Insurance in India

Insurance in India

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In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

is a subject listed in the concurrent list in the Seventh Schedule to the Constitution of India where both centre and states can legislate. The insurance sector has gone through a number of phases and changes. Since 1999, when the government opened up the insurance sector by allowing private companies to solicit insurance and also allowing foreign direct investment
Foreign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

 of up to 26%, the insurance sector has been a booming market. However, the largest life-insurance company in India is still owned by the government.


In India, insurance has a deep-rooted history. Insurance in various forms has been mentioned in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmashastra) and Kautilya (Arthashastra). The fundamental basis of the historical reference to insurance in these ancient Indian texts is the same i.e. pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. The early references to Insurance in these texts has reference to marine trade loans and carriers' contracts.

Insurance in its current form has its history dating back until 1818, when Oriental Life Insurance Company was started by Anita Bhavsar in Kolkata
Kolkata , formerly known as Calcutta, is the capital of the Indian state of West Bengal. Located on the east bank of the Hooghly River, it was the commercial capital of East India...

 to cater to the needs of European community. The pre-independence era in India saw discrimination between the lives of foreigners (English) and Indians with higher premiums being charged for the latter. In 1870, Bombay Mutual Life Assurance Society became the first Indian insurer.

At the dawn of the twentieth century, many insurance companies were founded. In the year 1912, the Life Insurance Companies Act and the Provident Fund Act were passed to regulate the insurance business. The Life Insurance Companies Act, 1912 made it necessary that the premium-rate tables and periodical valuations of companies should be certified by an actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....

. However, the disparity still existed as discrimination between Indian and foreign companies. The oldest existing insurance company in India is the National Insurance Company Ltd., which was founded in 1906. It is in business.

The Government of India issued an Ordinance on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The Life Insurance Corporation (LIC) absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian Parliament, and consequently, General Insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India
Life Insurance Corporation of India
The Life Insurance Corporation of India is the largest state-owned life insurance company in India, and also the country's largest investor. It is fully owned by the Government of India. It also funds close to 24.6% of the Indian Government's expenses. It has assets estimated of...

, LIC) and General Insurers (General Insurance Corporation of India
General Insurance Corporation of India
General Insurance Corporation of India is the sole reinsurance company in the Indian insurance market with over three decades of experience.GIC has its registered office and headquarters in Mumbai.-History:...

, GIC). GIC had four subsidiary companies.

With effect from December 2000, these subsidiaries have been de-linked from the parent company and were set up as independent insurance companies: Oriental Insurance Company Limited
Oriental Insurance Company Limited
The Oriental Insurance Company Ltd. was incorporated at Bombay on 12 September 1947. The Company was a wholly owned subsidiary of the Oriental Government Security Life Assurance Company Ltd and was formed to carry out General Insurance business...

, New India Assurance Company Limited, National Insurance Company Limited
National Insurance Company Limited
National Insurance Company Limited is one of the largest and fastest growing general insurance companies in India. The company headquartered Kolkata was established in 1906, and nationalized in 1972.-History:...

 and United India Insurance Company Limited
United India Insurance Company Limited
United India Insurance Company Limited is a leading General Insurance Company of India. The company has more than three decades of experience in Non-life Insurance business. It was formed by the merger of 22 companies, consequent to the nationalisation of General Insurance companies in India...


Industry structure

Currently India is a 41 billion industry.
Currently, in India only two million people (0.2 % of the total population of 1 billion) are covered under Mediclaim, whereas in developed nations like USA about 75 % of the total population are covered under some insurance scheme. With more and more private companies in the sector, the situation may change soon.


ECGC, ESIC and AIC provide insurance services for niche markets. So, their scope is limited by legislation but enjoy special powers.


The insurance sector went through a full circle of phases from being unregulated to completely regulated and then currently being partly deregulated. It is governed by a number of acts.

The Insurance Act of 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business.

Life insurance in India was completely nationalized on January 19, 1956, through the Life Insurance Corporation Act. All 245 insurance companies operating then in the country were merged into one entity, the Life Insurance Corporation of India
Life Insurance Corporation of India
The Life Insurance Corporation of India is the largest state-owned life insurance company in India, and also the country's largest investor. It is fully owned by the Government of India. It also funds close to 24.6% of the Indian Government's expenses. It has assets estimated of...


The General Insurance Business Act of 1972 was enacted to nationalise the about 100 general insurance companies then and subsequently merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance and United India Insurance, which were headquartered in each of the four metropolitan cities.

Until 1999, there were not any private insurance companies in India. The government then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby de-regulating the insurance sector and allowing private companies. Furthermore, foreign investment was also allowed and capped at 26% holding in the Indian insurance companies.

In 2006, the Actuaries Act was passed by parliament to give the profession statutory status on par with Chartered Accountants, Notaries, Cost & Works Accountants, Advocates, Architects and Company Secretaries.

A minimum capital of 20 million(Rs.100 Crore) is required by legislation to set up an insurance business.


The industry recognises examinations conducted by IAI (for actuaries), III (for agents, brokers and third-party administrators
Third party administrator
A Third Party Administrator is an organization that processes insurance claims or certain aspects of employee benefit plans for a separate entity. This can be viewed as "outsourcing" the administration of the claims processing, since the TPA is performing a task traditionally handled by the...

) and IIISLA (for surveyors and loss assessors). TAC is the sole data repository for the non-life industry.

IBAI gives voice for brokers while GI Council and LI Council are platforms for insurers.

AIGIEA, AIIEA, AIIEF, AILICEF, AILIEA, FLICOA, GIEAIA, GIEU and NFIFWI cater to the employees of the insurers.

In addition, there are a dozen Ombudsman offices to address client grievances.

Insurance Education

National Insurance Academy, Pune is apex education and capacity builder institute in India and only one in Africa & Asia. NIA was founded as Ministry of Finance initiative with capital support from the then public insurance companies, both Life (LIC) and Non-Life (GIC, National, Oriental, United & New India). NIA has 32 acre campus & 30+ faculty member imparting training, conducting research and providing consulting services in insurance sector. NIA run 2 year PGDM (Insurance) to mould youth in insurance specialisation.

See also

IRDA controls all the Insurance business in India.
They are setting structure and boundaries for the insurance companies to act upon.
Starting from licensing to approving the products, IRDA directs the companies in India.
They also protect customer interests in the country.
  • Insurance Institute of India
    Insurance Institute of India
    The Insurance Institute of India is an insurance education society of professionals established in 1955 in Mumbai for the purpose of imparting insurance education to persons engaged or interested in insurance. The institute conducts examinations at various levels...

  • As per current guidelines issued by IRDA, Insurance Companies are not permitted to invest in Indian Depository Receipts ( IDR), while they are permitted to invest in Equity shares/ Bonds/ Debentures. IRDA needs to remove this disparity to open up investment opportunity by Ins Companies and thereby also enhance the liquidity of IDRs ( Contributed by Sanjay Banka, FCA FCS)

External links