The journey of insurance liberalization process in India is currently over seven years of age. The first major milestone in this particular journey may be the passing of Insurance Regulatory and Development Authority Act, 1999. This in addition to amendments for the Insurance Act 1983, LIC and GIC Acts allows you some leeway for the entry of non-public players and perchance the privatization from the hitherto public monopolies LIC and GIC. An opening of insurance to the non-public sector including foreign participation has resulted in various opportunities and challenges.
Concept of Insurance
In our day to day life, whenever there may be uncertainty there exists an involvement of risk. The instinct of security against such risk is one of the basic motivating forces for determining human attitudes. As a sequel to this particular quest for security, the technique of insurance needs to have been born. The urge to supply insurance or protection resistant to the loss of life and property need to have promoted visitors to make some kind of sacrifice willingly to have security through collective co-operation. In this sense, the story plot of insurance policies is probably as old as the story plot of mankind.
Life insurance particularly provides protection to household resistant to the risk of premature death of the company’s income earning member. Life insurance today also provides protection against other life-related risks like that of longevity (i.e. the likelihood of outliving of revenue stream) and the probability of disabled and sickness (medical insurance). The products contribute towards longevity are pensions and annuities (insurance against aging). Non-term life insurance provides protection against accidents, property damage, theft along with liabilities. Non-a life insurance policy contracts are usually shorter in duration in comparison with life insurance contracts. The bundling together of risk coverage and saving is peculiar of a life insurance policy. Life insurance provides both protection and investment.
Insurance is usually a boon to business concerns. Insurance provides a short range and long range relief. The short-term relief is directed at protecting the insured from a loss in property and life by distributing the loss amongst the multitude of persons with the medium of professional risk bearers for instance insurers. It enables a businessman to deal with an unforeseen loss and, therefore, he does not need to worry about the possible loss. The long-range object being the economic and industrial growth of the country by causing an investment of big funds available to insurers from the organized industry and commerce.
Prior to nationalizations of the General insurance industry in 1973 the GIC Act was passed inside the Parliament in 1971, but it really came into effect in 1973. There were 107 General insurance carriers including branches of foreign companies operating in the continent upon nationalization, these firms were amalgamated and grouped into the following four subsidiaries of GIC like National Insurance Co.Ltd., Calcutta; The New India Assurance Co. Ltd., Mumbai; The Oriental Insurance Co. Ltd., New Delhi and United India Insurance Co. Ltd., Chennai and Now delinked.
General insurance business in India is broadly split up into the fire, marine and miscellaneous GIC, in addition, to directly handling Aviation and Reinsurance business administers the Comprehensive Crop Insurance Scheme, Personal Accident Insurance, Social Security Scheme etc. The GIC and it is subsidiaries in line with the objective of nationalization to spread what it’s all about of insurance everywhere and to deliver insurance protection to the weaker section on the society are earning efforts to create new covers also to popularize other non-traditional business.
Liberalization of Insurance
The comprehensive dangerous insurance business in India was brought into effect while using enactment from the Insurance Act, 1983. It attempted to create a powerful and powerful supervision and regulatory authority within the Controller of Insurance with powers to direct, advise, investigate, register and liquidate insurance providers etc. However, consequent upon the nationalization of an insurance business, most on the regulatory functions were revoked from the Controller of Insurance and vested from the insurers themselves. The Government of India in 1993 had built a high powered committee by R.N.Malhotra, former Governor, Reserve Bank of India, to look at the structure in the insurance industry and recommend changes to restore more efficient and competitive keeping in view the structural modifications to other parts in the financial system on the continent.
Malhotra Committee’s Recommendations
The committee submitted its report in January 1994 recommending that private insurers be able to co-exist in conjunction with government brands like LIC and GIC companies. This recommendation ended up prompted by a few factors including the need for greater deeper insurance coverage from the economy, plus a much a much better scale of mobilization of funds in the economy, and also a much a much better scale of mobilization of funds through the economy for infrastructural development. Liberalization on the insurance sector is in the least partly driven by a fiscal need for tapping the large reserve of savings from the economy. Committee’s recommendations were as follows:
o Raising the main city base of LIC and GIC nearly Rs. 200 crores, half retained because of the government and rest sold for the public as a whole with suitable reservations due to its employees.
o The private sector is granted to go into the insurance industry which has a minimum paid up capital of Rs. 100 crores.
o Foreign insurance is allowed to get in by floating an Indian company preferably a joint venture with Indian partners.
o Steps are initiated to build a strong and effective insurance regulatory inside form of a statutory autonomous board about the lines of SEBI.
o The limited number of personal companies to get allowed inside the sector. But no firm is allowed within the sector. But no firm is in a position to operate in both lines of insurance (life or non-life).
o Tariff Advisory Committee (TAC) is delinked from GIC to work as a separate statuary body under necessary supervision with the insurance regulatory authority.
all insurance carriers are treated on equal footing and governed by the provisions of Insurance Act. No special dispensation is offered to government companies.
setting up of a powerful and effective regulatory body with an independent source for financing before allowing private companies into a sector.
competition to government sector:
Government companies have now to take care of competition to personal sector insurance providers not only in issuing various array of insurance products but in various aspects when it comes to customer service, channels of distribution, effective techniques of selling these products etc. privatization on the insurance sector has opened the doors to innovations within the way business might be transacted.
