Liberalisation of

insurance services

Presented by,
Vishnu Thankachan
S3, MBA
NO. 029

Meaning of Insurance

Insurance is a policy from a financial institution that offers a person,

company, or other entity reimbursement or financial protection against
possible future losses or damages.

Precautionary measure against future contingent losses.

Why do we need
insurance?

A brief history of the Insurance

sector
The life insurance business in India
1912: The Indian Life Assurance Companies Act enacted as the
first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the
government to collect statistical information about both life and
non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the
Insurance Act with the objective of protecting the interests of the
insuring public.
1956: 245 Indian and foreign insurers and provident societies
taken over by the central government and nationalised.

The general insurance business in India

1907: The Indian Mercantile Insurance Ltd. set up, the first company to
transact all classes of general insurance business.

1957: General Insurance Council, a wing of the Insurance Association of

India, frames a code of conduct for ensuring fair conduct and sound
business practices.

1968: The Insurance Act amended to regulate investments and set

minimum solvency margins and the Tariff Advisory Committee set up.

1972: The General Insurance Business (Nationalisation) Act, 1972

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. GIC incorporated as a company.

Porter's 5 Forces Analysis

1.Threat of new entrants
2.Power of suppliers
3.power of buyers
4.Availability of substitutes
5.Competitive rivalry

The Need For Raising FDI limit.

Higher FDI in insurance sector can give much needed
capital for growth of insurance sector which in turn
will help in the long term economic development.
Ambitious infrastructure projects of Government can
get stable long term source of funds.
Higher amount of FDI in insurance would increase
penetration of insurance in India which is low
compared to global average.
An increase in FDI in insurance will benefit the
economy as people will invest in long term fund which
will increased the growth of economy.
Insurance in India is mainly confined to urban sector
Vast potentials are lying untapped

Insurance liberalization process in

India
Insurance
Regulatory
and
Development
Authority Act, 1999.
This along with amendments to the Insurance
Act 1983, LIC and GIC Acts paves the way for
the entry of private players and possibly the
privatization of the hitherto public monopolies
LIC and GIC.

Liberalization of Insurance
The comprehensive regulation of insurance
business in India was brought into effect with
the enactment of the Insurance Act, 1983.
The Government of India in 1993 had set up a
high powered committee by R.N.Malhotra

Malhotra Committee

The Malhotra committee was set up with the objective

of complementing the reforms initiated in the financial
sector.
The reforms were aimed at "creating a more efficient
and competitive financial system suitable for the
requirements of the economy keeping in mind the
structural
changes
currently
underway
and
recognizing that insurance is an important part of the
overall financial system where it was necessary to
address the need for similar reforms"

Structure
Government stake in the insurance Companies to be
brought down to 50%.
Government should take over the holdings of GIC and
its subsidiaries so that these subsidiaries can act as
independent corporations.
All the insurance companies should be given greater
freedom to operate.

Competition
Private Companies with a minimum paid up capital of Rs.1bn
should be allowed to enter the industry.
No Company should deal in both Life and General Insurance
through a single entity.
Foreign companies may be allowed to enter the industry in
collaboration with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural
market.
Only One State Level Life Insurance Company should be allowed
to operate in each state.

Regulatory Body
The Insurance Act should be changed.
An Insurance Regulatory body should be set up.
Controller of Insurance (Currently a part from the
Finance Ministry) should be made independent.

Investments
Mandatory Investments of LIC Life Fund in
government securities to be reduced from 75% to
50%.
GIC and its subsidiaries are not to hold more than 5%
in any company (There current holdings to be brought
down to this level over a period of time).

Customer Service
LIC should pay interest on delays in payments beyond
30 days.
Insurance companies must be encouraged to set up unit
linked pension plans.
Computerisation of operations and updating of
technology to be carried out in the insurance industry
The committee emphasized that in order to improve the
customer services and increase the coverage of the
insurance industry should be opened up to competition.

IRDA Act, 1999

Preamble of IRDA Act 1999 reads 'An Act to provide
for the establishment of an authority to protect the
interests of holders of insurance policies, to regulate,
to promote and ensure orderly growth of the
insurance industry and for matters connected
therewith or incidental thereto.
Section 14 of IRDA Act, lays the duties, powers and
functions of the authority.

The powers and functions of the Authority shall

include the following.
Issue to the applicant a certificate of registration, to renew,
modify withdraw, suspend or cancel such registration.
To protect the interest of policy holders in all matters concerning
nomination of policy, surrender value f policy, insurable interest,
settlement of insurance claims, other terms and conditions of
contract of insurance.
Specifying requisite qualification and practical training for
insurance intermediates and agents.
Specifying code of conduct for surveyors and loss assessors.

 Promoting efficiency in the conduct of insurance business

Promoting and regulating professional regulators connected with
the insurance and reinsurance business.
Specifying the form and manner in which books of accounts will
be maintained and statement of accounts rendered by insurers
and insurance intermediaries.
Adjudication of disputes between insurers and intermediates.
Specifying the percentage of life insurance and general and
general business to be undertaken by the insurers in rural or
social sectors etc.

Opportunities

Privatization if Insurance was eliminated the

monopolistic business of Life Insurance Corporation of
India. It may help to cover the wide range of risk in
general insurance and also in life insurance. It helps to
introduce new range of products.

It would also result in better customer services and

help improve the variety and price of insurance
products.
The entry of new player would speed up the spread of
both life and general insurance. It will increase the
insurance penetration and measure of density.

Entry of private players will ensure the mobilization of

funds that can be utilized for the purpose of
infrastructure development.

Allowing of commercial banks into insurance business

will help to mobilization of funds from the rural areas
because of the availability of vast branches of the
banks.
Most important not the least tremendous employment
opportunities will be created in the field of insurance
which is a burning problem of the presence day today
issues.

Current Scenario
After opening up of insurance in private
sector, various leading private companies
including joint ventures have entered the
fields of insurance both life and non-life
business.