INSURANCE SECTOR REFORMS

In 1993, Malhotra committee headed by former finance Secretary and RBI Governor
R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend
ation its future direction.
The reforms were set up with the objective of completing the reforms initiated i
n the financial sector.
The reforms were aimed at “creating a more efficient and competitive financial sys
tem suitable for the requirements of the economy keeping in mind the structural
changes currently underway and recognizing that insurance is an important part o
f the overall financial system where it was necessary address the need for simil
ar reforms …” The committee submitted its report to union finance ministry on 7-1-19
94, recommending a phased programme of liberalization and called for a private s
ector entry and restructuring suggested the following changes.
• Government stake in insurance companies be brought down to 50%.
• The takeover of the holdings of GIC and its subsidiaries in order to facilitate
their functioning as independent corporations.
• Allowing private enterprise in the sector with companies with a paid-up capital
of a minimum of Rs. 100 crores.
• No single entity to function in both Life and General insurance segments.
• Foreign companies to be allowed only in combination with an Indian partner.
• Changes to be made to the Insurance Act.
• An independent insurance regulatory authority to be set up.
• Reduction in the mandatory investments of LIC life Fund in government securities
to be brought down from 75% to 50%.
Insurance sector began its reform process with the passage of the IRDA the (Ins
urance Regulatory and Development Authority) bill in parliament December 1999. H
owever, with the setting up the IRDA, the government has once again de-regulated
the sector opening it for the private players, which is depicted in table below
:
Insurance Sector Reforms
April 1993 Malhotra Committee in the insurance Sector Reforms and Deregulat
ion set up.
January 1994 Malhotra Committee submitted report to the finance minister
December 1996 IRDA Bill introduced in parliament and referred to the standing
committee.
August 1997 IRDA is withdrawn following opposition to foreign participant.
November 1997 Government of the clears greater opposition to foreign participa
tion.
June 1998 Union Budget announces opening of insurance sector.
January 1999 Notification of IRDA as a stature authority
October 1999 Approval of IRDA Bill by the cabinet with FDI limit to 26% and F
II at 23%.
February 2000 Insurance Bill presented in the Budget session.
October2000 Private insurance companies are back.
Insurance sector in India has gone through the process of reforms following thes
e recommendations. The IRDA bill was passed by the Indian Parliament in December
1999. The IRDA become a statutory body in April 2000 and has been framing regul
ations and registering the private sector insurance companies. The insurance sec
tor was opened up to the private sector in 2000. Consequently, some Indian and F
oreign private companies has entered the insurance business now. There are about
seven general insurance and 11 life insurance companies operating in the privat
e sector in India in the early part of 2004. Taking into account LIC, GIC and it
s four subsidiaries, there are 24 organizations doing life insurance business in
India in 2004. In addition, there is a post office life insurance business also
. In other words, the structure of insurance industry in India at present can be
shown as:
Insurance Industry in India

Figure below present useful information on the total size of insurance industry
and the distribution of its business according to types, sectors and companies i
n terms of premium, investments, receipts; and also its comparison with other co
untries. It shows that the private sector life insurance premium was only 0.54%
in 2001-02, the LIC accounting for the remaining 99.46%. In the General Insuranc
e field also, the share of private insurers in the total premium was hardly 3.76
% in that year, and the four GIC subsidiaries accounted for the remaining 96.24%
of the premium.
Summary of Insurance Business in India

Item 2000-01
2001-02
(A) Life Insurance
(a) Premium 36070
50094
(b) Of which, private insurers 7
273
(c) Total Investments 194010
246869
(d) Of which the government & other
Approved securities. 100037
132177
(e) Other than approved investments 18584
16521
(B) General Insurance
(a) Gross direct premium income 10087 1238
3
(b) Of which, private insurers 7
466
(c) Total Investments 24462
26373
(d) Of which the government & other
approved securities. 7703
15910
(e) Other than approved investments 3761
2972
Note: Gross direct premium income for 2001-02 is excluding GIC.
Source: RBI, RCF, 2001-02, P. VI-23
INDIAN INSURANCE INDUSTRY:
INSURERS
Insurance industry, as on 1.4.2000, comprised mainly two players: the state insu
rers:
LIFE INSURERS
Life insurance Corporation of India (LIC)
General insurers
General Insurance Corporation of India (GIC) (With effect from Dec’2000, a Nationa
l Reinsure)
GIC had four subsidiary companies, namely (With effect from Dec’2000, these subsid
iaries have been de-linked from the parent company and made a independent insura
nce companies.
1. The Oriental Insurance Company Limited.
2. The India Assurance Company.
3. National India insurance Company.
4. United India insurance Company Limited.