Privatization of Insurance

Presented By:
Kamal Aggarwal (48)
Kapil Dev (40)
Contents:
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.
Cont…..
7. The process of Liberalization. Malhotra
Committee’s Report.
8. Establishment of Insurance Regulatory
and
Development Authority (IRDA):
9. Private Insurers
10. The Future.
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.
 1956 saw nationalization of life insurance
industry—government took over business of life
insurance.
Cont….
1972 saw nationalization of general insurance
industry.
1990’s was year of start of liberalization of financial
sector due to international pressures.
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.
Cont….
2000 witnessed new insurers in the Indian
market.
India became important destination for insurance
in view of vast potential and opportunities.
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. 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.
Scene in 1956 and earlier:

The number of life insurers on 19th January 1956 :

Indian Insurers: 154
Foreign insurers: 16
Provident Societies: 75
 Total: 245
At 1956: [of all life insurers]

 Total Life fund was about Rs. 3 bn.

 Premium Income was about Rs. 750 mn.
 Average Sum Assured per policy was about
Rs.2000.
 Total number of policies was about 5 mn.
 Total number of agents could be about 100,000.
Popular insurance contracts were Endowment
Assurances, with profits.
Establishment of LIC of India:

LIC of India was created by an Act in the

Parliament:- Life Insurance Corporation of India Act,
1956.
LIC of India was made merging about 245 insurers in
1956, and became operational with effect from 1st
September 1956.
LIC of India, though showed impressive growth from
Rs. 4 billions in 1957 to Rs. 908 billions in its
premium income in 2000, could not provide what
public wanted in respect of:-Products within reach;
Wide range of products; Prompt customer service.
Cont….
LIC of India: has highest branch network with
largest distribution network: [over 2000
branches, with over 1.2 millions of insurance
agents]
Its share of the market was 73% in 1956, private
insurers grabbing 27%. There is a space for more
private insurers in India.
Establishment of GIC:

 GIC of India was created by an Act in the

Parliament: General Insurance Business
(Nationalization) Act, 1972 (GIBNA).
 GIC of India was established in November 1972,
amalgamating 107 insurers, including branches of
foreign companies operating in India.
Cont….
All these insurers were grouped into 4 companies
(the subsidiaries of GIC of India):-
1. The National Insurance Company Ltd.,
2. The New India Assurance Company Ltd.,
3. The Oriental Insurance Company Ltd.,
4. The United India Insurance Company Ltd.
They commenced the general insurance business
with effect from 1st January, 1973.
Cont….
 Now GIC is National Reinsurer.
 All the 4 subsidiary companies became
independent insurers de-linked from GIC.
 GIC is protected with 20% mandatory cessions
from general insurers in India.
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.
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.
Malhotra Committee’s Report. High lights are:
1. Minimum paid-up capital of Rs. 1 billion. At
entry– with an intention to stop mushroom
growth of insurers– there should be serious
players.No composites.
Cont….
2. Appointed Actuary system;
3. Solvency Margins;
4. Mandatory Investments should be continued.
5. Autonomous Regulatory Apparatus;
6. Listing should be made compulsory after some
gestation period;
7. New insurance legislation is in process, today,
for proper regulation and development of
insurance market in India.
Establishment of IRDA:
In 1999, Parliament made an Act to establish
Regulatory Apparatus before opening up.
Act gave vast powers and responsibilities to IRDA.
IRDA: IRDA is an authority which has 6 full-time
members and 4 part-time
Six full time members:
• CHAIRMAN,
• ACTUARY,
• a LIFE insurance specialist,
• a GENERAL insurance specialist members.
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,
….
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
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
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!
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.