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Insurance in India - A historical perspective

Insurance business is not new to India. It finds mention in the writings of Manu, Rishi Yagnavalkya and others, indicating that it has existed in India of ancient times. It has evolved over time and has drawn heavily from the experience of other countries specially England, where insurance companies have a more than 500 years of history. Bombay Life Assurance Company was established in Bombay (now Mumbai) on 1st May 1823. Oriental Life Assurance Company started was in Calcutta by Europeans. The recorded history of Insurance business in India, however, began in 1914 when the Government of India started publishing returns of Insurance Companies in India.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were 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 nationalise the insurance business. An Ordinance issued on 19th January, 1956 nationalised the Life Insurance sector and 'LIFE INSURANCE CORPORATION OF INDIA' (L.I.C.) came into existence in the same year. The LIC absorbed 154 Indian, 16 non Indian insurers as also 75 provident societies. Since then LIC has been the only player.

Similarly, before November, 1972, a number of Indian and many foreign companies did general insurance business in India and this business was linked with their branches abroad. In addition, this product was also offered by LIC, some mutual companies and cooperative societies. In fact, on the eve of nationalisation, 68 Indian (including LIC)and 45 non-Indian entities carried out insurance business in India. Nationalisation saw the business of all these organisations absorbed by the GENERAL INSURANCE CORPORATION (GIC) with its four subsidiaries.

Thus Life Insurance Corporation of India in the field of life insurance and General Insurance Corporation of India in the field of general insurance have enjoyed absolute monopoly . However, the reforms in financial sector in the early 90s have since touched Insurance also. The Govt of India set up a committee with Sh. R.N. Malhotra as the Chairaman to recommend suitable reforms in this sector. As a consequence of the recommendation of the Malhotra Committee, the Government of India set up an Insurance Regulatory Authority. On the 2nd December, 1999, Indian Parliament has passed, Insurance Regulatory and Development Act, throwing open the Insurance sector to Banks and other private parties. Since then, RBI has come out with draft guidelines for entry to this sector. This is seen as a major step in financial sector reforms, which introduce, for the first time since nationalisation of the insurance business, an element of competition in this sector. This should bring competitively priced insurance for the customer and improve the service available to him.

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