration, which is a need of an hour for Indian Insurance Segment.
The First Movers in eDistribution of Insurance goes to 3 companies in India :
1. ICICI Lombard General Insurance
2. Bajaj Allianz General Insurance
3. www.insurancemall.in ( Created by Bonsai Insurance Brokers.