History of Indian Insurance: What are those things that remind you of the 90s? You must remember the tape tricks of that time? How well you used to fix your cassettes and tapes using just a pencil. Besides, those big landlines or cordless phones without caller ID looked so cool. Then how did we know that smartphones would come sometime in the future? Something happened in India's insurance industry that changed it forever.
In the early nineties, whenever someone thought of getting insurance, he had only one option, either to go to an LIC agent or to the branch office of LIC, Read the brochure carefully, understand the different policies, and choose the best policy as per your need. No matter how simple the process may seem, there comes a time when policyholders want something more than the few options and processes provided.
Soon after, the Government of India constituted a committee to review and delve into the performance of the insurance sector over the past few years and prepare a report on it.
The report was to talk about the reforms made in the finance industry in the last few years. After a year of rigorous research, the Malhotra Committee filed a report containing some of the most important and brilliant suggestions for the insurance sector, including privatization of the Indian insurance sector. Privatization helped private-sector companies enter the insurance market. And because of this, the policyholder got many new options to choose the insurance provider.
However, the Malhotra Committee report also mentioned how LIC has been successful in spreading awareness among the people about insurance and it has also collected savings or funds for various works done by the government for development and employment. Have done. But at the same time, in this report, the shortcomings caused by LIC's monopoly in the insurance sector were also mentioned, such as -
- LIC's marketing network needed to be more adequate and negligent in responding to customer needs.
- The general public was still unaware of insurance and its benefits.
- People had nothing except basic insurance and savings plans, which did not even include unit-linked assurance.
- The policyholder understood that the insurance cover was too expensive compared to his life insurance returns.
- Federalism in business, unsatisfactory and poor work culture, strict hierarchy, and hiring too many employees were some of the things that led to corruption.
- Inefficient and negligent attitude towards customer services and procedures.
Malhotra Committee recommendations
The Malhotra Committee then released a report in which they made some very concrete suggestions to enhance the strength of the industry in the country and to develop this sector by increasing investment and inviting new investors, which are:
- Allowing private sector companies to invest in the insurance industry with an upfront capital investment of at least Rs 100 crore.
- To allow foreign insurance companies to start working with Indian companies by way of joint venture investment with Indian partners.
- To give 50% ownership of LIC to the Government and 50% to the public at large, to have reservations for its employees and to raise capital up to Rs 200 crore for both LIC and GIC with similar divisions.
- To restore the Insurance Controller's Office to full functioning. According to the Insurance Act, all insurance providers should be treated equally and the same laws and rules should apply to all.
To establish the Insurance Regulatory and Development Authority as an autonomous body to directly and individually control the insurance industry. Along with this, it was also suggested that the government will have to give all powers to this body because privatization in the insurance sector will promote competition, and this competition will also have to be relaxed and controlled.
These suggestions, along with several others, were implemented to improve industry standards in Indian insurance. IRDA was established in 1999 with the objective of protecting the interests of policyholders and inviting foreign investment. Also, one of its main objectives was to control and promote the continuous development of the insurance industry.
However, these reforms took a long time to implement, as the National Association of Insurance Employees strongly opposed them. All these concerns and lack of support needed to be resolved as soon as possible. Some of those concerns and problems were:
-Questions were raised about insurance industry liberalization increasing foreign control over the industry, exploitation of employees, and unnecessary expenditure by the government.
- It also highlighted the anti-nationalization scenarios that had emerged before independence.
Current status of the Indian insurance industry
After the privatization and liberalization of the insurance industry and IRDA taking over the control of the Indian insurance industry, the sector has come a long way in India. IRDA opened the doors of the insurance market to foreign investment in August 2000 and also started accepting applications for their registration. Then foreign companies could retain up to 26% ownership.
There are many insurance providers in the market. There is a great need and desire for both general insurance and life insurance in the market. However, the potential for expansion of insurance is only increasing as the need for insurance and its awareness have still not gone hand in hand. In the rural areas of India, where most of the country's population resides, the roots of insurance are still not so strong. And for this reason, the insurance sector can still grow further.
If seen, insurance investment (premium as % of GDP) in India reached 3.69% in 2017 which was only 2.71% in 2001.
- The share of private players in the non-life insurance market increased from 15% in FY04 to 56% in FY2021 (as of April 2020).
-In FY 2020, new businesses from private sector companies had a 31.3% share in the life insurance sector of the insurance market.
Gross premium of life insurance companies in India, which was Rs 2.56 trillion ($39.7 billion) in FY 2012, increased to Rs 7.31 trillion ($94.7 billion) in FY 2020.
- Between FY 2012 and 2020, premiums from new business of life insurance companies in India grew at a growth rate of 15% to reach Rs 2.13 trillion ($37 billion) in FY 2020.
-Overall, the share of insurance (premiums as % of GDP) reached 3.69% in 2017 from 2.71% in 2001.
In today's uncertain times, insurance is not just a luxury item or service but a basic need. Insurers want to enter new markets for insurance or simply create new markets by identifying the needs of their potential customers. This market or needs depends on many factors like location, age, gender, business, family, health, wealth, etc.
On the other hand, consumers have to understand the different types of insurance policies and choose the perfect one keeping in mind the needs of the family and the maximum benefits they can get from the insurance policy. There are many other factors that people keep in mind when choosing a policy like the premium rate, claim settlement ratio, and any hidden rules and regulations.
In fact, the insured person gets benefits in many ways, some of which are as follows –
- In times of sudden crisis, they do not have to worry about money.
- It works as an investment in the long term.
-This makes the person feel safe.
-An insurance policy can provide protection to the entire family.
-The advantage of choosing the most suitable policy for you from multiple insurers.
Want to know about the laws and regulations of insurance? We will learn that in the next chapter
conclusion
Now that you know about the evolution of insurance in India, it is time to move on to the next big question – What are the laws and regulations of insurance? And to know this we will have to go to the next chapter.
What have you learned so far?
Malhotra Committee submitted a report highlighting the shortcomings of monopoly in the insurance sector
Privatization enabled private sector companies to enter the insurance market. This gave policyholders the option to choose between multiple insurance providers.
Foreign insurance companies were allowed to run Indian companies through joint venture investments with Indian partners.
IRDA was established in 1999 to regulate, and protect the interests of policyholders, invite foreign investment, and promote the growth of the industry.
Liberalization of the insurance industry raised questions about foreign control over the industry, exploitation of employees, and unnecessary spending on the part of the government.
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