Insurance journey from

nationalization to
privatization in India—A
study
K. Subrahmanyam,Executive Director,
Insurance Regulatory and Development
Authority, India.

Presentation at 14th East Asian Actuarial

Conference: Oct 9-12, 2007, Keio Plaza
Hotel, Tokyo, Japan
Insurance journey from
nationalization to privatization in
India—A study

Agenda

1. Introduction
2. Nationalization Era
3. Scene in 1956 and earlier
4. Establishment of Life Insurance Corporation of
India (LIC of India)
5. Establishment of General Insurance Corporation
of India
6. Foreign operations of insurers in India.
Insurance journey from
nationalization to privatization in
India—A study
Agenda

7. The process of Liberalization. Malhotra

Committee’s Report.
8. Establishment of Insurance Regulatory and
Development Authority (IRDA):
9. Private Insurers
10. Business Growth in India:
11. The Future.
Insurance journey from nationalization
to privatization in India—A study

Introduction:
India :a colony under British Rule till 1947.
Insurance business: not regulated till 1912.
Regulatory apparatus established in 1912. A
superintendent was appointed under
Ministry of Finance.
A comprehensive legislation was drawn in
1938 to regulate insurance business.
Insurance journey from nationalization
to privatization in India—A study

Introduction:
1956 saw nationalization of life insurance
industry—government took over business
of life insurance.
1972 saw nationalization of general insurance
industry.
1990’s was year of start of liberalization of
financial sector due to international
pressures.
Insurance journey from nationalization
to privatization in India—A study

Introduction:
1993: Malhotra Committee was asked by
Government of India to recommend
process of liberalization of insurance
sector. It submitted its report in Jan, 1994.
1999: At last, government’s monopoly
ended, insurance industry again
came into hands of private insurers.
Insurance journey from nationalization
to privatization in India—A study

Introduction:
2000 witnessed new insurers in the
Indian market.
India became important destination
for insurance in view of vast
potential and opportunities.
Insurance journey from nationalization
to privatization in India—A study

2. Nationalization Era
India became independent in 1947; and Indian
government wanted to own life insurance
to take care of the interests of
policyholders, as pre-1956 era witnessed
failures of insurers and ignored interests of
policyholders.
Thus 1956 saw birth of LIC of India, the sole
life insurer to transact life insurance
business in India.
Insurance journey from nationalization
to privatization in India—A study

2. Nationalization Era
1960s and 1970s witnessed lots of changes in
financial sector.
Banks were nationalized in 1969;
General Insurance industry was nationalized in
1972.
Purpose was to protect the customer.
Insurance journey from nationalization
to privatization in India—A study

3. Scene in 1956 and earlier.

ƒ The number of life insurers on 19th
January 1956 :
ƒ Indian Insurers: 154
ƒ Foreign insurers: 16
ƒ Provident Societies: 75
ƒ Total: 245
Insurance journey from nationalization
to privatization in India—A study

3. Scene in 1956 and earlier.

ƒ At 1956: [of all life insurers]
ƒ Total Life fund was about Rs. 3 bn.
ƒ Premium Income was about Rs. 750 mn.
ƒ Average Sum Assured per policy was about
Rs.2000.
ƒ Total number of policies was about 5 mn.
ƒ Total number of agents could be about 100,000.
ƒ Popular insurance contracts were Endowment
Assurances, with profits.
Insurance journey from nationalization
to privatization in India—A study

4. Establishment of Life Insurance

Corporation of India (LIC of India).
ƒ LIC of India was created by an Act in
the Parliament:- Life Insurance
Corporation of India Act, 1956.
ƒ LIC of India was made merging about
245 insurers in 1956, and became
operational with effect from 1st
September 1956.
Insurance journey from nationalization
to privatization in India—A study

ƒ LIC of India, though showed

impressive growth from Rs. 4 bns in
1957 to Rs. 908 bn in its premium
income in 2000, could not provide
what public wanted in respect of:-
ƒ Products within reach;
ƒ Wide range of products;
ƒ Prompt customer service.
Insurance journey from nationalization
to privatization in India—A study

