1. Introduction and History of Insurance

7/29/2019 1. Introduction and History of Insurance

1/22

BY

ANIL KUMARSINHA

Introduction andHistory of Insurance

7/29/2019 1. Introduction and History of Insurance

2/22

WHAT IS INSURANCE

In General Sense

The basic philosophy of insurance is a cooperativedevice by which the loss likely to be caused by an

uncertain event is spread over a number of personswho are exposed to it and who propose to insurethemselves against such an event.

Thus Insurance is an instrument to cover the risk

perception by group efforts.

7/29/2019 1. Introduction and History of Insurance

3/22

What is Insurance

In Financial Sense

Insurance is a social device providing financialcompensation for the consequences of adversity, the

payment being made from the accumulatedcontributions of all parties participating in thearrangement .

7/29/2019 1. Introduction and History of Insurance

4/22

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 personwhose risk is insured) agrees to:

i. Make good the loss suffered by the insuredagainst a specific risk (for which the insurance is

effected), or

ii. To pay a prefixed amount to the insured orhis/her beneficiaries on the happening of aspecified event.

7/29/2019 1. Introduction and History of Insurance

5/22

Evolution of Insurance

The first methods of transferring or distributing riskwere practiced by Chinese and Babylonian traders asearly as 2nd and 3rd millennium.

A thousand years later, the inhabitants of Rhodesiacreated the 'general average', which allowed groups ofmerchants to pay to insure their goods being shippedtogether. The collected premiums would be used to

reimburse any merchant whose goods were destroyedduring transport, whether to storm or sinkage.

7/29/2019 1. Introduction and History of Insurance

6/22

Evolution of Insurance.

The Greeks and Romans introduced the origins ofhealth and life insurance in 600 BC when they createdguilds called "benevolent societies" which cared for the

families of deceased members, as well as paying funeralexpenses of members.

Before insurance was established in the late 17thcentury, "friendly societies" existed in England, in

which people donated amounts of money to a generalsum that could be used for emergencies.

7/29/2019 1. Introduction and History of Insurance

7/22

Evolution of Insurance

In the late 19th century, "accident insurance" beganto be available, which operated much like moderndisability insurance.

After 1905, led by the Liberal Party, the Britishintroduced a system of social insurance as well. Itwas greatly expanded after 1944.

Hospital and medical expense policies were

introduced during the first half of the 20th century.

7/29/2019 1. Introduction and History of Insurance

8/22

History of Insurance in India

The History of Insurance in India can be divided in tothree phase.

1. Phase I

Pre liberalisation Phase2. Phase II Liberalisation Phase

3. Phase III Post Liberalisation Phase

7/29/2019 1. Introduction and History of Insurance

9/22

Phase I Pre liberalisation Phase

1818

1870

In 1818 the Oriental Life Insurance Company wasformed in Calcutta. Which failed in 1834.

In 1829 the Madras Equitable had begun transactinglife Insurance business in the Madras Presidency.

British Insurance Act 1870 saw the creation of theBombay Mutual Fund (1871), Oriental Insurance

(1874) and Empire of India Insurance (1897) in theBombay Presidency.

7/29/2019 1. Introduction and History of Insurance

10/22

Phase I Pre liberalisation Phase

1912

1972

The Indian Life Assurance Companies Act 1912 wasthe first statutory measure to regulate Insurance

business in India.The Indian Insurance Company Act 1928 gave powerto the government to collect statistical informationabout both life and non life Insurance business

transactions in India.

7/29/2019 1. Introduction and History of Insurance

11/22

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 thegovernment effective control over the activities of

insurers.The Government of India issued an Ordinance on19 January 1956 nationalizing the Life Insurancesector and Life Insurance Corporation came into

existence. The Life Insurance Corporation (LIC)absorbed 154 Indian, 16 non-Indian insurers asalso 75 provident societies245 Indian and foreigninsurers.

7/29/2019 1. Introduction and History of Insurance

12/22

Nationalization of General Insurance

In 1972 the General Insurance Business(Nationalization) Act was passed. Consequently,General Insurance business was nationalized witheffect from 1 January 1973.

107 insurers were amalgamated and grouped into fourcompanies, 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.

7/29/2019 1. Introduction and History of Insurance

13/22

Phase II Liberalisation Phase

The international payment crisis of the 1990 forcethe government to rethink its industrial policy.

In 1993 government of India set up a committee

under chairman ship of Sri R. N. Malhrotra, theformer Governor of RBI to make recommendationsfor reform in Insurance sector.

The committee submitted its report in 1994.

7/29/2019 1. Introduction and History of Insurance

14/22

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 Indianpartners.

The Insurance Regulatory and DevelopmentAuthority (IRDA) be constituted as an autonomous

body to regulate and develop the insurance sector

7/29/2019 1. Introduction and History of Insurance

15/22

Recommendations of Malhotra committee

GIC to cease being the holding company of the foursubsidiary companies and would function exclusively

as a Reinsurance company and as the IndianReinsurer under the Companies Act;

Mandated investment of funds of LIC and GICshould be reduced from 76 and 70 per cent to 50 and

35 per cent respectively;

7/29/2019 1. Introduction and History of Insurance

16/22

Recommendations of Malhotra committee

New entrants in life insurance should be required totransact a certain minimum business in rural areas;

LIC should review its product pricing with a view toimproving returns to policy holders and torationalize premium under various plans.

Restructure and decentralise the Life Insurance

Corporation of India.

7/29/2019 1. Introduction and History of Insurance

17/22

Phase III Post Liberlisation

Following the recommendation of the Malhrotracommittee report, the Insurance Regulatory andDevelopment authority(IRADA) was constituted as anautonomous 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 114Aof the Insurance Act 1938, IRADA has introduced

various regulations since 2000 ranging fromregistration of the insurance company to theprotection of policy holders interest.

7/29/2019 1. Introduction and History of Insurance

18/22

Phase III Post Liberlisation

1. Insurance company has been opened to privatesector companies.

2. Foreign company were allowed to participate in

Indian insurance market through joint venturewith Indian companies.

3. Under the current regulation the foreign partnerscan not hold more than 26% stake but the cabinet

has approved to increase it to 49% and proposed tobring the amendment bill in 2013 budget session.

7/29/2019 1. Introduction and History of Insurance

19/22

Phase III Post Liberlisation

4. The Insurance Act and General InsuranceBusiness (Nationalization) Act (GIBNA) wereamended to open up to the private sector.

5. With Amendment of GNBNA Act 2002 effectivefrom 21st March 2003, GIC ceased to be a holdingcompany of its four subsidies. GIC was notified asa reinsurance company.

7/29/2019 1. Introduction and History of Insurance

20/22

Phase III Post Liberlisation

Some other development in post Liberlisation periodare :-

1. Extensive use of IT.

2. Banc assurance

Bank joining with Insurancecompany to do cross-sale of insurance products totheir customer. Insurance company benefits from

wide network of Bank branch and strong loyal

customer base. Banks benefit to provide valueadded products and earn NFNI income. Many Bankhas also started their own Insurance subsidiary.

3. On Line sales of Insurance product.

7/29/2019 1. Introduction and History of Insurance

21/22

Phase III Post Liberlisation

4. Micro Insurance Micro Insurance guidelines wereissued by the IRADA in 2005.Micro insurance productsprovide insurance protection to people in lower income

groups, such as SHG members, farmers, rickshawpullers, etc. The premium for these products may be aslow 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 protected]

7/29/2019 1. Introduction and History of Insurance

22/22

THANKS