Insurance Concepts and IRDA [Insurance Regulatory and Development Authority] - History of Insurance in India

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History of Insurance in India

The origin of practice of insurance is probably lost forever in the mists of antiquity and till today remains a mystery. References to practices similar to insurance are found in the ancient Indian texts of Rigveda. Rigveda refers to the concept of "Yogakshema" - loosely meaning 'prosperity, well being and security of people'. Insurance has a deep-rooted history in India since ancient times and has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya’s Arthashastra that glorified ancient India. In all these ancient texts, the writings discuss about pooling of resources that would be re-distributed in times of calamities or unforeseen circumstances such as epidemics, earthquakes, fire, floods and famine. Such writings depict that it was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers’ contracts. In India, Insurance has evolved with the passage of time heavily drawing inspiration from other countries, England in particular.

In 1818 the advent of life insurance business descended in Indiawith the establishment of the Oriental Life Insurance Company at Kolkata. However, this company failed in 1834 as it failed to realize its goals and achieve the desired objectives. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. In 1870 the British Insurance Act was enacted. Moreover, in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) commenced their operations in the Bombay Presidency. However, this era, was dominated and controlled by foreign insurance companies. Such foreign insurance companies did good business in India such as Albert Life Assurance, Liverpool, London Globe Insurance and Royal Insurance. The Indian insurance had to put up with the stiff competition from their foreign counterparts.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business being transacted in India. In 1938, with a view to protect the interests of the Indian Insurance companies, the earlier legislation was amended with the enactment of the Insurance Act, 1938 consisting of comprehensive provisions for effective control over the activities of insurers or insurance organizations.

With the enactment of Insurance Amendment Act of 1950, the Principal Agencies were abolished. However, due to the presence of large number of insurance companies across India, the intensity level of cut-throat competition amongst such organizations was pretty high. There were also allegations of unfair trade practices being prevalent to a great extent. The Government of India, therefore, decided to standardize and nationalize the practice of insurance business.

An ordinance was issued on 19th January, 1956 for nationalization of the Life Insurance sector in India and Life Insurance Corporation (LIC) came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as well as 75 provident societies—totally 245 Indian and foreign insurers. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

The history of general (non-life) insurance dates back to the Industrial Revolution uprising in the west and the consequent growth of sea trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd. at Kolkata in the year 1850 by the Britishers. In 1907, the Indian Mercantile Insurance Ltd. was established and was the first company to transact all classes of general insurance business. In 1957, General Insurance Council (GIC), a wing of the Insurance Associaton of India was established The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices across Non-Life or General insurance sector.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also established in the same year.

With the passing of the General Insurance Business (Nationalization) Act in 1972, general insurance business was nationalized which came into effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies namely National Insurance Company Ltd. at Kolkata, the New India Assurance Company Ltd. at Mumbai, the Oriental Insurance Company Ltd at New Delhi and the United India Insurance Company Ltd at Chennai. The General Insurance Corporation (GIC) of India was incorporated as a company in 1971 and commenced its operations with effect from 1st January, 1973.

This century has seen insurance come a full circle in a journey extending more than 200 years. The process of liberalization or re-opening of the Insurance sector had begun in the early 1990s and in the last decade, insurance sector has been substantially opened for participation from financially sound Indian Private Organizations as well as foreign insurance companies. The Government set up a committee in 1993 under the chairmanship of R.N. Malhotra, former Governor of RBI (Reserve Bank of India), to propose recommendations for initiation and implementation of reforms in the Indian insurance sector. The objective of setting up this committee was to complement the pace of reforms initiated in the financial sector. The aforesaid committee submitted its report in 1994 wherein it was recommended that the private sector be permitted to enter the Indian insurance sector. It also recommended the participation of foreign companies by allowing them to enter into an MOU (Memorandum of Understanding) by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, the Insurance Regulatory and Development Authority (IRDA) Act, in 1999 was passed by the Indian Parliament. IRDA (Insurance Regulatory and Development Authority) was constituted as an autonomous body to regulate and develop the Indian Insurance Industry with its headquarters at Hyderabad. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of healthy competition amongst the insurance sector players so as to constantly enhance and exceed customer satisfaction through mind-boggling varieties in Insurance products and services, enhancement in consumer choice and lower premiums and at the same time ensuring the financial stability and security of the insurance market in India.

The IRDA opened up the Indian insurance market in August 2000 by inviting application for registration proposals. Foreign companies were allowed entry into Indian insurance sector with an upper ceiling on ownership of up to 26% participation. The IRDA has been granted the powers to frame regulations under Section 114A of the Insurance Act, 1938. From 2000 onwards, IRDA has framed various regulations for carrying on insurance business to protection of Indian policyholders’ interests including the registration of Life & Non-Life (General) Insurance companies. Just recently, the FDI (Foreign Direct Investment) in Indian Insurance Companies has been increased up to 50%.

The subsidiaries of the General Insurance Corporation (GIC) of India were re-structured as independent companies and simultaneously GIC was converted into a national re-insurer with effect from December, 2000. The Indian Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.

The insurance sector is a colossal industry and is in an expansion mode growing at an astounding rate of 15-20%. Along with banking services, insurance services constitute 7% to the country’s GDP (Gross Domestic Product). A well-developed and constant evolution of insurance sector is a boon for economic development of a nation since it provides long- term funds for infrastructure development of that particular nation and at the same time strengthens the risk-taking ability by the citizens of the country.

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I wish to lodge a complaint against SBI Insurance Co. Ltd. with you. How I can proceed in this matter. I am from Delhi. Sushma Malhotra.



Dear Sir, I have a insurance policy Kotak Mahindra, and paid only one lakh and the other cheque when I sent out it came back undeliverable. I am an NRI. Now when I am writing to Kotak Mahindra regarding the reimbursement of my money they are not replying. Is there a email id or place where I can lodge a complain

Myself and my wife aged abot 70 Years [and in good Health so far] have Health Insurance Policy (presently of Rs. 2.25 each) for the last Ten Years with No Claim so far. It is due for renewal shortly. We propose to change Scheme to Family Medicare Policy Flotter subsequently. Will we get benefit of old Policy in the new scheme? De-facto, it is continuance of Health Policy with change of scheme only Jagdish


It is very good. After all, the Chairman of a regulatory body like the IRDA should have domain knowledge on Insurance. For far too long the country has suffered with retired IAS officers getting mansabs or sinecures as Chairmen of these bodies

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