The effect of liberalization in the insurance industry


The journey to liberalization process in India is now over seven years old. The first major milestone in this journey has been the adoption of the Insurance and Development Authorities Act, 1999. This, together with amendments to the Insurance Act of 1983, paves the way for the entry of private players and possibly the privatization of hitherto public monopoly. LIC and GIC. Opening private sector insurance, including foreign participation, has resulted in various opportunities and challenges.

The concept of insurance

In our daily lives, when there is uncertainty, there is a risk involved. The Institute for Security against Such Risk is one of the fundamental motivating forces in determining human attitudes. As a successor to this quest for security, the concept of insurance must be born. The need to provide insurance or protection against loss of life and property must have encouraged people to make a kind of sacrifice willingly to obtain security through collective cooperation. In this sense, the history of insurance is probably as old as the history of humanity.

In particular, life insurance provides the household with protection against the risk of premature death of its income earning member. Modern life life insurance also provides protection against other life-related risks, such as longevity (ie risk of income source survival) and risk of disability and illness (health insurance). The products ensure longevity is pensions and annuities (insurance against old age). Non-life insurance provides protection against accidents, property damage, theft and other liabilities. Non-life insurance contracts are typically shorter in duration compared to life insurance contracts. The collection of risk coverage and savings is special in life insurance. Life insurance provides both protection and investment.

Insurance is a boon to business relationships. Insurance provides short range and long range. The short-term relief is aimed at protecting the insured against loss of property and life by distributing the loss among a large number of people through the medium of professional risk carriers such as insurance companies. It allows a businessman to be exposed to an unforeseen loss and therefore he does not have to worry about the possible loss. The long-term object is the economic and industrial growth of the country by making an investment of huge funds available from insurance companies in the organized industry and trade.

General Insurance

Before nationalization of the general insurance sector in 1973, the GIC Act was passed in parliament in 1971, but it came into force in 1973. There were 107 ordinary insurance companies, including branches of foreign companies working in the country at nationalization, these companies were merged and grouped into the following four subsidiaries of GIC such as National Insurance Co. Ltd., Calcutta; New India Assurance Co. Ltd., Mumbai; The Oriental Insurance Co. Ltd., New Delhi and United India Insurance Co. Ltd., Chennai and Now delinked.

General insurance business in India is broadly divided into fire, marine and miscellaneous GIC apart from direct handling of aviation and reinsurance companies managing the comprehensive crop insurance scheme, personal accident insurance, social security scheme etc. GIC and its subsidiaries in accordance with the objective of nationalization to spread the insurance message widely and broad and providing insurance protection to weaker sections of the community makes efforts to design new coverage and also to popularize other non-traditional businesses.

Liberalization of insurance

The comprehensive regulation of the insurance business in India was brought into effect with the passing of the Insurance Act of 1983. It sought to create a strong and powerful supervisory and regulatory authority in the insurance controller with powers to direct, advise, investigate, register and register liquidated insurance companies. etc. However, as a result of the nationalization of the insurance business, most of the regulatory functions were removed from the insurance controller and assigned to the insurance companies themselves. The Government of India in 1993 had set up a highly-driven committee of RN Malhotra, former Governor of the Indian Reserve Bank, to examine the structure of the insurance sector and recommend changes to make it more efficient and competitive, taking into account the structural changes in other parts of the financial sector. system in the country.

Malhotra Committee recommendations

The Committee presented its report in January 1994 recommending that private insurers be allowed to co-exist with government companies such as LICs and GICs. This recommendation had been requested by several factors, such as the need for greater deeper insurance coverage in the economy, and a much larger scale for mobilizing funds from the economy, and a much larger scale for mobilizing funds from the economy for infrastructure development. The liberalization of the insurance sector is at least partly driven by the fiscal necessity of exploiting the large savings reserve in the economy. The Committee’s recommendations were as follows:

o Raising the capital base of LIC and GIC up to Rs. 200 crores, half withheld by the government and rest sold to the general public with appropriate reservations for its employees.

o The private sector is allotted to enter the insurance industry with a minimum paid up capital of Rs. 100 crores.

o Foreign insurance is given access to relocate an Indian company, preferably a joint venture with Indian partners.

o Steps are being taken to establish strong and effective insurance regulation in the form of a statutory autonomous board of directors in SEBI’s lines.

o A limited number of private companies are allowed in the sector. But no company is allowed in the sector. However, neither company is authorized to operate in either insurance line (life or non-life insurance).

o The Tariff Advisory Committee (TAC) is delegated by the GIC to act as a separate statutory body under the necessary supervision of the insurance authority.

o All insurance companies are treated equally and regulated by the provisions of the Insurance Act. No special exemption is granted to public companies.

o Establishing a strong and effective regulatory body with independent source of funding before allowing private sector business.

public sector competition:

Government companies now have to face competition from private sector insurers, not only in issuing different assortment of insurance products, but also in various aspects of customer service, distribution channels, effective techniques for selling products, etc. Privatization of the insurance sector has opened the doors to innovations in the way business can be conducted.

