17.44
Paket Wisata Garut
INTRODUCTION
"Insurance should be bought to protect you against a calamity that would otherwise be financially devastating."
In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their inconvenience. It lets you protect yourself against everyday risks to your health, home and financial plot.
Insurance in India started without any regulation in the Nineteenth Century. It was a typical record of a colonial epoch: few British insurance companies dominating the market serving mostly expansive urban centers. After the independence, it took a theatrical turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general insurance business was nationalized in 1972. It was only in 1999 that the private insurance companies have been allowed benefit into the business of insurance with a maximum of 26% of foreign holding.
"The insurance industry is colossal and can be quite intimidating. Insurance is being sold for almost anything and everything you can imagine. Determining what's just for you can be a very daunting task."
Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered.
But if a person thoughtfully invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of pain is ascertained.
The entry of the place Bank of India with its proposal of bank assurance brings a fresh dynamics in the game. The collective experience of the other countries in Asia has already deregulated their markets and has allowed foreign companies to participate. If the experience of the other countries is any guide, the dominance of the Life Insurance Corporation and the General Insurance Corporation is not going to travel any time soon.
The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which he anticipates, to his life, property and business. Insurance is mainly of two types: life insurance and general insurance. General insurance means Fire, Marine and Miscellaneous insurance which includes insurance against burglary or theft, fidelity guarantee, insurance for employer's liability, and insurance of motor vehicles, livestock and crops.
LIFE INSURANCE IN INDIA
"Life insurance is the heartfelt appreciate letter ever written.
It calms down the crying of a hungry baby at night. It relieves the heart of a bereaved widow.
It is the comforting negate in the murky restful hours of the night."
Life insurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. There is no statutory definition of life insurance, but it has been defined as a contract of insurance whereby the insured agrees to pay determined sums called premiums, at specified time, and in consideration thereof the insurer agreed to pay obvious sums of money on positive condition sand in specified plot upon happening of a particular event contingent upon the duration of human life.
Life insurance is marvelous to other forms of savings!
"There is no death. Life Insurance exalts life and defeats death.
It is the premium we pay for the freedom of living after death."
Savings through life insurance guarantee chunky protection against risk of death of the saver. In life insurance, on death, the fat sum assured is payable (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.
The critical features of life insurance are a) it is a contract relating to human life, which b) provides for payment of lump-sum amount, and c) the amount is paid after the expiry of obvious period or on the death of the assured. The very purpose and object of the assured in taking policies from life insurance companies is to safeguard the interest of his dependents viz., wife and children as the case may be, in the even of premature death of the assured as a result of the happening in any contingency. A life insurance policy is also generally approved as security for even a commercial loan.
NON-LIFE INSURANCE
"Every asset has a value and the business of general insurance is related to the protection of economic value of assets."
Non-life insurance means insurance other than life insurance such as fire, marine, accident, medical, motor vehicle and household insurance. Assets would have been created through the efforts of owner, which can be in the obtain of building, vehicles, machinery and other tangible properties. Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery.
Few of the General Insurance policies are:
Property Insurance: The home is most valued possession. The policy is designed to screen the various risks under a single policy. It provides protection for property and interest of the insured and family.
Health Insurance: It provides camouflage, which takes care of medical expenses following hospitalization from sudden illness or accident.
Personal Accident Insurance: This insurance policy provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement of cost of treatment and the exercise of hospital facilities for the treatment.
fade Insurance: The policy covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport etc.
Liability Insurance: This policy indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by reason of any wrongful Act in their Official capacity.
Motor Insurance: Motor Vehicles Act states that every motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and harm caused to one's vehicles.
rush FROM AN INFANT TO ADOLESCENCE!
Historical Perspective
The history of life insurance in India dates assist to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more uncertain for coverage.
The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The General insurance business in India, on the other hand, can heed its roots to the Triton (Tital) Insurance Company tiny, the first general insurance company established in the year 1850 in Calcutta by the British. Till the extinguish of nineteenth century insurance business was almost entirely in the hands of overseas companies.
Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during 20's and 30's desecrated insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict situation Control over insurance business. The insurance business grew at a faster trudge after independence. Indian companies strengthened their bear on this business but despite the growth that was witnessed, insurance remained an urban phenomenon.
The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. Nationalization was justified on the grounds that it would compose great needed funds for fleet industrialization. This was in conformity with the Government's chosen path of site lead planning and development.
