Insurance in India
From Wikipedia, the free encyclopedia
Insurance is a subject listed in the Union list in the Seventh Schedule to the Constitution of India where only centre can legislate. The insurance sector has gone through a number of phases by allowing private companies to solicit insurance and also allowing foreign direct investment of up to 26% earlier and 49% from 2012, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government.
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History [edit]
In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts have reference to marine trade loans and carriers' contracts.
Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.
At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded in 1906. It is in business.
The Government of India issued an Ordinance on 19 January 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1, 1973.
The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC) and General Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary companies.
With effect from December 2000, these subsidiaries have been de-linked from the parent company and were set up as independent insurance companies: Oriental Insurance Company Limited,New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.
Industry structure [edit]
Currently India is a US$41 billion industry. Currently, in India only two million people (0.2% of the total population of 1 billion) are covered under Mediclaim, whereas in developed natins like USA about 75% of the total population are covered under some insurance scheme. With more and more private companies in the sector, the situation may change soon.
Specialisation [edit]
ECGC, ESIC and AIC provide insurance services for niche markets. So, their scope is limited by legislation but enjoy some special powers.
Acts [edit]
The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts.
The Insurance Act of 1938[1] was the first legislation governing all forms of insurance to provide strict state control over insurance business.
Life insurance in India was completely nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India.
The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities.
Until 1999, there were no private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies.
In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries.
A minimum capital of US$80 million(Rs.400 Crore) is required by legislation to set up an insurance business.
Authorities [edit]
The industry recognises examinations conducted by IAI (for actuaries), III (for agents, brokers and third-party administrators) and IIISLA (for surveyors and loss assessors). TAC is the sole data repository for the non-life industry.
IBAI gives voice for brokers while GI Council and LI Council are platforms for insurers.
AIGIEA, AIIEA, AIIEF, AILICEF, AILIEA, FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the insurers.
In addition, there are a dozen Ombudsman offices to address client grievances.
Insurance education [edit]
National Insurance Academy, Pune, has a 32 acre campus & 50-plus faculty, specialized in teaching, conducting research and providing consulting services in the insurance sector. NIA offers a two year PGDM program in insurance. NIA was founded as Ministry of Finance initiative with capital support from the then public insurance companies, both Life (LIC) and Non-Life (GIC, National, Oriental, United & New India).
Amity School of Insurance Banking and Actuarial science (ASIBAS) of Amity University, located in Noida and established in 2000, offers MBA programs in Insurance, Insurance and Banking, and M.Sc./B.Sc. actuarial sciences.
The Institute of Insurance and Risk Management (IIRM) is an international education and research organization. The Institute was set up jointly by the Insurance Regulatory and Development Authority (IRDA) of India and the State Government of Andhra Pradesh, in 2002 for promotion of International Post Graduate Diploma Courses in Insurance / Risk Management(Regular and Distance learning) . International School of Actuarial Sciences (ISAS) opened on 6th August 2007 leading to a Post Graduate Diploma in Actuarial Sciences.
Birla Institute of Management Technologyn a graduate business school located in Greater Noida, established in 1988, offers a PGDM-IBM program in insurance business management.This program was launched in 2000 by the Centre for Insurance and Risk Management and is accredited by the Insurance Regulatory and Development Authority. Life Office Management Association (LOMA),USA is BIMTECH's educational partner and BIMTECH is an approved centre for LOMA examination.
The Chartered Insurance Institute(CII), UK has accorded recognition (by way of credits) to the BIMTECH PGDM-IBM program.Their two year PGDM program in insurance business has been recognized as equivalent to the Associate level of the Insurance Institute of India, Mumbai.
NLU, Jodhpur, offers a two year MBA and one year MS (for engineering graduates) program in insurance.
IRDA controls all the Insurance business in India. They are setting structure and boundaries for the insurance companies to act within. Starting from licensing to approving the products, IRDA directs the companies in India. They also protect customer interests in the country.
- As per current guidelines issued by IRDA, Insurance Companies are not permitted to invest in Indian Depository Receipts ( IDR), while they are permitted to invest in Equity shares/ Bonds/ Debentures. IRDA needs to remove this disparity to open up investment opportunity by Ins Companies and thereby also enhance the liquidity of IDRs ( Contributed by Sanjay Banka, FCA FCS)
To become an insurance advisor in India insurance act 1938 mandates that the individual has to be Major with sound mind. After the advent of IRDA as Insurance Regulator IRDA has framed various regulations viz training hours, examination, fee etc. which are amended from time to time. Since November 2011 IRDA the Insurance Regulator in India has introduced a new syllabus(IC-33) conceived and developed by CII, London.The syllabus mainly aims to make an Insurance Agent as a Financial Professional. But almost all insurers are facing tough time making the candidates pass the examination which has become relatively tough.
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