A project submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Banking and Insurance)
In
St. Andrew’s College of Arts, Science & Commerce

Submitted by:
Siddhant Gaikwad
8251
Of TY-BBI (2019-20)

Under the supervision of:

Dr. Shirley Pillai
Head, Dept. of Banking & Insurance
Of
St. Andrews College of Arts, Science & Commerce
St Dominic Rd, Bandra West, Mumbai, Maharashtra 400050.
 Declaration

I the undersigned Mr. Siddhant Gaikwad  here by, declare that the work embodied in this
project work titled “The Impact And Contribution of Insurance Sector To Indian
Economy With Emphasis To Life Insurance” from my own contribution to the research
work carried out under the guidance of Dr. Shirley Pillai is a result of my own research work
and has not been previously submitted to any other University for any other Degree/ Diploma
to this or any other University. 
Wherever reference has been made to previous works of others, it has been clearly indicated
as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Siddhant Gaikwad
Name and Signature of the learner

Certified by:
Dr. Shirley Pillai
Name and Signature of the Guidance Teacher
Certificate                      

This is to certify that Mr Siddhant Gaikwad  has worked and duly completed her/his project
work for the degree of Bachelor in Commerce (Banking and Insurance) under the faculty of
Commerce in the subject of project work and her project is entitled, “The Impact And
Contribution of Insurance Sector To Indian Economy With Emphasis To Life
Insurance” under my supervision.
I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any Degree or Diploma of any University.
It is her/his own work and facts reported by her/his personal finding and investigation.  

Dr. Shirley Pillai

Name and Signature of
Guiding Teacher

Date of submission:
------------------------
 Acknowledgement

To list who all have helped me is difficult because they are numerous and the depth is so
enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me the chance to do
this project.
I would like to thank my Principal, Dr. Marie Fernandes, for providing the necessary
facilities required for completion of this project.
I take this opportunity to thank our Coordinator and my project guide, Dr. Shirley Pillai,
for her moral support and guidance.
I would like to thank my College Library for having provided various reference books and
magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of this project, especially my parents and peers, who supported me
throughout my
List of Figures:
List of Charts:
List of Tables:
 INTRODUCTION

Insurance sector in India is one of the most booming sectors of the economy and is growing
at the rate of 15-20 percent per annum. In India, insurance is a flourishing industry, with
several National and International players competing with each other which as a byproduct
where in it allows the Indian Insurance companies to offer a comprehensive range of
insurance plans.
According to Economic Survey (Government of India), 2012-13, since the opening up of the
Insurance Sector, the number of participants in the Insurance Industry has gone up from 7
Insurers in 2000 to 52 Insurers as on September 30, 2012 operating in the Life, Non-Life, and
Re-Insurance segments. Of the 23 insurance companies that have set up operations in the Life
segment, 21 are in joint ventures with foreign partners while 21 private insurers who have
commenced operations in the Non-Life segment, 18 are in collaboration with foreign
partners.

Insurance business in India had, in the past, remained underdeveloped with low levels of
penetration. 

Post-liberalization, the sector has succeeded in raising the levels of Insurance penetration
from 2.7 (Life 2.15 and Non-Life 0.56) in 2001 to 4.1 (Life 3.4 and Non-Life 0.7) in 2011.

But still, Insurance is one of the most demanding financial products in India and its basic
motto is “To protect the family of any uncertainty in life. So it is a long term investment and
one must have knowledge about that. Indian Life insurance is too old. It is there from British
Period and after Nationalization; it has come fully under Government. The Indian Insurance
market is a huge business opportunity. Because, India currently accounts for less than 1.5
percent of the World’s total Insurance premiums and about 2 percent of the World’s Life
Insurance premiums despite being the second most populous nation. The country is the
fifteenth largest Insurance market in the World in terms of Premium Volume, and has the
potential to grow exponentially in the coming years. India’s life insurance sector is the
biggest in the world with about 360 million policies which are expected to increase at a
Compound Annual Growth Rate of 12-15 per cent over the next five years. The insurance
industry plans to hike penetration levels to five per cent by 2020.
But despite the recent growth of the insurance sector, insurance penetration in India remains
low as compared to other developing countries of the world. The key policy challenge
required at current stage is to ensure the financial stability of the new insurers, while at the
same time encouraging entrepreneurship, product innovation and increasing insurance
density, especially in rural and semi-urban areas.