The (non-life) insurance business continued to prosper with the private sector till 1972. Their operations were restricted to organized trade and industry in mammoth cities. The general insurance industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four companies - National Insurance Company, novel India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC) .
The life insurance industry was nationalized under the Life Insurance Corporation (LIC) Act of India. In some ways, the LIC has become very flourishing. Regardless of being a monopoly, it has some 60-70 million policyholders. Given that the Indian middle-class is around 250-300 million, the LIC has managed to consume some 30 irregular percent of it. Around 48% of the customers of the LIC are from rural and semi-urban areas. This probably would not have happened had the charter of the LIC not specifically site out the goal of serving the rural areas. A high saving rate in India is one of the exogenous factors that have helped the LIC to grow quickly in original years. Despite the saving rate being high in India (compared with other countries with a similar level of development), Indians exhibit high degree of risk aversion. Thus, nearly half of the investments are in physical assets (like property and gold) . Around twenty three percent are in (outrageous yielding but suited) bank deposits. In addition, some 1.3 percent of the GDP are in life insurance related savings vehicles. This figure has doubled between 1985 and 1995.
A World viewpoint - Life Insurance in India
In many countries, insurance has been a manufacture of savings. In many developed countries, a primary part of domestic saving is in the do of donation insurance plans. This is not surprising. The prominence of some developing countries is more surprising. For example, South Africa features at the number two plot. India is nestled between Chile and Italy. This is even more surprising given the levels of economic development in Chile and Italy. Thus, we can do that there is an insurance culture in India despite a indecent per capita income. This promises well for future growth. Specifically, when the income level improves, insurance (especially life) is likely to grow speedy.
INSURANCE SECTOR REFORM:
Committee Reports: One Known, One Anonymous!
Although Indian markets were privatized and opened up to foreign companies in a number of sectors in 1991, insurance remained out of bounds on both counts. The government wanted to go with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to residence up a committee headed by Mr. R. N. Malhotra (the then Governor of the Reserve Bank of India) .
Malhotra Committee
Liberalization of the Indian insurance market was suggested in a narrate released in 1994 by the Malhotra Committee, indicating that the market should be opened to private-sector competition, and eventually, foreign private-sector competition. It also investigated the level of satisfaction of the customers of the LIC. Inquisitively, the level of customer satisfaction seemed to be high.
In 1993, Malhotra Committee - headed by aged Finance Secretary and RBI Governor Mr. R. N. Malhotra - was formed to evaluate the Indian insurance industry and recommend its future course. The Malhotra committee was dwelling up with the aim of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system superior for the needs of the economy keeping in mind the structural changes presently happening and recognizing that insurance is an famous fraction of the overall financial system where it was primary to address the need for similar reforms. In 1994, the committee submitted the relate and some of the key recommendations included:
o Structure
Government bet in the insurance Companies to be brought down to 50%. Government should win 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.1 billion should be allowed to enter the sector. 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 location Level Life Insurance Company should be allowed to operate in each position.
o Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should be plot up. Controller of Insurance - a portion of the Finance Ministry- should be made Independent.
o Investments
Compulsory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to acquire more than 5% in any company (there novel holdings to be brought down to this level over a period of time) .
o Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to place up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry. The committee accentuated that in order to improve the customer services and increase the coverage of insurance policies, industry should be opened up to competition. But at the same time, the committee felt the need to exhaust caution as any failure on the share of modern competitors could end the public confidence in the industry. Hence, it was decided to allow competition in a diminutive diagram by stipulating the minimum capital requirement of Rs.100 crores.
The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body - The Insurance Regulatory and Development Authority.
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has meticulously stuck to its schedule of framing regulations and registering the private sector insurance companies.
Since being state up as an independent statutory body the IRDA has build in a framework of globally compatible regulations. The other decision taken at the same time to provide the supporting systems to the insurance sector and in particular the life insurance companies was the initiate of the IRDA online service for convey and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in area to sell their products.
The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on divulge foreign ownership. Under the recent guidelines, there is a 26 percent equity lid for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.
The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the private sector 12 life insurance and 8 general insurance companies have been registered. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001
Mukherjee Committee
Immediately after the publication of the Malhotra Committee relate, a current committee, Mukherjee Committee was position up to execute concrete plans for the requirements of the newly formed insurance companies. Recommendations of the Mukherjee Committee were never disclosed to the public. But, from the information that filtered out it became obvious that the committee recommended the inclusion of distinct ratios in insurance company balance sheets to ensure transparency in accounting. But the Finance Minister objected to it and it was argued by him, probably on the advice of some of the potential competitors, that it could affect the prospects of a developing insurance company.
