History, Present and Future of Insurance Industry in India

Anagha S Anagha S
Aug 10, 2021 5 min read
History, Present and Future of Insurance Industry in India

Insurance industry in India is not a recent development. It has its route extended even in the writings of Kautilya, Manu, Yagnavalkya etc. Insurance is in fact a very reasonable move to diminish the risk of loss by transferring it from one unit to another in exchange for payment.

Various insurance companies guarantee to provide a person with compensation for listed losses and damages in return for the payment of a predetermined premium.

As is explicitly understood, insurance is a method of risk management to protect people and assets from uncertain losses. It pools funds from various insured entities to pay for the losses incurred. However not all kinds of risks are protected through insurance. For a risk to be ensured it should meet certain characteristics.

Types of Insurance
Insurance Industry Before Independence
Growth of Insurance Industry - Post Independence
Insurance Industry post 2000
Future of Insurance Industry in India
FAQ

Types of Insurance

The insurance sector has divided insurances into two parts, namely life insurance and General insurance. Life insurances engage with human lives while General Insurance or Non Life Insurance deals with things other than human life. The duration for the insurance can be short-term or long-term.

Life Insurance

Life insurance is in fact an agreement between an insurance policy holder and an insurer where the latter guarantees to pay a sum of money to the designated beneficiary in exchange for a premium after the death of the insured person. These policies are lawful agreements and they also list the restrictions that are in place for the insured Events.

General Insurance

General Insurance policies on the other hand guarantees payments which are dependent on the laws that a particular financial event incurs. Any insurances that are not determined as Life Insurances are called General or Non Life Insurance. Automobile policies, home owners policies etc. are a few examples. They are also known as property and casualty insurance.

Insurance Industry Before Independence

Insurance is considered to be having deep-rooted history. As mentioned earlier there are mentions of insurance in ancient scriptures, especially the ones written by Kautilya and Manu. However, reliable and concrete evidence of the beginning of the insurance industry in India can be traced back to 1818.

In that year Oriental Life Insurance, a British company was set up in Kolkata to become the first insurance firm in India. They were started to cater to the needs of the European Community in India during that time. These insurance companies however treated Indians and foreigners differently.

Indians were always charged with higher premiums to distance them from taking up insurances. Followed by that in 1823 a company named Bombay Mutual Life Assurance Society and in 1829 Madras Equitable Life Insurance Society was formed.

It was in 1914 that the Government of India started issuing returns of insurance companies. It was preceded by the Indian Life Insurance Companies act, 1912. It was known as the first ever initiative to control life insurance dealings.

Life Insurance Companies Act made it mandatory for the insurance companies to issue the tables of premiums and their periodical valuations to be counter checked by an actuary.

In 1928 the Indian Insurance Companies act was enacted. It gave power to the government to keep an account of the statistical information regarding Life and Non Life Insurance that are being transacted in India by both Indians and foreigners.

The insurance act of 1938 had comprehensive provisions that ensured efficient controlling of the activities of insurers to protect the interest of the people.

Number of Registered Private Insurance companies across India
Number of Registered Private Insurance companies across India

Growth of Insurance Industry - Post Independence

The provisions of insurance were extremely advantageous for the economic activity of the nation. It also created a sense of social security amidst the people. Needless to say the insurance industry in India thrived post independence.

When the insurance industry was taking its form in India, there were absolutely no regulations. This was in the 19th century. In 1956 the Government of India took over the Life Insurance Company. Followed by that in 1972 the government took over the General Insurance Business of the country.

Life insurance Corporation or the LIC had a monopoly over the insurance industry. It consolidated 154 Indian, 16 non-Indian insurers and also 75 provident societiesβ€”245 Indian and foreign insurers in total.

In the late 1990s LIC was privatised and the insurance industry was open to the private sector. Foreign Investment Promotion Board or FIPB was formed to assess the promotion of Foreign Direct Investment in India and also to be the sole agent to handle matters related to FDI.

The board is chaired by the Secretary of the Department of Industrial Policy and Promotion known as DIPP that is within the office of the Prime Minister. It aims to promote FDI in India where they promote investments both domestically and internationally by providing investment in the nation through international companies, foreign investors or NRIs.

Insurance Industry post 2000

The insurance industry in India has grown phenomenally from 2000 as the government allowed private sector investment in the industry up to 26%. Until then all private life insurance companies were taken over by LIC. Followed by privatisation, private players in the industry are increasing and the role of LIC in the market is seeing a steady decline.

One of the main reasons for the continued growth of the insurance industry is because the insurance industry in India is not a high capital cost industry unlike telecommunications or oil.

Being a developing country most of the employment in India is in the informal sector. Because of this government's continue to make insurance compulsory in the formal sector which will limit the opportunities to cross subsidise the informal sector.

Similarly the state has also taken initiatives to offer insurance on a voluntary basis to the informal sector workers since most of the poor in India work here. The government has constantly been looking for reducing large-scale out-of-pocket expenditure, to provide universal healthcare coverage, improve the standards of living and better utilisation of health services.

All these things being absolutely necessary can be solved to a great extent by providing insurance to all. The IRDAI or the Insurance Regulatory and Development Authority of India regulates and promotes the industry in India. It is formed to protect the interest of the policy holders and to ensure that their rights are protected.

Future of Insurance Industry in India

Considering the current market scenario there is an increase in the General or Non Life Insurance Sector compared to the Life Insurance sector. It is predicted that the former will soon start to compete with Life insurance companies in the future.

However there is absolutely no doubt that the new insurance companies that are going to be set up in the near future will surely experience a positive growth and expansion in the Life and General Insurance sectors.

The fact that incomes are rising, lifestyles are changing constantly, newer trends are emerging in the industry are excellent signs for the sector to strive for better product innovation, efficient claims management, multi distribution and many other regulatory trends.

The growth of the insurance sector has also assured in the light of various insurances with which the Indian government had come up. Some of them are

  • Pradhan Mantri Suraksha Bima Yojana (PMSBY)
  • Rashtriya Swasthya Bima Yojana (RSBY)
  • Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

Both the government and companies are committed to protect their employees, especially the ones in the lower and lower middle income divisions. In the future we can expect the growth of more insurance policies with lower premiums. This will augment the economic stature of the nation significantly.

FAQ

What is the market size of the insurance industry in India?

The overall market size of the insurance industry in India is expected to grow over US$ 280 billion in 2020.

Which is the biggest insurance company in India?

Life Insurance Corporation of India (LIC) is the biggest and oldest insurance company in India.

How many insurance companies are there in India in 2020?

There are 68 insurance companies operating in India as of 2020.

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