History of Life Insurance In India
Indians have been a prudent lot for millenia and risk mitigation has taxed the Indian mind from ancient times. The works of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ) talk about the pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This is a pre-cursor to modern day insurance which is based on the law of large numbers and pooling of risk.
Life insurance in modern India evolved by drawing heavily from developments in other countries,especially England.
In 1818 the Oriental Life Insurance Company was established by Europeans in Calcutta. However,the company was short-lived and by 1834 the company had failed.Then in 1829, the Madras Equitable begun transacting life insurance business in the Madras Presidency.
The life insurance companies established during this period exclusively catered to the needs of the European community and Native Indian lives were not insured by these companies. Later due to the efforts of eminent people like Babu Muttylal Seal, foreign life insurance companies started insuring Indian lives. But Indian lives were still treated as sub-standard lives and heavy extra premiums were charged on them.
The British Insurance Act was enacted in 1870 and in the last three decades of the nineteenth century insurance concerns like the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Presidency.The Bombay Mutual Life Assurance Society,which was an Indian owned concern, was the first to cover Indian lives at normal rates. Also cross India, many Indian insurance concerns were founded with highly patriotic motives to carry the message of insurance and social security through insurance to various sectors of society. Bharat Insurance Company (1896) was one such example.
The Swadeshi movement of 1905-1907 gave rise to more Indian insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta.This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian companies were up for hard competition from the foreign companies.
Prior to 1912 India had no legislation to regulate insurance business. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate the life 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. But the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.In 1914, the Government of India started publishing returns of Insurance Companies in India.
In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies.
The first two decades of the twentieth century saw lot of growth in insurance business. From 44 companies with total business-in-force of Rs.22.44 crore, it rose to 176 companies with total business-in-force as Rs.298 crore in 1938. During the mushrooming of insurance companies many financially unsound concerns were also floated which failed miserably.In 1938, with a view to protecting the interests of the insured public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.
However,the demand for nationalization of the life insurance industry was made repeatedly and gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were still a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an ordinance issued on 19
th January, 1956 , and later, the ownership too by means of a comprehensive bill-The Indian Parliament passed the
Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all.The LIC had monopoly of the life insurance business in India till the late 1990s when the Insurance sector was reopened to the private sector.
In 1993, the Government of India set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.
Following the recommendations of the
Malhotra Committee report, in 1999, the
Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.The IRDA has the power to make regulations under section 114A of the Insurance Act 1938. Since 2000 it has introduced various regulations ranging from the registration of companies for carrying on insurance business to the protection of policyholders’ interests.
A per the the recommendations of the Malhotra Committee,the IRDA opened up the life insurance market in India in August 2000 to private companies with the invitation for application for registrations. Foreign companies were allowed to participate in the Indian insurance market through joint ventures (JVs) with Indian companies. Under current regulations the foreign partner cannot hold more than a 26% stake in the joint venture.Today there are 23 life insurance companies operating in the country. However
LIC continues to be the dominant life insurer in India even after liberalization with an 80+ share of the market.
About Keerthika Singaravel
wealthymatters 
Hi.. Very informative article.. By reading this people will be aware about the history of insurance policies also. But in today’s scenario the difference is that there are many insurance companies now that claims to be the best.. Buyers stuck thinking from where to buy..
A key to find out the best insurance policies in India is being able to compare insurance policies before making a decision to buy it.. For comparison there are websites from where one can easily compare and be safe too.
Agreed