New age insurance agencies are entering new concepts and even more cost-effective strategy for transacting business. The idea is apparently to cater towards the maximum business for the lest cost. And slowly after a while, the age-old norm prevalent with government companies to inflate by putting together branches seems becoming lost. Among the techniques that seem to catch up fast as opposed to cater for the rural and social sector insurance coverage is a hub and spoke arrangement. These along using the participants of NGOs and Self Help Group (SHGs) have inked with most in the selling with the rural and social sector policies.
The main challenges are on the commercial banks who have a vast network of branches. In this regard, you should mention here that LIC has inked an arrangement with Mangalore based Corporations Bank to leverage their infrastructure for mutual benefit together with the insurance monolith having a strategic stake 27 percent, Corporation Bank has decided to abandon its plans of promoting a life insurance policy company. The bank will act to be a corporate agent for LIC in the future and receive a commission on policies sold through its branches. LIC which consists of branch network of near 2100 offices will permit Corporation Bank to put in place extension centers. ATMs or branches with in its premises. Corporation Bank would subsequently implement a good Cash Flow Management System for LIC.
IRDA Act, 1999
The preamble of IRDA Act 1999 reads ‘An Act to provide for your establishment connected with an authority to guard the interests of holders of insurance coverage, to modify, to enhance and ensure orderly growth in the insurance industry and then for matters connected therewith or incidental thereto.
Section 14 of IRDA Act, lays the duties, powers, and functions with the authority. The powers and functions with the authority. The powers and functions on the Authority shall add some following.
- Issue towards the applicant a piece of paper of registration, to renew, modify withdraw, suspend or cancel such registration.
- To protect the eye of people in all matters concerning the nomination of policy, surrender value f policy, insurable interest, settlement of insurance claims, other fine print of contract of insurance.
- Specifying requisite qualification and practical working out for insurance intermediates and agents.
- Specifying code of conduct for surveyors and loss assessors.
- Promoting efficiency from the conduct of insurance business
- Promoting and regulating professional regulators connected together with the insurance and reinsurance business.
- Specifying the proper execution and way in which books of accounts are going to be maintained and statement of accounts rendered by insurers and insurance intermediaries.
- Adjudication of disputes between insurers and intermediates.
Specifying the share of term life insurance and general and general business to become undertaken from the insurers in rural or social sectors etc.
Section 25 provides that Insurance Advisory Committee will probably be constituted and shall include not more than 25 members. Section 26 provides that Authority may in consultation with Insurance Advisory Committee make regulations consists using this type of Act and also the rules made thereunder to transport the purpose of this Act. Section 29 seeks amendment in some provisions of Insurance Act, 1938 inside the manner as determined in First Schedule. The amendments for the Insurance Act are consequential so as to empower IRDA to effectively regulate, promote, and make certain orderly growth on the Insurance industry.
Section 30 & 31seek to amend the LIC Act 1956 and GIC Act 1972.
Impact of Liberalization
While nationalized insurance carriers have done a commendable job in extending volume in the business opening of the insurance sector to personal players would have been a necessity inside the context of liberalization of the monetary sector. If traditional infrastructural and semi-public goods industries for instance banking, airlines, telecom, power etc. have significant private sector presence, continuing state monopoly in the provision of insurance was indefensible and as a consequence, the privatization of insurance may be done as discussed earlier. Its impact has been seen in the form of creating various opportunities and challenges.
1. Privatization if Insurance was eliminated the monopolistic business of Life Insurance Corporation of India. It may assistance to cover the wide choice of risk generally speaking insurance and also in term life insurance. It helps to show them the new choice of products.
2. It would also bring about better customer services and improve the variety and price of insurance products.
3. The entry of the latest player would improve the spread of both life and general insurance. It will increase the insurance policy penetration and measure of density.
4. Entry of non-public players will the mobilization of funds that could be utilized for the purpose of infrastructure development.
5. Allowing of business banks into insurance business will help mobilization of funds in the rural areas because in the availability of vast branches in the banks.
6. Most important not the smallest amount of tremendous employment opportunities are going to be created within the field of insurance which can be a burning problem with the present day to day issues.
After the opening of insurance in private sector, various leading private companies including joint ventures have entered the fields of insurance both life and non-life business. Tata – AIG, Birla Sun life, HDFC standard life Insurance, Reliance General Insurance, Royal Sundaram Alliance Insurance, Bajaj Auto Alliance, IFFCO Tokio General Insurance, INA Vysya Life Insurance, SBI Life Insurance, Dabur CJU Life Insurance and Max New York Life. SBI Life insurance has launched three products Sanjeevan, Sukhjeevan and Young Sanjeevan up to now and it has already sold 320 policies under its plan.
From this discussion we can easily conclude the entry of personal players in insurance business needful and justifiable to be able to enhance the efficiency of operations, achieving greater density and insurance policies in the continent and for a larger mobilization of long-lasting savings for too long gestation infrastructure prefects. New players must not be treated as rivalries to government companies, nevertheless they can supplement in having this objective of increase of insurance business in India.