1. Introduction and History of Insurance

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Introduction and History of Insurance:

BY Anil Kumar Sinha Introduction and History of Insurance

WHAT IS INSURANCE:

WHAT IS I NSURANCE In General Sense The basic philosophy of insurance is a cooperative device by which the loss likely to be caused by an uncertain event is spread over a number of persons who are exposed to it and who propose to insure themselves against such an event. Thus Insurance is an instrument to cover the risk perception by group efforts.

What is Insurance:

What is Insurance In Financial Sense Insurance is a social device providing financial compensation for the consequences of adversity, the payment being made from the accumulated contributions of all parties participating in the arrangement .

What is Insurance:

What is Insurance The Legal Sense Insurance is a contract under which the insurer (insurance company) in consideration of a sum of money paid (premium) by the insured (the person whose risk is insured) agrees to: Make good the loss suffered by the insured against a specific risk (for which the insurance is effected), or To pay a prefixed amount to the insured or his/her beneficiaries on the happening of a specified event.

Evolution of Insurance :

Evolution of Insurance The first methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as early as 2 nd and 3 rd millennium. A thousand years later, the inhabitants of Rhodesia created the 'general average', which allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were destroyed during transport, whether to storm or sinkage.

Evolution of Insurance.:

Evolution of Insurance. The Greeks and Romans introduced the origins of health and life insurance in 600 BC when they created guilds called "benevolent societies" which cared for the families of deceased members, as well as paying funeral expenses of members. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Evolution of Insurance:

Evolution of Insurance In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. After 1905, led by the Liberal Party, the British introduced a system of social insurance as well. It was greatly expanded after 1944. Hospital and medical expense policies were introduced during the first half of the 20th century.

History of Insurance in India:

History of Insurance in India The History of Insurance in India can be divided in to three phase. Phase I – Pre liberalisation Phase Phase II – Liberalisation Phase Phase III – Post Liberalisation Phase

Phase I – Pre liberalisation Phase:

Phase I – Pre liberalisation Phase 1818 – 1870 In 1818 the Oriental Life Insurance Company was formed in Calcutta. Which failed in 1834. In 1829 the Madras Equitable had begun transacting life Insurance business in the Madras Presidency. British Insurance Act 1870 saw the creation of the Bombay Mutual Fund (1871), Oriental Insurance (1874) and Empire of India Insurance (1897) in the Bombay Presidency.

Phase I – Pre liberalisation Phase:

Phase I – Pre liberalisation Phase 1912 – 1972 The Indian Life Assurance Companies Act 1912 was the first statutory measure to regulate Insurance business in India. The Indian Insurance Company Act 1928 gave power to the government to collect statistical information about both life and non life Insurance business transactions in India.

Phase I – Pre Liberlisation phase:

Phase I – Pre Liberlisation phase To protect the interest of the insuring public, earlier legislation was consolidated and amended by the Insurance Act 1938 which gave the government effective control over the activities of insurers. The Government of India issued an Ordinance on 19 January 1956 nationalizing the Life Insurance sector and Life Insurance Corporation came into existence. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers.

Nationalization of General Insurance:

Nationalization of General Insurance In 1972 the General Insurance Business (Nationalization) Act was passed. Consequently, General Insurance business was nationalized with effect from 1 January 1973. 107 insurers were amalgamated and grouped into four companies, namely 1. National Insurance Company Ltd. 2. The New India Assurance Company Ltd., 3. The Oriental Insurance Company Ltd and 4. The United India Insurance Company Ltd. General Insurance Corporation of India was set up as the controlling body of above four companies.

Phase II – Liberalisation Phase:

Phase II – Liberalisation Phase The international payment crisis of the 1990 force the government to rethink its industrial policy. In 1993 government of India set up a committee under chairman ship of Sri R. N. Malhrotra, the former Governor of RBI to make recommendations for reform in Insurance sector. The committee submitted its report in 1994.

Recommendations of Malhotra committee:

Recommendations of Malhotra committee Private players be included in the insurance sector. Foreign companies be allowed to enter the insurance sector, preferably through joint ventures with Indian partners. The Insurance Regulatory and Development Authority (IRDA) be constituted as an autonomous body to regulate and develop the insurance sector

Recommendations of Malhotra committee:

Recommendations of Malhotra committee GIC to cease being the holding company of the four subsidiary companies and would function exclusively as a Reinsurance company and as the Indian Reinsurer under the Companies Act; Mandated investment of funds of LIC and GIC should be reduced from 76 and 70 per cent to 50 and 35 per cent respectively;

Recommendations of Malhotra committee:

Recommendations of Malhotra committee New entrants in life insurance should be required to transact a certain minimum business in rural areas; LIC should review its product pricing with a view to improving returns to policy holders and to rationalize premium under various plans. Restructure and decentralise the Life Insurance Corporation of India.

Phase III – Post Liberlisation:

Phase III – Post Liberlisation Following the recommendation of the Malhrotra committee report, the Insurance Regulatory and Development authority(IRADA) was constituted as an autonomous body in 1999 to regulate and develop the insurance industry in India. The IRADA was incorporated as a statutory body in April 2000. As per the power given to IRADA under section 114A of the Insurance Act 1938, IRADA has introduced various regulations since 2000 ranging from registration of the insurance company to the protection of policy holders interest.

Phase III – Post Liberlisation:

Phase III – Post Liberlisation Insurance company has been opened to private sector companies. Foreign company were allowed to participate in Indian insurance market through joint venture with Indian companies. Under the current regulation the foreign partners can not hold more than 26% stake but the cabinet has approved to increase it to 49% and proposed to bring the amendment bill in 2013 budget session.

Phase III – Post Liberlisation:

Phase III – Post Liberlisation The Insurance Act and General Insurance Business (Nationalization) Act (GIBNA) were amended to open up to the private sector. With Amendment of GNBNA Act 2002 effective from 21 st March 2003, GIC ceased to be a holding company of its four subsidies. GIC was notified as a reinsurance company.

Phase III – Post Liberlisation:

Phase III – Post Liberlisation Some other development in post Liberlisation period are :- Extensive use of IT. Banc assurance – Bank joining with Insurance company to do cross-sale of insurance products to their customer. Insurance company benefits from wide network of Bank branch and strong loyal customer base. Banks benefit to provide value added products and earn NFNI income. Many Bank has also started their own Insurance subsidiary. On Line sales of Insurance product.

Phase III – Post Liberlisation:

Phase III – Post Liberlisation 4. Micro Insurance – Micro Insurance guidelines were issued by the IRADA in 2005.Micro insurance products provide insurance protection to people in lower income groups, such as SHG members, farmers, rickshaw pullers, etc. The premium for these products may be as low as Rs. 15 and collected on a weekly basis. The minimum life insurance cover specified by the Regulator for this category is Rs.5000 to 50000. 5. Grievance redressal – Insurance Ombudsman scheme, toll free no. 155255 or email complaints@irada.gov.in

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