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History of insurance in India

Ref. No: IRDA/GEN/06/2007

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st 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 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

Today there are 31 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country.

Why Do I Need Insurance?

You've worked hard to build a solid financial footing for you and your family, so you want to be sure that everything is protected. Accidents and disasters can and do happen, and if you aren’t adequately insured, it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head. As you evaluate the potential gaps in your insurance coverage, consider which policies you may want to include your short- and long-term financial plan.

Types of Insurance You Need

You can insure almost anything under the sun, but certain things need to be properly insured. This insurance need typically includes your life, your health, and your property. At a minimum, it's important to have:
• Health insurance to cover medical costs for yourself and your family
• Life insurance can provide financial security to your loved ones at your death
• Homeowner's or renter's insurance insures your home and valuable possessions
• Auto insurance to protect your vehicle When comparing policies, consider how much coverage you need, what premiums you can afford, and where you'd like to set your deductible.

Types of Insurance You Probably Don't Need

While you want to ensure that you're adequately protected, there are a lot of insurance policies that are unnecessary for most people. Purchasing the wrong insurance—or spending too much on insurance—can do more harm than good.

Types of insurance you may not need can include mortgage life insurance—sometimes called credit life insurance—cancer or specific disease insurance, and travel or flight insurance. In the case of travel and flight insurance, for example, these may be included as part of your credit card's travel benefits. Before buying these types of coverage, think carefully about the return on investment you may get.

How Much Life Insurance Do You Need?

How much coverage you need is an important question. You may find that you don't need any life insurance or that you need a million rupees or more in coverage. Many factors need to be considered before purchasing life insurance. A good place to start is to ask yourself what you need life insurance to do for you and your family.

For example, you may only need enough coverage to pay for final expenses. Or, you may want to have enough life insurance to pay off the mortgage, put your kids through college, and cover everyday living expenses for your family. Finding out whether or not you need life insurance, and if so, how much is a good place to begin.

Which Type of Life Insurance Is Right for You?

Once you've decided how much life insurance you need, the thing to consider is what type of life insurance is best. You may choose a term life policy, which covers you for a set term and tends to have the lowest premiums of any life insurance option. Or, you may prefer permanent coverage in the form of whole life, universal life, or variable life coverage. While these policies may carry higher premiums, they offer the benefit of lifetime coverage with the potential to build cash value. It's important to weigh the pros and cons of both and compare those to your life insurance needs.

Finding a Good Auto Insurance Policy

If you own a vehicle, you need to have it insured. Car insurance can protect you if you get into an accident or if your car is stolen or damaged due to vandalism or a natural disaster. Auto insurance is a very competitive industry, and there are a lot of options available to you. Finding the right mix of adequate coverage at a good price can be challenging. Learn how to find the best auto policy for you.

Save Money on Your Homeowners Insurance

For many people, their home is one of their biggest assets, so it makes sense to provide adequate coverage. There are different types of coverage you may need. Traditional homeowner's insurance is at the top of the list. But, you may also need additional coverage if you live in an area that's prone to certain natural disasters, such as floods, wildfires, or earthquakes. Insuring something expensive, such as a house, comes at a price, but there are many ways that you can save money on your homeowners' insurance.

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