1.1 Definition

Insurance is defined as a co-operative device to spread the loss caused by a particular risk
over a number of persons who are exposed to it and who agree to ensure themselves against
risk.
Risk is uncertainty of a financial loss; it should not be confused with the chance of loss which
is the probable number of losses out of a given number of exposures.
Every risk involves the loss of one or other kind. The function of Insurance is to spread the
loss over a large number of persons who are agreed to cooperate with each other at the time
of loss.
Insurance is a contract between two parties (one the insurer and second the insured) where by
the insurer agrees to undertake the risk of the insured in consideration of some amount known
as “Premium” and in return promises to compensate a fixed sum of money to the insured
party on the happening of an uncertain event like DEATH.
In case of survival the insurer has to pay after the expiry of a certain period in case of life
Insurance or to indemnify the party on the happening of an uncertain event in case of General
Insurance.
Hence,

“Insurance is a cooperative form of distributing a certain risk over a group of persons who
are exposed to it.” – Ghosh and Agarwal.

1.2 History of Insurance and its Evolution in India.

History of Insurance in India started from the prehistoric period as Insurance in its primitive
form has been known to exist from as far back as 3000 BC. Various civilizations were known
for practicing the basic concept of insurance – pooling and sharing in an unorganized manner.
While considering the history of insurance in India, the principle of insurance was reflected
in the joint family concept, widely followed in many regions, and is considered as one of the
best forms of life insurance down the ages.
Sorrows and losses from unfortunate events were shared by family members and that helped
to give them a security feeling. The breakup of the joint family system and the emergence of
the nuclear family in the modern era, coupled with the stress of family life paved a path for
the evolution of alternative methods for insurance.
Hence the History and Evolution of Insurance in India can be divided in to three phase.

 1.2.1 Phase I – Pre Liberalization

 1.2.2 Phase II – Liberalization Phase
 1.2.3 Phase III – Post Liberalization Phase

Phase 1
Pre-
Liberlization

Phase 2
Liberlization
Phase

Phase 3
Post-
Liberlization

1.2.1 Phase I – Pre liberalization Phase:

 In 1818 the Oriental Life Insurance Company was formed in Calcutta which failed in
1834. In 1829 the Madras Equitable had begun transacting life Insurance business in
the Madras Presidency. British Insurance Act 1870 saw the creation of the Bombay
Mutual Fund (1871), Oriental Insurance (1874) and Empire of India Insurance (1897)
in the Bombay Presidency
 The Indian Life Assurance Companies Act 1912 was the first statutory measure to
regulate Insurance business in India. The Indian Insurance Company Act 1928 gave
power to the government to collect statistical information about both life and non-life
Insurance business transactions in India.
 To protect the interest of the insuring public, earlier legislation was consolidated and
amended by the Insurance Act 1938 which gave the government effective control over
the activities of insurers. The Government of India issued an Ordinance on 19 January
1956 nationalizing the Life Insurance sector and Life Insurance Corporation came
into existence. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-
Indian insurers as also 75 provident societies—245 Indian and foreign insurers.”
Nationalization of General Insurance:

 Nationalization of General Insurance In 1972 the General Insurance Business

(Nationalization) Act was passed. Consequently, General Insurance business was
nationalized with effect from 1 January 1973. 107 insurers were amalgamated and
grouped into 4 companies where in General Insurance Corporation of India was set up
as the apex body for controlling these 4 companies

Nationalization of General Insurance

National
Insurance
Company
Ltd

The United The New

General
India India
Insurance
Insurance Assurance
Corporation
Company Company
of India
Ltd Ltd

The
Oriental
Insurance
Company
Ltd

1.2.2 Phase II – Liberalization Phase:

The international payment crises of the 1990 force the government to rethink its industrial
policy. In 1993 government of India set up a committee under chairman ship of Sri R. N.
Malhotra, the former Governor of RBI to make recommendations for reform in Insurance
sector. The committee submitted its report in 1994.
Recommendations of Malhotra committee:

 Recommendations of Malhotra committee Private players be included in the insurance

sector. Foreign companies be allowed to enter the insurance sector, preferably through
joint ventures with Indian partners. The Insurance Regulatory and Development
Authority (IRDA) be constituted as an autonomous body to regulate and develop the
insurance sector
 Recommendations of Malhotra committee GIC to cease being the holding company of
the four subsidiary companies and would function exclusively as a Reinsurance
company and as the Indian Reinsurer under the Companies Act; Mandated investment
of funds of LIC and GIC should be reduced from 76 and 70 per cent to 50 and 35 per
cent respectively;
 Recommendations of Malhotra committee new entrants in life insurance should be
required to transact a certain minimum business in rural areas; LIC should review its
product pricing with a view to improving returns to policy holders and to rationalize
premium under various plans. Restructure and decentralize the Life Insurance
Corporation of India.

