Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per cent to the country's GDP. Insurance is a federal subject in India and Insurance industry in India is governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts.
The origin of life insurance in India can be traced back to 1818 with
the establishment of the Oriental Life Insurance Company in Calcutta. It
was conceived as a means to provide for English Widows. In those days a
higher premium was charged for Indian lives than the non-Indian lives as
Indian lives were considered riskier for coverage. The Bombay Mutual
Life Insurance Society that started its business in 1870 was the first
company to charge same premium for both Indian and non-Indian lives. In
1912, insurance regulation formally began with the passing of Life
Insurance Companies Act and the Provident Fund Act.
By 1938, there were 176 insurance companies in India. But a number of
frauds during 1920s and 1930s tainted the image of insurance industry in
India. In 1938, the first comprehensive legislation regarding insurance
was introduced with the passing of Insurance Act of 1938 that provided
strict State Control over insurance business.
Insurance sector in India grew at a faster pace after independence. In
1956, Government of India brought together 245 Indian and foreign
insurers and provident societies under one nationalised monopoly
corporation and formed Life Insurance Corporation (LIC) by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs.5
The (non-life) insurance business/general insurance remained with the
private sector till 1972. There were 107 private companies involved in
the business of general operations and their operations were restricted
to organised trade and industry in large cities. The General Insurance
Business (Nationalisation) Act, 1972 nationalised the general insurance
business in India with effect from January 1, 1973. The 107 private
insurance companies were amalgamated and grouped into four companies:
National Insurance Company, New India Assurance Company, Oriental
Insurance Company and United India Insurance Company. These were
subsidiaries of the General Insurance Company (GIC).
In 1993, the first step towards insurance sector reforms was initiated
with the formation of Malhotra Committee, headed by former Finance
Secretary and RBI Governor R.N. Malhotra. The committee was formed to
evaluate the Indian insurance industry and recommend its future
direction with the objective of complementing the reforms initiated in
the financial sector.
Key Recommendations of Malhotra Committee