LAW COMMISSION OF INDIA ON REVISION OF THE INSURANCE ACT 1938 - 190th Law Commission Report
The Law Commission on 16th June 2003 released a Consultation Paper on the Revision of the Insurance Act, 1938. The previous exhaust to amend the Insurance Act, 1938 was undertaken in 1999 at the time of enactment of the Insurance Regulatory Development Authority Act, 1999 (IRDA Act) .
The Commission undertook the note use in the context of the changed policy that has permitted private insurance companies both in the life and non-life sectors. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation with a understanding to removing portions that have become superfluous as a consequence of the novel changes.
Among the major areas of changes, the Consultation paper suggested the following:
a.merging of the provisions of the IRDA Act with the Insurance Act to avoid multiplicity of legislations;
b.deletion of redundant and transitory provisions in the Insurance Act, 1938;
c.Amendments consider the changed policy of permitting private insurance companies and strengthening the regulatory mechanism;
d.Providing for stringent norms regarding maintenance of 'solvency margin' and investments by both public sector and private sector insurance companies;
e.Providing for a full-fledged grievance redressal mechanism that includes:
o The constitution of Grievance Redressal Authorities (GRAs) comprising one judicial and two technical members to deal with complaints/claims of policyholders against insurers (the GRAs are expected to replace the note system of insurer appointed Ombudsman) ;
o Appointment of adjudicating officers by the IRDA to settle and levy penalties on defaulting insurers, insurance intermediaries and insurance agents;
o Providing for an appeal against the decisions of the IRDA, GRAs and adjudicating officers to an Insurance Appellate Tribunal (IAT) comprising a assume (sitting or retired) of the Supreme Court/Chief Justice of a High Court as presiding officer and two other members having sufficient experience in insurance matters;
o Providing for a statutory appeal to the Supreme Court against the decisions of the IAT.
LIFE & NON-LIFE INSURANCE - Development and Growth!
The year 2006 turned out to be a momentous year for the insurance sector as regulator the Insurance Regulatory Development Authority Act, laid the foundation for free pricing general insurance from 2007, while many companies announced plans to attack into the sector.
Both domestic and foreign players robustly pursued their long-pending put a question to for increasing the FDI limit from 26 per cent to 49 per cent and toward the fag destroy of the year, the Government sent the Comprehensive Insurance Bill to Group of Ministers for consideration amid strong reservation from Left parties. The Bill is likely to be taken up in the Budget session of Parliament.
The infiltration rates of health and other non-life insurances in India are well below the international level. These facts explain astronomical growth potential of the insurance sector. The hike in FDI limit to 49 per cent was proposed by the Government last year. This has not been operationalized as legislative changes are required for such hike. Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have tipped into the Indian market and 21 private companies have been granted licenses.
The involvement of the private insurers in various industry segments has increased on epic of both their capturing a allotment of the business which was earlier underwritten by the public sector insurers and also creating additional business boulevards. To this enact, the public sector insurers have been unable to method upon their inherent strengths to engage additional premium. Of the growth in premium in 2004-05, 66.27 per cent has been captured by the private insurers despite having 20 per cent market piece.
The life insurance industry recorded a premium income of Rs.82854.80 crore during the financial year 2004-05 as against Rs.66653.75 crore in the previous financial year, recording a growth of 24.31 per cent. The contribution of first year premium, single premium and renewal premium to the total premium was Rs.15881.33 crore (19.16 per cent) ; Rs.10336.30 crore (12.47 per cent) ; and Rs.56637.16 crore (68.36 per cent), respectively. In the year 2000-01, when the industry was opened up to the private players, the life insurance premium was Rs.34,898.48 crore which constituted of Rs. 6996.95 crore of first year premium, Rs. 25191.07 crore of renewal premium and Rs. 2740.45 crore of single premium. Post opening up, single premium had declined from Rs.9, 194.07 crore in the year 2001-02 to Rs.5674.14 crore in 2002-03 with the withdrawal of the guaranteed return policies. Though it went up marginally in 2003-04 to Rs.5936.50 crore (4.62 per cent growth) 2004-05, however, witnessed a considerable shift with the single premium income rising to Rs. 10336.30 crore showing 74.11 per cent growth over 2003-04.