1.2.3 Phase III – Post Liberalization

 Post Liberalization Following the recommendation of the Malhotra committee report,

the Insurance Regulatory and Development authority (IRDA) was constituted as an
autonomous body in 1999 to regulate and develop the insurance industry in India. The
IRDA was incorporated as a statutory body in April 2000. As per the power given to
IRDA under section 114A of the Insurance Act 1938, IRDA has introduced various
regulations since 2000 ranging from registration of the insurance company to the
protection of policy holders interest.
 Post Liberalization Insurance Company has been opened to private sector companies.
Foreign company was allowed to participate in Indian insurance market through joint
venture with Indian companies. Under the current regulation the foreign partners
cannot hold more than 26% stake but the cabinet has approved to increase it to 49%
and proposed to bring the amendment bill in 2013 budget session.
 The Insurance Act and General Insurance Business (Nationalization) Act (GIBNA)
were amended to open up to the private sector. With Amendment of GNBNA Act
2002 effective from 21st March 2003, GIC ceased to be a holding company of its four
subsidies. GIC was notified as a reinsurance company.
 Some other development in post Liberalization period are: - Extensive use of IT. Banc
assurance – Bank joining with Insurance Company to do cross-sale of insurance
products to their customer. Insurance company benefits from wide network of Bank
branch and strong loyal customer base. Banks benefit to provide value added products
and earn NFNI income. Many Banks has also started their own Insurance subsidiary.
On Line sales of Insurance product.
  Micro Insurance guidelines were issued by the IRDA in 2005.Micro insurance
products provide insurance protection to people in lower income groups, such as SHG
members, farmers, rickshaw pullers, etc. The premium for these products may be as
low as Rs. 15 and collected on a weekly basis. The minimum life insurance cover
specified by the Regulator for this category is Rs.5000 to 50000. 5. Grievance
redressal – Insurance Ombudsman scheme, toll free no. 155255 or email
complaints@irada.gov.in

1.3 The Role and Importance of Insurance

Insurance contributes a lot to the general economic growth of the society by provides stability
to the functioning of process. The insurance industries develop financial institutions and
reduce uncertainties by improving financial resources.

1. Provide Safety and Security: funds are gainfully employed in industrial

Insurance provide financial support and
reduce uncertainties in business and
human life. It provides safety and security
against particular event. There is always a
fear of sudden loss. Insurance provides a
cover against any sudden loss. For
example, in case of life insurance financial
assistance is provided to the family of the
insured on his death. In case of other
insurance security is provided against the
loss due to fire, marine, accidents etc.
development of a country for generating
more funds and utilized for the economic
development of the country. Employment
opportunities are increased by big
investments leading to capital formation.
3. Life Insurance Encourages Savings:
Insurance does not only protect against
risks and uncertainties, but also provides
an investment channel too. Life insurance
enables systematic savings due to payment
of regular premium. Life insurance

provides a mode of investment. It develops

a habit of saving money by paying

2. Generates Financial Resources:
premium. The insured get the lump sum
Insurance generate funds by collecting
amount at the maturity of the contract.
premium. These funds are invested in
Thus life insurance encourages savings.
government securities and stock. These
4. Promotes Economic Growth 6. Spreading of Risk

Insurance generates significant impact on Insurance facilitates spreading of risk from

the economy by mobilizing domestic the insured to the insurer. The basic

savings. Insurance turn accumulated principle of insurance is to spread risk

capital into productive investments. among a large number of people. A large

Insurance enables to mitigate loss, number of persons get insurance policies

financial stability and promotes trade and and pay premium to the insurer. Whenever

commerce activities those results into a loss occurs, it is compensated out of

economic growth and development. Thus, funds of the insurer.

insurance plays a crucial role in

7. Source of Collecting Funds
sustainable growth of an economy.
Large funds are collected by the way of

5. Medical Support premium. These funds are utilized in the

A medical insurance considered essential industrial development of a country, which

in managing risk in health. Anyone can be accelerates the economic growth.

