Privatisation of Insurance

Presented By:Kamal Aggarwal (48)

Kapil Dev (40)

Privatization of Insurance

Contents:1. Introduction2. Nationalization Era3. Scene in 1956 and earlier4. Establishment of Life Insurance Corporation of India (LIC of India)

5. Establishment of General Insurance Corporation of India

6. Foreign operations of insurers in India.

Cont…..7. The process of Liberalization. Malhotra Committee’s Report.

8. Establishment of Insurance Regulatory and

Development Authority (IRDA):9. Private Insurers10. The Future.

Introduction:India :a colony under British Rule

till 1947.Insurance business: not regulated

till 1912.Regulatory apparatus established in

1912. A superintendent was appointed under Ministry of Finance.

A comprehensive legislation was drawn in 1938 to regulate insurance business.

1956 saw nationalization of life insurance industry—government took over business of life insurance.

Cont….1972 saw nationalization of general

insurance industry.1990’s was year of start of liberalization

of financial sector due to international pressures.

1993: Malhotra Committee was asked by Government of India to recommend process of liberalization of insurance sector. It submitted its report in Jan, 1994.

1999: At last, government’s monopoly ended, insurance industry again came into hands of private insurers.

Cont….2000 witnessed new insurers in the

Indian market.India became important destination

for insurance in view of vast potential and opportunities.

Nationalization Era:

India became independent in 1947; and Indian government wanted to own life insurance to take care of the interests of policyholders, as pre-1956 era witnessed failures of insurers and ignored interests of policyholders. Thus 1956 saw birth of LIC of India, the sole life insurer to transact life insurance business in India. 1960s and 1970s witnessed lots of changes in financial sector. Banks were nationalized in 1969; General Insurance industry was nationalized in 1972. Purpose was to protect the customer.

Scene in 1956 and earlier:

The number of life insurers on 19th January 1956 :

Indian Insurers: 154Foreign insurers: 16Provident Societies: 75 Total: 245

At 1956: [of all life insurers]

Total Life fund was about Rs. 3 bn. Premium Income was about Rs. 750

mn. Average Sum Assured per policy was

about Rs.2000. Total number of policies was about 5

mn. Total number of agents could be about

100,000.Popular insurance contracts were

Endowment Assurances, with profits.

Establishment of LIC of India:

LIC of India was created by an Act in the Parliament:- Life Insurance Corporation of India Act, 1956.

LIC of India was made merging about 245 insurers in 1956, and became operational with effect from 1st September 1956.

LIC of India, though showed impressive growth from Rs. 4 billions in 1957 to Rs. 908 billions in its premium income in 2000, could not provide what public wanted in respect of:-Products within reach; Wide range of products; Prompt customer service.

Cont….LIC of India: has highest branch

network with largest distribution network: [over 2000 branches, with over 1.2 millions of insurance agents]

Its share of the market was 73% in 1956, private insurers grabbing 27%. There is a space for more private insurers in India.

Establishment of GIC:

GIC of India was created by an Act in the Parliament: General Insurance Business (Nationalization) Act, 1972 (GIBNA).

GIC of India was established in November 1972, amalgamating 107 insurers, including branches of foreign companies operating in India.

Cont….All these insurers were grouped into 4

companies (the subsidiaries of GIC of India):-

1. The National Insurance Company Ltd.,2. The New India Assurance Company Ltd.,3. The Oriental Insurance Company Ltd.,4. The United India Insurance Company Ltd.They commenced the general insurance

business with effect from 1st January, 1973.

Cont….Now GIC is National Reinsurer.All the 4 subsidiary companies

became independent insurers de-linked from GIC.

GIC is protected with 20% mandatory cessions from general insurers in India.

Foreign operations of insurers in India:

LIC has its operations in UK, Fiji, Mauritius, Bahrain, Sri Lanka, Nepal, as on date.

GIC and New India Assurance Co. Ltd., has operations in over 30 countries.

This became important argument for opening up sector, but with limited foreign equity to 26% in joint venture private insurers.

The process of Liberalization:Malhotra Committee’s Report.This was an important mile-stone in the

history of insurance industry in India. The committee favored liberalization, with conditions– to protect the domestic players.

Malhotra Committee’s Report. High lights are:

1. Minimum paid-up capital of Rs. 1 billion. At entry– with an intention to stop mushroom growth of insurers– there should be serious players.No composites.

Cont….2. Appointed Actuary system;3. Solvency Margins;4. Mandatory Investments should be

continued.5. Autonomous Regulatory Apparatus;6. Listing should be made compulsory

after some gestation period;7. New insurance legislation is in process,

today, for proper regulation and development of insurance market in India.

Establishment of IRDA:In 1999, Parliament made an Act to establish

Regulatory Apparatus before opening up.Act gave vast powers and responsibilities to

IRDA.IRDA: IRDA is an authority which has 6 full-

time members and 4 part-time Six full time members:• CHAIRMAN,• ACTUARY,• a LIFE insurance specialist,• a GENERAL insurance specialist members.

The rest two members should be from background of LAW, ADMINISTRATION, ACCOUNTS,..Useful to IRDA.

Part-time numbers are from various fields—consumer interest, professional interests, government interests, ….

All members are appointed by the Government of India.

Chairman will have a service of 5 years or until age of 65 whichever is earlier.

Full Time member will have a service of 5 years or until age of 62 whichever is earlier.

Part Time members – Term: 5 years

Private Insurers:

Life Insurers: General Insurers

Government: 1 6Private: 15 8One Reinsurer owned by

Government.Private (Life) insurers has a share

of 30% of the Market –June 2007

Private Insurers:A number of applications are in

pipe line.Total insurers would be about 40 by

end of 2007.Still there is space for many!

The Future:

It is very bright!Insurance Penetration was about

2.5% in 2000, and now it is over 3.5%.

Insurance potential is very high in pensions and health insurance.