Bizness Insurance Sector KenSource palmist may read your hand as per the inexact science of astrology, but, how accurately, is anybodys guess. So whats the best way of beating an uncertain future? The best bet to beat uncertain circumstances is to hedge oneself against the probable risks of the future. In other words, to ensure against the uncertain future through some sort of mechanism and insurance is all about hedging oneself from the vagaries of an uncertain future. The term insurance is all-pervasive in the sense that it enables one to protect everything from ones life to the smallest of assets that you can think of from the vagaries of an uncertain future. Though the sector is being fancied of late on the Indian economic scene, insurance business in India per se dates back to the eighteenth century. It has actually come a full circle from being an open competitive market to being regulated and controlled exclusively by the government and back to a liberalised regime again. Life Insurance The sector is broadly divided into two categories including Life and Non-life Insurance. The former encompasses the bulk of business but the non-life segment nevertheless is also as important. The commencement of Life insurance in India dates back to 1818 when the Oriental Life Insurance Company in Calcutta was established. The Indian Life Assurance Companies Act was enacted as the first statute to regulate the life insurance business in India in the year 1912. Later, as the sector grew in importance, all the acts formed till date were consolidated to form the Insurance Act in 1938 with an objective to protect the interests of the insuring public. The initial phases saw a mass proliferation of companies in the insurance business that increased the risk of the insuring public and forced the government to take over the business from the private sector. In 1956, about 245 Indian and foreign insurers and provident societies were taken over by the central government and nationalised. The LIC Act of 1956 laid the foundation for the creation of the Life Insurance Corporation of India (LIC), which today is one of the largest and the most successful public sector enterprises in the country. LIC enjoyed a status of a virtual monopoly till recently when the government, as part of its larger Reforms initiated in the early 90s have changed the face of the Indian economic landscape resulting from a major shift in the development policy. As a part of the reforms programme, India opened up certain sectors of the economy that hitherto were the sole prerogative of the government. One of the most significant impacts of economic liberalisation and allowing private participation has happened in the Insurance sector. From a limited choice of one single insurance provider, consumers today can choose from a number of other private insurers to service their demands, and with a fast-changing demographics, it is one among the many sectors that is set to witness exponential growth in the years to come. Lets peek into the past, present and future of this dynamic and all pervasive sector, but first the basics. A A A
Transcript
Bizness
Insurance SectorKenSource
palmist may read
your hand as per the
inexact science of
astrology, but, how accurately, is
anybody�s guess. So what�s the best
way of beating an uncertain future? The
best bet to beat uncertain circumstances
is to hedge oneself against the probable
risks of the future. In other words, to
ensure against the uncertain future
through some sort of mechanism and
insurance is all about hedging oneself
from the vagaries of an uncertain future.
The term insurance is all-pervasive
in the sense that it enables one to
protect everything from one�s life to the
smallest of assets that you can think of
from the vagaries of an uncertain future.
Though the sector is being fancied of
late on the Indian economic scene,
insurance business in India per se dates
back to the eighteenth century. It has
actually come a full circle from being an
open competitive market to being
regulated and controlled exclusively by
the government and back to a liberalised
regime again.
Life InsuranceThe sector is broadly divided into two
categories including Life and Non-life
Insurance. The former encompasses the
bulk of business but the non-life segment
nevertheless is also as important. The
commencement of Life insurance in India
dates back to 1818 when the OrientalLife Insurance Company in Calcuttawas established. The Indian LifeAssurance Companies Act was
enacted as the first statute to regulate
the life insurance business in India in the
year 1912. Later, as the sector grew in
importance, all the acts formed till date
were consolidated to form the
Insurance Act in 1938 with an
objective to protect the interests of the
insuring public.
The initial phases saw a mass
proliferation of companies in the
insurance business that increased the
risk of the insuring public and forced the
government to take over the business
from the private sector. In 1956, about
245 Indian and foreign insurers and
provident societies were taken over by
the central government and nationalised.
The LIC Act of 1956 laid the foundation
for the creation of the Life Insurance
Corporation of India (LIC), which today
is one of the largest and the most
successful public sector enterprises in
the country. LIC enjoyed a status of a
virtual monopoly till recently when the
government, as part of its larger
Reforms initiated in the early 90�s have changed the face ofthe Indian economic landscape resulting from a major shiftin the development policy. As a part of the reformsprogramme, India opened up certain sectors of the economythat hitherto were the sole prerogative of the government.One of the most significant impacts of economicliberalisation and allowing private participation hashappened in the Insurance sector. From a limited choice ofone single insurance provider, consumers today can choosefrom a number of other private insurers to service theirdemands, and with a fast-changing demographics, it is oneamong the many sectors that is set to witness exponentialgrowth in the years to come. Let�s peek into the past,present and future of this dynamic and all pervasive sector,but first the basics.