The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in a favourable growth in total premium both for LIC (18.25 per cent) and to the novel insurers (147.65 per cent) in 2004-05. The higher growth for the current insurers is to be viewed in the context of a indecent unsuitable in 2003- 04. However, the unusual insurers have improved their market portion from 4.68 in 2003-04 to 9.33 in 2004-05.
The segment wise demolish up of fire, marine and miscellaneous segments in case of the public sector insurers was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, i.e., a growth of (-) 1.43 per cent, 1.81 per cent and 6.58 per cent. The public sector insurers reported growth in Motor and Health segments (9 and 24 per cent) . These segments accounted for 45 and 10 per cent of the business underwritten by the public sector insurers. Fire and "Others" accounted for 17.26 and 11 per cent of the premium underwritten. Aviation, Liability, "Others" and Fire recorded negative growth of 29, 21, 3.58 and 1.43 per cent. In no other country that opened at the same time as India have foreign companies been able to grab a 22 per cent market part in the life segment and about 20 per cent in the general insurance segment. The portion of foreign insurers in other competing Asian markets is not more than 5 to 10 per cent.
The life insurance sector grew current premium at a rate not seen before while the general insurance sector grew at a faster rate. Two current players entered into life insurance - Shriram Life and Bharti Axa Life - taking the total number of life players to 16. There was one recent entrant to the non-life sector in the earn of a standalone health insurance company - Star Health and Allied Insurance, taking the non-life players to 14.
A grand number of companies, mostly nationalized banks (about 14) such as Bank of India and Punjab National Bank, have announced plans to enter the insurance sector and some of them have also formed joint ventures.
The proposed change in FDI cap is section of the comprehensive amendments to insurance laws - The Insurance Act of 1999, LIC Act, 1956 and IRDA Act, 1999. After the proposed amendments in the insurance laws LIC would be able to gain reserves while insurance companies would be able to raise resources other than equity.
About 14 banks are in queue to enter insurance sector and the year 2006 saw several joint venture announcements while others scout partners. Bank of India has teamed up with Union Bank and Japanese insurance major Dai-ichi Mutual Life while PNB tied up with Vijaya Bank and significant for foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur Investment Corporation and Sompo Japan Insurance Inc have tied up for forming a non-life insurance company while Bank of Maharashtra has tied up with Shriram Group and South Africa's Sanlam group for non-life insurance venture.
CONCLUSION
It seems cynical that the LIC and the GIC will wither and die within the next decade or two. The IRDA has taken "at a snail's drag" come. It has been very cautious in granting licenses. It has plot up fairly strict standards for all aspects of the insurance business (with the probable exception of the disclosure requirements) . The regulators always slump a graceful line. Too many regulations waste the motivation of the newcomers; too relaxed regulations may induce failure and fraud that led to nationalization in the first space. India is not novel among the developing countries where the insurance business has been opened up to foreign competitors.
The insurance business is at a essential stage in India. Over the next couple of decades we are likely to notice high growth in the insurance sector for two reasons namely; financial deregulation always speeds up the development of the insurance sector and growth in per capita GDP also helps the insurance business to grow.
"Insurance should be bought to protect you against a calamity that would otherwise be financially devastating."
In simple terms, insurance allows someone who suffers a loss or accident to be compensated for the effects of their inconvenience. It lets you protect yourself against everyday risks to your health, home and financial plot.
Insurance in India started without any regulation in the Nineteenth Century. It was a typical record of a colonial epoch: few British insurance companies dominating the market serving mostly expansive urban centers. After the independence, it took a theatrical turn. Insurance was nationalized. First, the life insurance companies were nationalized in 1956, and then the general insurance business was nationalized in 1972. It was only in 1999 that the private insurance companies have been allowed benefit into the business of insurance with a maximum of 26% of foreign holding.
"The insurance industry is colossal and can be quite intimidating. Insurance is being sold for almost anything and everything you can imagine. Determining what's just for you can be a very daunting task."
Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered.
But if a person thoughtfully invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of pain is ascertained.
The entry of the place Bank of India with its proposal of bank assurance brings a fresh dynamics in the game. The collective experience of the other countries in Asia has already deregulated their markets and has allowed foreign companies to participate. If the experience of the other countries is any guide, the dominance of the Life Insurance Corporation and the General Insurance Corporation is not going to travel any time soon.