a victim of critical illness unexpectedly. Employment opportunities are increased

And rising medical expense is of great by such big investments. Thus, insurance

concern. Medical Insurance is one of the has become an important source of capital

insurance policies that cater for different formation.

type of health risks. The insured gets a

medical support in case of medical

insurance policy.
1.4 Insurance and Growth

Insurance and economic growth mutually influence each other. As the economy grows, the
living standards of people increase. As a consequence, the demand for life insurance
increases. As the assets of people and of business enterprises increase in the growth process,
the demand for general insurance also increases. In fact, as the economy widens the demand
for new types of insurance products emerges. Insurance is no longer confined to product
markets; they also cover service industries. It is equally true that growth itself is facilitated by
insurance. A well-developed insurance sector promotes economic growth by encouraging
risk-taking. Risk is inherent in all economic activities. Without some kind of cover against
risk, some of these activities will not be carried out at all. Also insurance and more
particularly life insurance is a mobilize of long term savings and life insurance companies are
thus able to support infrastructure projects which require long term funds. There is thus a
mutually beneficial interaction between insurance and economic growth. The low income
levels of the vast majority of population have been one of the factors inhibiting a faster
growth of insurance in India. To some extent this is also compounded by certain attitudes to
life. The economy has moved on to a higher growth path. The average rate of growth of the
economy in the last three years was 8.1 per cent. This strong growth will bring about
significant changes in the insurance industry.
1.5 Factors which affect the relationship between Insurance Sector and
Economic Growth in Indian Economy
1. Mobilization of Resources.
The premium collected is pooled and
invested in projects which reduces the
transaction cost of financing and eases the
pressure on the financial intermediaries.
Countries with strong insurance industries
have a robust infrastructure and strong
capital formation. Insurance generates
long-term capital, which is required to
build infrastructure projects that have a
long gestation period. Concurrently,
insurance protects individuals and
businesses from sudden unfavorable
events. A well developed and evolved
insurance sector is needed for economic
development as it provides long-term
funds for infrastructure development and
simultaneously strengthens the risk taking
ability. The bulk funds invested in large
and infrastructure projects promote
economies of scale, promoter economic
development and growth and other
technological innovation  Insurance can provide cover to these, yet
2. Growth in GDP and Household
Financial Savings.  purchasing life insurance and lower
The Life insurance is causally linked to
growth only in higher income economies;
nonlife insurance makes a positive
contribution in both developing and higher
income economies. High GDS have been
strongly supported by savings in the
household sector. Overall growth in GDP
and household savings has significantly
influenced the growth of Indian life
insurance business. Reforms and
liberalization are expected to exert a
significant impact on income, savings and
insurance purchase; financial reforms are
expected to improve allocation of savings.
India is one of the few countries in the
world which has maintained higher growth
rate in domestic savings in spite of
economic deregulation and increased
consumerism due to higher prosperity to
save by the household sector. GDS in
India steadily increased from 306588
crores of rupees in 2001-02 to 1283456
crores of rupees in 2009-10. Expansion of
the insurance market in India, expansion of
the service sector and increase in GDS all
contributed significantly to the steady
growth in the economy. 
3. Inflation and Interest Rate. 
An inflation and business recession
directly reduces the real purchasing power
and network of the people respectively.
the negative side is the adverse impact on
the financial performance of companies.
Higher interest rates in other alternative
savings and instruments may discourage
interest rates in other alternative savings
may encourage purchasing life insurance.
4. Employment
Insurance helps create both direct and
indirect employment in the economy.
Alongside regular jobs in insurance, there
is always demand for a range of associated
professionals such as brokers, insurance
advisors, agents, underwriters, claims
managers and actuaries. The increasing
insurance business has increased the
demand for highly skilled professionals as
well as semiskilled and unskilled people.
To ensure continued growth, the need of
the hour is trained manpower with
specialized knowledge about insurance.
Insurance companies need to invest in the
professional training of their employees,
especially for subjects such as
underwriting, claims and risk
management. From the analysis above, it
is clear that the insurance sub sector within
the decade has shown tremendous positive
impact on various Macro-economic
variables identified with the industry.