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Bizness
economic programme of allowing private participation, again
decided to open the Insurance Sector to the private players.
General Insurance
The Triton Insurance Company Limited parented the general
insurance business in India. It was the first general insurance
company established in 1850 by the British in Calcutta. In
1907 came The Indian Mercantile Insurance Ltd which
transacted all classes of general insurance. This sub-segment
too was nationalised in 1972 having passed the General
Insurance Business (Nationalisation) Act. This saw the
amalgamation of 107 insurers under a group of 4 companies
namely; the National Insurance Company Ltd., the New India
Assurance Company Ltd., the Oriental Insurance Company Ltd.
and the United India Insurance Company Ltd.
LIC in life insurance and GIC in general insurance with its
subsidiaries had for long been monopoly players in the insurance
sector. Of late, however, with the setting up of the Insurance
Regulatory and Development Authority (IRDA), the government
has once again de-regulated the sector opening it for private
players. With this, many large Indian business houses along
with other multinational players have setup shop for selling
insurance services in India.
Insurance sector reforms
As part of the liberalisation process, the government
appointed a committee headed by the former Finance Secretary
and RBI governor, Mr. R N Malhotra, to evaluate the insurance
industry and to recommend its future direction. This
committee, in its report submitted in 1994, suggested the
following changes:
Structural Changes
" Government stake in Insurance companies be brought down
to 50%.
" The holdings of GIC and its subsidiaries be taken over in
order to facilitate their functioning as independent
corporations.
" Greater freedom of operation for all the Insurance
companies.
Major Life Insurers in India
Allianz Bajaj Life Insurance Co. Ltd.
AMP Sanmar Assurance Company Limited
Birla Sun Life Insurance Co. Ltd.
Dabur CGU Life Insurance Company Pvt. Ltd
HDFC Standard Life Insurance Co. Ltd.
ICICI Prudential Life Insurance Co Ltd.
ING Vysya Life Insurance Co. Pvt. Ltd.
Life Insurance Corporation of India
Max NewYork Life Insurance Co. Ltd.
MetLife India Insurance Company
OM Kotak Mahindra Life Insurance Co. Ltd.
SBI Life Insurance Company Ltd.
Tata AIG Life Insurance Co. Ltd.
Major Non-Life Insurers in India
Bajaj Allianz General Insurance Co. Ltd.
Cholamandalam General Insurance Co. Ltd.
HDFC Chubb General Insurance Co. Ltd
ICICI Lombard General Insurance Co. Ltd.
IFFCO TOKIO General Insurance Co. Ltd.
National Insurance Company Ltd.
New India Assurance Company Ltd.
Oriental Insurance Company Ltd.
Reliance General Insurance Co. Ltd.
Royal Sundaram General Insurance Co. Ltd.
Tata AIG General Insurance Co. Ltd.
United India Insurance Company Ltd.
Bizness
Changes for fuelling competition" Allowing private enterprise in the
sector with companies with a paid-up
capital of a minimum of Rs.100 crore.
" No single entity to function in both
Life and General Insurance segments.
" Foreign companies to be allowed only
in combination with an Indian partner.
" Postal Life Insurance to be allowed
in rural markets.
" Only one state level Life Insurance
Company to be allowed in each state.
Regulatory Changes" Changes to be made to the Insurance
Act.
" An independent Insurance regulatory
authority to be set up.
Investments" Reduction in the mandatory
investments of LIC Life Fund in
government securities to be brought
down from 75% to 50%.
" GIC and its subsidiaries are not to
hold more than 5% in any company.
Their current holding will be brought
down to this level over a period of time.
The Insurance Regulatory andDevelopment Authority (IRDA)
The insurance sector began its
reforms process with the passage of the
IRDA bill in parliament in December
1999. Since its incorporation as a
statutory body in April 2000, IRDA has
been working towards the framing and
implementation of the various regulatory
measures for the smooth working of the
industry. That apart, one of the most
important initiative of the IRDA was the
launching of IRDA�s online service for
issue and renewal of licenses to agents.
Moreover, 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 place to sell their
products.
Following the variousrecommendations over thepast couple of years, a hostof Indian companies haveentered the sector withmajor foreign companies astheir partners. KotakMahindra has tied up withChubb, SBI with Alliancecapital, IDBI with Principaland Tata group with AIG.All these add up to newproducts, better packaging,improved customer serviceand, most importantly,greater employment