The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which he anticipates, to his life, property and business. Insurance is mainly of two types: life insurance and general insurance. General insurance means Fire, Marine and Miscellaneous insurance which includes insurance against burglary or theft, fidelity guarantee, insurance for employer's liability, and insurance of motor vehicles, livestock and crops.
LIFE INSURANCE IN INDIA
"Life insurance is the heartfelt appreciate letter ever written.
It calms down the crying of a hungry baby at night. It relieves the heart of a bereaved widow.
It is the comforting negate in the murky restful hours of the night."
Life insurance made its debut in India well over 100 years ago. Its salient features are not as widely understood in our country as they ought to be. There is no statutory definition of life insurance, but it has been defined as a contract of insurance whereby the insured agrees to pay determined sums called premiums, at specified time, and in consideration thereof the insurer agreed to pay obvious sums of money on positive condition sand in specified plot upon happening of a particular event contingent upon the duration of human life.
Life insurance is marvelous to other forms of savings!
"There is no death. Life Insurance exalts life and defeats death.
It is the premium we pay for the freedom of living after death."
Savings through life insurance guarantee chunky protection against risk of death of the saver. In life insurance, on death, the fat sum assured is payable (with bonuses wherever applicable) whereas in other savings schemes, only the amount saved (with interest) is payable.
The critical features of life insurance are a) it is a contract relating to human life, which b) provides for payment of lump-sum amount, and c) the amount is paid after the expiry of obvious period or on the death of the assured. The very purpose and object of the assured in taking policies from life insurance companies is to safeguard the interest of his dependents viz., wife and children as the case may be, in the even of premature death of the assured as a result of the happening in any contingency. A life insurance policy is also generally approved as security for even a commercial loan.
NON-LIFE INSURANCE
"Every asset has a value and the business of general insurance is related to the protection of economic value of assets."
Non-life insurance means insurance other than life insurance such as fire, marine, accident, medical, motor vehicle and household insurance. Assets would have been created through the efforts of owner, which can be in the obtain of building, vehicles, machinery and other tangible properties. Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery.
Few of the General Insurance policies are:
Property Insurance: The home is most valued possession. The policy is designed to screen the various risks under a single policy. It provides protection for property and interest of the insured and family.
Health Insurance: It provides camouflage, which takes care of medical expenses following hospitalization from sudden illness or accident.
Personal Accident Insurance: This insurance policy provides compensation for loss of life or injury (partial or permanent) caused by an accident. This includes reimbursement of cost of treatment and the exercise of hospital facilities for the treatment.
fade Insurance: The policy covers the insured against various eventualities while traveling abroad. It covers the insured against personal accident, medical expenses and repatriation, loss of checked baggage, passport etc.
Liability Insurance: This policy indemnifies the Directors or Officers or other professionals against loss arising from claims made against them by reason of any wrongful Act in their Official capacity.
Motor Insurance: Motor Vehicles Act states that every motor vehicle plying on the road has to be insured, with at least Liability only policy. There are two types of policy one covering the act of liability, while other covers insurers all liability and harm caused to one's vehicles.
rush FROM AN INFANT TO ADOLESCENCE!
Historical Perspective
The history of life insurance in India dates assist to 1818 when it was conceived as a means to provide for English Widows. Interestingly in those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered more uncertain for coverage.
The Bombay Mutual Life Insurance Society started its business in 1870. It was the first company to charge same premium for both Indian and non-Indian lives. The Oriental Assurance Company was established in 1880. The General insurance business in India, on the other hand, can heed its roots to the Triton (Tital) Insurance Company tiny, the first general insurance company established in the year 1850 in Calcutta by the British. Till the extinguish of nineteenth century insurance business was almost entirely in the hands of overseas companies.
Insurance regulation formally began in India with the passing of the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during 20's and 30's desecrated insurance business in India. By 1938 there were 176 insurance companies. The first comprehensive legislation was introduced with the Insurance Act of 1938 that provided strict situation Control over insurance business. The insurance business grew at a faster trudge after independence. Indian companies strengthened their bear on this business but despite the growth that was witnessed, insurance remained an urban phenomenon.
The Government of India in 1956, brought together over 240 private life insurers and provident societies under one nationalized monopoly corporation and Life Insurance Corporation (LIC) was born. Nationalization was justified on the grounds that it would compose great needed funds for fleet industrialization. This was in conformity with the Government's chosen path of site lead planning and development.