ƒ LIC of India: has highest branch net

work with largest distribution net
work: [over 2000 branches, with over
1.2 millions of insurance agents]
ƒ Its share of the market was 73% in
1956, private insurers grabbing 27%.
ƒ There is a space for more private
insurers in India.
Insurance journey from nationalization
to privatization in India—A study
5. Establishment of General Insurance
Corporation of India
ƒ GIC of India was created by an Act in
the Parliament: General Insurance
Business (Nationalization) Act, 1972
(GIBNA).
ƒ GIC of India was established in
November 1972, amalgamating 107
insurers, including branches of foreign
companies operating in India.
Insurance journey from nationalization
to privatization in India—A study
5. Establishment of General Insurance
Corporation of India
ƒ All these insurers were grouped into 4
companies (the subsidiaries of GIC of India):-
ƒ The National Insurance Company Ltd.,
ƒ The New India Assurance Company Ltd.,
ƒ The Oriental Insurance Company Ltd.,
ƒ The United India Insurance Company Ltd.
ƒ They commenced the general insurance
business with effect from 1st January, 1973.
Insurance journey from nationalization
to privatization in India—A study
5. Establishment of General Insurance
Corporation of India
ƒ Now GIC is National Reinsurer.
ƒ All the 4 subsidiary companies became
independent insurers de-linked from GIC.
ƒ GIC is protected with 20% mandatory
cessions from general insurers in India.
Insurance journey from nationalization
to privatization in India—A study
6. Foreign operations of insurers in
India.
LIC has its operations in UK, Fiji, Mauritius,
Bahrain, Sri Lanka, Nepal, as on date.
GIC and New India Assurance Co. Ltd.,
has operations in over 30 countries.
This became important argument for
opening up sector, but with limited
foreign equity to 26% in joint venture
private insurers.
Insurance journey from nationalization
to privatization in India—A study
7. The process of Liberalization.
Malhotra Committee’s Report.
This was an important mile-stone in the
history of insurance industry in India.
The committee favored liberalization,
with conditions– to protect the
domestic players.
Insurance journey from nationalization
to privatization in India—A study
7. The process of Liberalization.
Malhotra Committee’s Report.
High lights are:
Minimum paid-up capital of Rs. 1 bn. at
entry– with an intention to stop
mushroom growth of insurers– there
should be serious players.
No composites.
Insurance journey from nationalization
to privatization in India—A study
7. The process of Liberalization.
Malhotra Committee’s Report.
Highlights are:
Appointed Actuary system;
Solvency Margins;
Mandatory Investments should be
continued.
Insurance journey from nationalization
to privatization in India—A study
7. The process of Liberalization.
Malhotra Committee’s Report.
Highlights are:
Autonomous Regulatory Apparatus;
Listing should be made compulsory after
some gestation period;
New insurance legislation is in process,
today, for proper regulation and
development of insurance market in
India.
Insurance journey from nationalization
to privatization in India—A study
8. Establishment of
Insurance Regulatory and Development
Authority (IRDA):
In 1999, Parliament made an Act to
establish Regulatory Apparatus
before opening up.
Act gave vast powers and
responsibilities to IRDA.
Insurance journey from nationalization
to privatization in India—A study
8. Establishment of
Insurance Regulatory and
Development Authority (IRDA):

IRDA is an authority which has 6

full-time members and 4 part-time
members.
Insurance journey from nationalization
to privatization in India—A study
8. Establishment of
Insurance Regulatory and Development
Authority (IRDA):
Six full time members:
• CHAIRMAN,
• ACTUARY,
• a LIFE insurance specialist,
• a GENERAL insurance specialist,
Insurance journey from nationalization
to privatization in India—A study
8. Establishment of Insurance Regulatory and
Development Authority (IRDA):
The rest two members should be
from background of LAW,
ADMINISTRATION, ACCOUNTS,..
Useful to IRDA.
Part-time numbers are from various
fields—consumer interest,
professional interests,
government interests, ….
Insurance journey from nationalization
to privatization in India—A study
8. Establishment of Insurance Regulatory and
Development Authority (IRDA):
All members are appointed by the Government
of India.
Chairman will have a service of 5 years or until
age of 65 whichever is earlier.
Full Time member will have a service of 5 years
or until age of 62 whichever is earlier.
Part Time members – Term: 5 years
Insurance journey from nationalization
to privatization in India—A study
8. Establishment of Insurance Regulatory
and Development Authority (IRDA):
It is charged with responsibilities of :-
Registration of insurers, licensing of
agents and brokers;
Regulation and Supervision.
Development Role.
Insurance journey from nationalization
to privatization in India—A study
9. Private Insurers:
Life Insurers: General Insurers
Government: 1 6
Private: 15 8

One Reinsurer owned by Government.

Private (Life) insurers has a share of 30%

of the Market –June 2007.
Insurance journey from nationalization
to privatization in India—A study
9. Private Insurers:
A number of applications are in pipe
line.

Total insurers would be about 40 by

end of 2007.

Still there is space for many!

Insurance journey from nationalization
to privatization in India—A study
11. The Future.

It is very bright!

Insurance Penetration was about 2.5% in

2000, and now it is over 3.5%.
Insurance potential is very high in
pensions and health insurance.
Also in P&C business.
Insurance journey from nationalization
to privatization in India—A study

THANK YOU VERY MUCH.