History of Insurance in India

History of Insurance in India

In this article we will discuss the history of Insurance in India but before that we will first learn about the concept of Insurance.

What is the concept of Insurance?

Life is full of risk. Whether one is inside the house or outside, whether going on foot or travelling on bicycle, car, bus, train or even by air, the risk to life is always there. One does not know when the ceiling would fall, a storm or tornado destroy the house injuring the inmates, theft or dacoity may take place relieving one of his valuables, going on foot one may be hit by a vehicle coming from behind, the car may collide with any other object.

Trains get derailed causing loss of hundreds of lives and injuries to another hundreds of passengers, or a plane crash brings life to an end. The mishaps cannot be avoided, they can only be minimized. And even minimized mishaps may bring miseries to one’s life.

The concept of Insurance is an idea through which the mishaps can not be ruled out but can be compensated to some extent. If a fire destroys a factory or dwelling house, the fire may not be predicted or avoided, but through insurance the sufferer may be compensated to a great extent. Likewise, in an accident one may lose his life. The life cannot be restored or compensated, but the loss due to losing of life may be compensated which may save the dependents from economic hazards.

With these objects in mind, the institution of insurance came into being. It provides security on financial basis to life as well as to property. In advanced countries every type of insurance is available and a major portion of the earning is spent on insurance in the shape of premium. Such situation has not yet come in our country, still the insurance is providing relief to thousands and there is great awakening in the public towards it, which is increasing day by day.

This concept of insurance has a great scope in our country, i.e. mega opportunity as it is called, with the result that private sector is also jumping into this business.The insurance business is not new in India. It is said that it existed even in Ancient India.

In support of it, the classics of Manu, Rishi Yagnavalkya, and others are quoted For example, the word Yogaksdhama is found in Rig Ved suggesting that some type of community insurance was prevailing at that time. In its present form, our country has borrowed the experience of other countries, especially England, where the insurance business has a history of more than 500 years.

What is the history of insurance in India?

In India the history dates back to the year 1818 when Oriental Life Insurance Company came into existence at Calcutta and it was conceived as a means to provide protection to English widows. The unique feature at that time was that the Indians had to pay a higher premium than the British because the lives of Indians were considered. as high risk lives, so far insurance coverage was concerned. However, this company had to shut down in the year 1834.

In the year 1823, the Bombay Life Assurance Company came into being. Then, there was Bombay Mutual Life Insurance Society which started its business in the year 1870. A broad distinction brought by this company was that for the first time in India the premium rates Indians and non-Indians were same.

The legislative history of insurance in India starts from 1912 when the Indian Life Assurance Companies Act was enacted to regulate the insurance business in India. In the year 1928, the Indian Insurance Companies Act was enacted with the sole aim to collect statistics about life and non-life insurance business.

In the year 1938 the Insurance Act came into existence which consolidated and amended the then existing legislation.In the post-independence era, the Life Insurance Corporation Act, 1956 was enacted by which some 245 Indian and foreign insurance companies and provident societies (154 Indian, 16 non-Indian insurance companies and 75 provident, societies) were nationalized and Life Insurance Corporation of India came into existence. This was said to be done because of the growing malpractices by the insurance companies.

The domain of Life Insurance Corporation of India (LIC), as the name suggests, was limited to life insurance only. It may be worthwhile to mention that in whole of the world, India was the first country to nationalize life insurance business for So far the business of general insurance was concerned, the first company that came into existence was Triton Insurance Company Ltd in the year 1850 in Calcutta.

After about 57 years, the Indian Mercantile Insurance Ltd. was set up in the year 1907 which dealt with practically all types of general insurance. In the year 1968 the Insurance Act was amended, the purpose of which was to regulate investment, and the Tariff Advisory Committee was set up. Lastly came the year 1972 when, like the life insurance business, the general insurance business was also nationalised by enacting the General Insurance Business (Nationalisation) Act, 1972 which had to come into force on 1st January 1973.

As a result, as many as 107 then existing companies were grouped into four companies, namely, the New India Assurance Co. Ltd., the Oriental Insurance Company Ltd., the National Insurance Company Ltd. and the United India Insurance Company Ltd. The General Insurance Corporation (GIC, for short) was incorporated as a company. Thus, the LIC and GIC enjoyed monopoly as far as life and general insurance business respectively. were concerned.

Then, from time to time, different committees were formed to see and evaluate the business of LIC and GIC. One such Committee: was Malhotra Committee that was formed in the year 1993. Sri R.N. Malhotra, the former Finance Secretary and Governor of Reserve Bank of India, headed it.

The purpose of this committee was to suggest reforms for creating a more efficient and competitive financial system. The Committee submitted its report in 1994 wherein certain recommendations were made. Some of the main recommendations were as under: Regarding structural changes, the Committee recommended that the stake of Government in the Insurance Companies be brought down to 50 per cent only and the insurance companies should be given greater freedom to operate. It also suggested that in place of monopoly there should be healthy competition and with this aim the private companies should be allowed to enter this industry.

A company having a minimum paid up capital of One billion should be allowed to enter into insurance business. The Committee also recommended that no company should be allowed to deal both in life and general insurance. The recommendation was also to the effect that foreign companies should be allowed to enter into this business provided those being in collaboration with the domestic companies.The other recommendation was that the Insurance Act be changed and insurance regulatory body should be set up.

The Controller of Insurance should be independent. It was also suggested that the LIC should pay interest on delays in payment of claims beyond 30 days. It may, however, be mentioned that the Courts and Redressal Agencies under the Consumer Protection Act are already awarding interest if it is found that there had been delay in settlement of legitimate claims.

The Insurance Companies should start a unit linked pension plan and it should be encouraged. The latest technology should be adopted by the Insurance Companies.Keeping in view the recommendations of the Committee, the Insurance Regulatory and Development Authority (IRDA, for short). Bill was introduced in December 1999 which was passed and IRDA came up as a statutory body and it has framed a number of regulations and registered the private insurance companies. And thus is the history of Insurance in India.

Timeline of the development of Insurance in India

1818: The first Insurance company was set up in Calcutta, India named Oriental Life Insurance Company. Indians were charged more premium because Indian Lives were considered more risky.

1823: the Bombay Life Assurance Company came into being.

1870: Bombay Mutual Life Insurance Society started business and it removed premium inequalities between Britisher’s and Indians

1912: First time the legislature brings Insurance under its purview enacting the Indian Life Assurance Companies Act.

1938 : Insurance Act was enacted consolidating all insurance laws into one.

1956: Post independence, looking at the growing malpractices by insurance companies the government of India enacts the Life Insurance Corporation Act, 1956.

1993: Malhotra Committee was formed to learn more about the life and general insurances working in india. Among other things It recommended a regulatory body to be formed.

1999: A regulatory body named the Insurance regulatory and development Authority (IRDA) was set up.