The (non-life) insurance business continued to prosper with the private sector till 1972. Their operations were restricted to organized trade and industry in mammoth cities. The general insurance industry was nationalized in 1972. With this, nearly 107 insurers were amalgamated and grouped into four companies - National Insurance Company, novel India Assurance Company, Oriental Insurance Company and United India Insurance Company. These were subsidiaries of the General Insurance Company (GIC) .
The life insurance industry was nationalized under the Life Insurance Corporation (LIC) Act of India. In some ways, the LIC has become very flourishing. Regardless of being a monopoly, it has some 60-70 million policyholders. Given that the Indian middle-class is around 250-300 million, the LIC has managed to consume some 30 irregular percent of it. Around 48% of the customers of the LIC are from rural and semi-urban areas. This probably would not have happened had the charter of the LIC not specifically site out the goal of serving the rural areas. A high saving rate in India is one of the exogenous factors that have helped the LIC to grow quickly in original years. Despite the saving rate being high in India (compared with other countries with a similar level of development), Indians exhibit high degree of risk aversion. Thus, nearly half of the investments are in physical assets (like property and gold) . Around twenty three percent are in (outrageous yielding but suited) bank deposits. In addition, some 1.3 percent of the GDP are in life insurance related savings vehicles. This figure has doubled between 1985 and 1995.
A World viewpoint - Life Insurance in India
In many countries, insurance has been a manufacture of savings. In many developed countries, a primary part of domestic saving is in the do of donation insurance plans. This is not surprising. The prominence of some developing countries is more surprising. For example, South Africa features at the number two plot. India is nestled between Chile and Italy. This is even more surprising given the levels of economic development in Chile and Italy. Thus, we can do that there is an insurance culture in India despite a indecent per capita income. This promises well for future growth. Specifically, when the income level improves, insurance (especially life) is likely to grow speedy.
INSURANCE SECTOR REFORM:
Committee Reports: One Known, One Anonymous!
Although Indian markets were privatized and opened up to foreign companies in a number of sectors in 1991, insurance remained out of bounds on both counts. The government wanted to go with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to residence up a committee headed by Mr. R. N. Malhotra (the then Governor of the Reserve Bank of India) .
Malhotra Committee
Liberalization of the Indian insurance market was suggested in a narrate released in 1994 by the Malhotra Committee, indicating that the market should be opened to private-sector competition, and eventually, foreign private-sector competition. It also investigated the level of satisfaction of the customers of the LIC. Inquisitively, the level of customer satisfaction seemed to be high.
In 1993, Malhotra Committee - headed by aged Finance Secretary and RBI Governor Mr. R. N. Malhotra - was formed to evaluate the Indian insurance industry and recommend its future course. The Malhotra committee was dwelling up with the aim of complementing the reforms initiated in the financial sector. The reforms were aimed at creating a more efficient and competitive financial system superior for the needs of the economy keeping in mind the structural changes presently happening and recognizing that insurance is an famous fraction of the overall financial system where it was primary to address the need for similar reforms. In 1994, the committee submitted the relate and some of the key recommendations included:
o Structure
Government bet in the insurance Companies to be brought down to 50%. Government should win 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.1 billion should be allowed to enter the sector. 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 location Level Life Insurance Company should be allowed to operate in each position.
o Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should be plot up. Controller of Insurance - a portion of the Finance Ministry- should be made Independent.
o Investments
Compulsory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%. GIC and its subsidiaries are not to acquire more than 5% in any company (there novel holdings to be brought down to this level over a period of time) .
o Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance companies must be encouraged to place up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industry. The committee accentuated that in order to improve the customer services and increase the coverage of insurance policies, industry should be opened up to competition. But at the same time, the committee felt the need to exhaust caution as any failure on the share of modern competitors could end the public confidence in the industry. Hence, it was decided to allow competition in a diminutive diagram by stipulating the minimum capital requirement of Rs.100 crores.
The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body - The Insurance Regulatory and Development Authority.
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has meticulously stuck to its schedule of framing regulations and registering the private sector insurance companies.
Since being state up as an independent statutory body the IRDA has build in a framework of globally compatible regulations. The other decision taken at the same time to provide the supporting systems to the insurance sector and in particular the life insurance companies was the initiate of the IRDA online service for convey and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in area to sell their products.