New Age insurance companies are embarking on new concepts and a more cost-effective way of doing business. The idea is ready to meet the maximum business cost. And slowly, over time, the age-old norm prevailing for public companies seems to be expanding by setting up branches to be lost. Among the techniques that appear to be catching up quickly as an alternative to meeting rural and social insurance are nodes. These, together with the participants in NGOs and Self-Help Group (SHG) have made most of the sales of rural and social sector.

The biggest challenges are from the commercial banks that have a large network of branches. In this regard, it is important to mention here that LIC has entered into an agreement with Mangalore-based corporation to utilize their infrastructure for mutual benefit with the insurance monolith acquiring a strategic stake of 27 percent, Corporation Bank has decided to abandon its plans on promoting a life insurance company. In future, the bank will act as a business agent for LIC and receive commission on policies sold through its branches. LIC, with its branch network of close to 2100 offices, will allow Corporation Bank to set up extension centers. ATMs or branches in their premises. Corporation Bank would again implement an efficient cash flow management system for LIC.

The IRDA Act, 1999

Preamble from the IRDA Act 1999 reads: “An Act to establish an authority to protect the interests of insurance policy holders, to regulate, promote and ensure proper growth in the insurance sector and for related or related matters. connection with it.

Section 14 of the IRDA Act lays down the duties, powers and functions of the authority. Powers and functions of the Authority. The powers and functions of the authority shall include the following.

o The applicant issues a registration certificate to renew, change withdrawal, cancel or cancel such registration.

o To protect policyholders’ interests in all matters relating to appointment of policy, surrender value f policy, insurance interest rates, settlement of insurance claims, other terms and conditions of insurance contract.

o Specification of the necessary qualifications and practical training for insurance intermediaries and agents.

o Specifying farmers’ code of conduct and loss.

o Promoting efficiency in carrying out insurance business

o Promoting and regulating professional regulators in the insurance and reinsurance business.

o Specifying the form and manner in which account books will be maintained and bank statements issued by insurance companies and insurance intermediaries.

o Settlement of disputes between insurance companies and intermediaries.

o Specification of the percentage of life insurance and ordinary and ordinary business to be carried out by rural or social insurance companies, etc.

Section 25 provides that the Advisory Insurance Committee is set up and consists of a maximum of 25 members. Section 26 provides that the authority, in consultation with the Advisory Insurance Committee, may issue regulations made up of this Act and the rules laid down there for the purpose of this Act.Section 29 seeks to amend certain provisions of the Insurance Act 1938 in that way. , described in the first plan. The amendments to the Insurance Act follow to strengthen IRDA to effectively regulate, promote and ensure proper growth in the insurance sector.

Sections 30 and 31 seek to amend the LIC Act 1956 and the GIC Act 1972.

The effect of liberalization

While nationalized insurers have done a commendable job of expanding the volume of business opening up the insurance sector to private players was a necessity in the liberalization of the financial sector. If traditional infrastructure and semi-public goods industries such as banking, airlines, telecommunications, electricity, etc. have a significant presence in the private sector, the continued state monopoly on insurance supply was unjustifiable, and the privatization of insurance has therefore been carried out as discussed earlier. Its effect must be seen in terms of creating different opportunities and challenges.


1. Privatization whose insurance was removed from the monopolistic business of Life Insurance Company in India. It can help cover the wide range of risks in non-life insurance and also in life insurance. It helps to introduce a new product line.

2. It would also result in better customer service and help improve the variety and price of insurance products.

3. The entry of a new player will accelerate the spread of both life and non-life insurance. It will increase penetration assurance and density measurement.

4. The entry of private actors will ensure mobilization of funds that can be used for infrastructure development.

5. Authorization of commercial banks for insurance business will help mobilize rural funds due to the availability of large branches of the banks.

6. The most important, not least huge employment opportunities, will be created in the insurance field, which is a burning problem with today’s attendance.

Current scenario

Following the opening of insurance in the private sector, various leading private companies, including joint ventures, have entered into life insurance and non-life insurance business. Tata – AIG, Birla Sun life, HDFC standard life insurance, Reliance General Insurance, Royal Sundaram Alliance Insurance, Bajaj Auto Alliance, IFFCO Tokyo General Insurance, INA Vysya Life Insurance, SBI Life Insurance, Dabur CJU Life Insurance and Max New York Life. So far, SBI Life Insurance has launched three products Sanjeevan, Sukhjeevan and Young Sanjeevan, and they have already sold 320 policies under its plan.


From the above discussion, we can conclude that private actors’ entry into insurance business is necessary and justifiable to increase the efficiency of operations, achieve greater density and insurance coverage in the country, and for greater mobilization of long-term savings for infrastructure with long gestation preferences. New entrants should not be treated as rivalries against government companies, but they can complement the goal of growth of insurance business in India.