1.6 Contribution of Insurance Sector towards the Key Factors which are
responsible for the Growth & Development of the Indian Economy

The sector is gradually increasing its contribution to the country‘s GDP. In addition,
insurance is driving the infrastructure sector by increasing investments each year. Further,
insurance has boosted the employment scenario in India by providing direct as well as
indirect employment opportunities. Due to the healthy performance of the Indian economy,
the share of life insurance premiums in the gross domestic savings (GDS) of the households
sector has increased. The increased contribution of the insurance industry from the household
GDS has been ploughed back into the economy, generating higher growth.

Towards Infratructure
Generally, countries with strong
insurance industries have a robust
infrastructure and strong capital
formation. Insurance generates long-
term capital, which is required to
build infrastructure projects that
have a long gestation period.
Concurrently, insurance protects
individuals and businesses from
sudden unfavorable events. A well
developed and evolved insurance
sector is needed for economic
development as it provides long term
funds for infrastructure development
and simultaneously strengthens the
risk taking ability
Towards FDI
The importance of FDI in the development of a
capital deficient country such as India cannot be
undermined. This is where the high-growth sectors of
an economy play an important role by attracting
substantial foreign investments. Currently, the total
FDI in the insurance sector, which was INR50.3
billion at the end of FY09, is estimated to increase to
approximately INR51 billion in FY10. It is difficult
to estimate, but an equal amount of additional foreign
investment, can roughly flow into the sector if the
government increases the FDI limit from 26% to
49%. The insurance sector, by virtue of attracting
long-term funds, is best placed to channelize long
term funds toward the productive sectors of the
economy. Therefore, the growth in their premium
collections is expected to translate into higher
investments in other key sectors of the economy.
Therefore, the liberalization of FDI norms for
insurance would not only benefit the sector, but
several other critical sectors of the economy. 

Towards Economy Towards Complimentaries

Towards Employment
Insurance helps create both
direct and indirect employment
in the economy. Alongside
regular jobs in insurance, there
is always demand for a range of
associated professionals such
as brokers, insurance advisors,
agents, underwriters, claims
managers and actuaries. The
increasing insurance business
has increased the demand for
highly skilled professionals as
well as semiskilled and
unskilled people  primarily through the
The deepening of insurance
markets makes a positive
contribution to economic
growth. Whole life
insurance is causally linked
to growth only in higher
income economies, nonlife
insurance makes a positive
contribution in both
developing and higher
income economies. Some
research suggests that the
positive contribution of life
insurance to growth is
channel of financial
intermediation and long
term investments
Between Banks &
Insurance
Insurance and banking
system deepening appear to
play complementary roles in
the growth process.
Although insurance and
banking separately each
make positive contributions
to growth, their individual
contributions are greater
when both are present.
There is also some evidence
that the development of
insurance markets
contributes to the health of
securities markets.
1.5. The Growth of Insurance Sector in India

 India is a growing economy with the increasing number of working population in the

country; the disposable income is also increasing.

 People feel the need to have a secure life for themselves and their family which

encourages them to get covered by insurance.

 As the income increases the spending on consumer goods, automobiles, travel which

are various insurance lines.

 The awareness about insurance among people has been increasing along with the

number of providers and the range of products available at competitive prices.

 Moreover, the regulatory environment is conducive for the Insurance sector to bloom.

All these factors lead to an increase in the universe of potential buyers for insurance

such as individuals, companies across businesses.

 More than two-thirds of India’s population lives in rural areas which are untapped

when it comes to insurance products. Micro insurance can be focused upon to ensure

coverage in these areas.

 Important Milestones in the history of Indian
Insurance industry.

 1993 Malhotra Committee established

 1994 Recommendations of the Malhotra Committee published

 1995 Mukherjee Committee established

 1996 Setting up of (interim) Insurance Regulatory Authority

(IRA)recommendations of the IRA

 1997 Mukherjee Committee Report submitted but not made public

 1997 The government gives greater autonomy to Life Insurance

Corporation, General Insurance Corporation, and its subsidiaries with regard
to the restructuring of boards and flexibility in investment norms aimed at
channeling funds to the infrastructure sector

 1998 The cabinet decides to allow 40 percent foreign equity in private

insurance companies—26 percent to foreign companies and 14 percent to
non-resident Indians and Foreign Institutional Investors

 1999 The Standing Committee headed by Murali Deora decides that

foreign equity in private insurance should be limited to 26 percent. The IRA
bill is renamed the Insurance Regulatory and Development Authority Bill

 1999 Cabinet clears Insurance Regulatory and Development Authority

Bill

 2000 President gives assent to the Insurance Regulatory and

Development Authority Bill