The Government of India liberalized the insurance sector in March 2000 with the passage of the Insurance Regulatory and Development Authority (IRDA) Bill, lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on divulge foreign ownership. Under the recent guidelines, there is a 26 percent equity lid for foreign partners in an insurance company. There is a proposal to increase this limit to 49 percent.
The opening up of the sector is likely to lead to greater spread and deepening of insurance in India and this may also include restructuring and revitalizing of the public sector companies. In the private sector 12 life insurance and 8 general insurance companies have been registered. A host of private Insurance companies operating in both life and non-life segments have started selling their insurance policies since 2001
Mukherjee Committee
Immediately after the publication of the Malhotra Committee relate, a current committee, Mukherjee Committee was position up to execute concrete plans for the requirements of the newly formed insurance companies. Recommendations of the Mukherjee Committee were never disclosed to the public. But, from the information that filtered out it became obvious that the committee recommended the inclusion of distinct ratios in insurance company balance sheets to ensure transparency in accounting. But the Finance Minister objected to it and it was argued by him, probably on the advice of some of the potential competitors, that it could affect the prospects of a developing insurance company.
LAW COMMISSION OF INDIA ON REVISION OF THE INSURANCE ACT 1938 - 190th Law Commission Report
The Law Commission on 16th June 2003 released a Consultation Paper on the Revision of the Insurance Act, 1938. The previous exhaust to amend the Insurance Act, 1938 was undertaken in 1999 at the time of enactment of the Insurance Regulatory Development Authority Act, 1999 (IRDA Act) .
The Commission undertook the note use in the context of the changed policy that has permitted private insurance companies both in the life and non-life sectors. A need has been felt to toughen the regulatory mechanism even while streamlining the existing legislation with a understanding to removing portions that have become superfluous as a consequence of the novel changes.
Among the major areas of changes, the Consultation paper suggested the following:
a.merging of the provisions of the IRDA Act with the Insurance Act to avoid multiplicity of legislations;
b.deletion of redundant and transitory provisions in the Insurance Act, 1938;
c.Amendments consider the changed policy of permitting private insurance companies and strengthening the regulatory mechanism;
d.Providing for stringent norms regarding maintenance of 'solvency margin' and investments by both public sector and private sector insurance companies;
e.Providing for a full-fledged grievance redressal mechanism that includes:
o The constitution of Grievance Redressal Authorities (GRAs) comprising one judicial and two technical members to deal with complaints/claims of policyholders against insurers (the GRAs are expected to replace the note system of insurer appointed Ombudsman) ;
o Appointment of adjudicating officers by the IRDA to settle and levy penalties on defaulting insurers, insurance intermediaries and insurance agents;
o Providing for an appeal against the decisions of the IRDA, GRAs and adjudicating officers to an Insurance Appellate Tribunal (IAT) comprising a assume (sitting or retired) of the Supreme Court/Chief Justice of a High Court as presiding officer and two other members having sufficient experience in insurance matters;
o Providing for a statutory appeal to the Supreme Court against the decisions of the IAT.
LIFE & NON-LIFE INSURANCE - Development and Growth!
The year 2006 turned out to be a momentous year for the insurance sector as regulator the Insurance Regulatory Development Authority Act, laid the foundation for free pricing general insurance from 2007, while many companies announced plans to attack into the sector.
Both domestic and foreign players robustly pursued their long-pending put a question to for increasing the FDI limit from 26 per cent to 49 per cent and toward the fag destroy of the year, the Government sent the Comprehensive Insurance Bill to Group of Ministers for consideration amid strong reservation from Left parties. The Bill is likely to be taken up in the Budget session of Parliament.
The infiltration rates of health and other non-life insurances in India are well below the international level. These facts explain astronomical growth potential of the insurance sector. The hike in FDI limit to 49 per cent was proposed by the Government last year. This has not been operationalized as legislative changes are required for such hike. Since opening up of the insurance sector in 1999, foreign investments of Rs. 8.7 billion have tipped into the Indian market and 21 private companies have been granted licenses.
The involvement of the private insurers in various industry segments has increased on epic of both their capturing a allotment of the business which was earlier underwritten by the public sector insurers and also creating additional business boulevards. To this enact, the public sector insurers have been unable to method upon their inherent strengths to engage additional premium. Of the growth in premium in 2004-05, 66.27 per cent has been captured by the private insurers despite having 20 per cent market piece.
The life insurance industry recorded a premium income of Rs.82854.80 crore during the financial year 2004-05 as against Rs.66653.75 crore in the previous financial year, recording a growth of 24.31 per cent. The contribution of first year premium, single premium and renewal premium to the total premium was Rs.15881.33 crore (19.16 per cent) ; Rs.10336.30 crore (12.47 per cent) ; and Rs.56637.16 crore (68.36 per cent), respectively. In the year 2000-01, when the industry was opened up to the private players, the life insurance premium was Rs.34,898.48 crore which constituted of Rs. 6996.95 crore of first year premium, Rs. 25191.07 crore of renewal premium and Rs. 2740.45 crore of single premium. Post opening up, single premium had declined from Rs.9, 194.07 crore in the year 2001-02 to Rs.5674.14 crore in 2002-03 with the withdrawal of the guaranteed return policies. Though it went up marginally in 2003-04 to Rs.5936.50 crore (4.62 per cent growth) 2004-05, however, witnessed a considerable shift with the single premium income rising to Rs. 10336.30 crore showing 74.11 per cent growth over 2003-04.
The size of life insurance market increased on the strength of growth in the economy and concomitant increase in per capita income. This resulted in a favourable growth in total premium both for LIC (18.25 per cent) and to the novel insurers (147.65 per cent) in 2004-05. The higher growth for the current insurers is to be viewed in the context of a indecent unsuitable in 2003- 04. However, the unusual insurers have improved their market portion from 4.68 in 2003-04 to 9.33 in 2004-05.
The segment wise demolish up of fire, marine and miscellaneous segments in case of the public sector insurers was Rs.2411.38 crore, Rs.982.99 crore and Rs.10578.59 crore, i.e., a growth of (-) 1.43 per cent, 1.81 per cent and 6.58 per cent. The public sector insurers reported growth in Motor and Health segments (9 and 24 per cent) . These segments accounted for 45 and 10 per cent of the business underwritten by the public sector insurers. Fire and "Others" accounted for 17.26 and 11 per cent of the premium underwritten. Aviation, Liability, "Others" and Fire recorded negative growth of 29, 21, 3.58 and 1.43 per cent. In no other country that opened at the same time as India have foreign companies been able to grab a 22 per cent market part in the life segment and about 20 per cent in the general insurance segment. The portion of foreign insurers in other competing Asian markets is not more than 5 to 10 per cent.
The life insurance sector grew current premium at a rate not seen before while the general insurance sector grew at a faster rate. Two current players entered into life insurance - Shriram Life and Bharti Axa Life - taking the total number of life players to 16. There was one recent entrant to the non-life sector in the earn of a standalone health insurance company - Star Health and Allied Insurance, taking the non-life players to 14.
A grand number of companies, mostly nationalized banks (about 14) such as Bank of India and Punjab National Bank, have announced plans to enter the insurance sector and some of them have also formed joint ventures.
The proposed change in FDI cap is section of the comprehensive amendments to insurance laws - The Insurance Act of 1999, LIC Act, 1956 and IRDA Act, 1999. After the proposed amendments in the insurance laws LIC would be able to gain reserves while insurance companies would be able to raise resources other than equity.
About 14 banks are in queue to enter insurance sector and the year 2006 saw several joint venture announcements while others scout partners. Bank of India has teamed up with Union Bank and Japanese insurance major Dai-ichi Mutual Life while PNB tied up with Vijaya Bank and significant for foraying into life insurance. Allahabad Bank, Karnataka Bank, Indian Overseas Bank, Dabur Investment Corporation and Sompo Japan Insurance Inc have tied up for forming a non-life insurance company while Bank of Maharashtra has tied up with Shriram Group and South Africa's Sanlam group for non-life insurance venture.
CONCLUSION
It seems cynical that the LIC and the GIC will wither and die within the next decade or two. The IRDA has taken "at a snail's drag" come. It has been very cautious in granting licenses. It has plot up fairly strict standards for all aspects of the insurance business (with the probable exception of the disclosure requirements) . The regulators always slump a graceful line. Too many regulations waste the motivation of the newcomers; too relaxed regulations may induce failure and fraud that led to nationalization in the first space. India is not novel among the developing countries where the insurance business has been opened up to foreign competitors.
The insurance business is at a essential stage in India. Over the next couple of decades we are likely to notice high growth in the insurance sector for two reasons namely; financial deregulation always speeds up the development of the insurance sector and growth in per capita GDP also helps the insurance business to grow.
Posted in: Law_Insurance
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