Introduction
With the advent of the Oriental Insurance Company in 1818, the life insurance business start in India with the modernity of a corporate structure. Although, insurance, as a concept has been a part of ancient India as well with references to it, find in Manusmriti and Arthashashtra. However, the OIC failed in India but it did start a mushroom growth to kickstart the Indian Insurance market. This market face numerous changes and ups and down. It shows signs of promise and stability but with the constant need for regulation. The Insurance industry in India saw a transition from an open market to nationalization and back to liberalization. Today, IRDAI regulates all of the Indian Insurance markets with a one-point nine two percent of the global insurance market share.
Insurance in India: A timeline
The first regulation of insurance companies in India began with the passage of the Life Assurance Companies Act, 1912. It attempt to bring under its ambit all life insurance companies. By the Insurance Act of 1938, all insurance companies, life or otherwise, were brought under regulations. Then it cover all specifics of the business including but not limited to- deposits, investments, commissions, etc.
The 1950 Insurance Act abolish Principal Agencies. But it was accompanied by a lot of criticism due to massive allegations of unfair trade practices. especially amongst the high number of market competitors. There were also a plethora of companies failing due to the high density. The revolutionizing answer to these problems came in 1956 when the government nationalized all life insurance sold in the country. The Life Insurance Corporation formed by the Ordinance absorbed 154 Indian, 16 non-Indian insurers, and 75 provident societies. The life insurance business in India, hence, was under the monopoly of the LIC until the period of liberalization.
Nationalization of Non-life insaurance market
Although the non-life insurance market was not nationalized until 1972. C.D. Deshmukh in 1956 clarified that non-life insurance “did not directly affect the individual citizen”. It also include the argument that the life insurance business put savings into economic development. And improper management can result in the demise of the economy.
In 1972, all the other insurance markets were also brought under state control. Before 1973, non-life insurance was based in urban cities, managing the needs and demands of the organized trade and Industry. 107 insurers including branches of foreign companies operating in the country were amalgamated into four companies- the National Insurance Company Ltd., the Oriental Insurance Company Ltd., the New India Assurance Company Ltd. And the United India Insurance Company Ltd. with head offices at Calcutta, New Delhi, Bombay, and Madras respectively. GIC is incorporate as a company in 1972. It commence business on January 1st, 1973 and the four companies work under the ambit of this super-corporation.
The reasons behind finally bringing these insurances into the ambit of the State are believe to be the streamlining of the trade practices. It is to bring down operating cost. And expand the network of the market by penetrating the rural markets as well. All of these goals were to be met and their reachability was test by the Malhotra Committee in 1993.
The Malhotra Committee: Gateway to Modern Insurance Markets
A committee set up in 1993 under the chairmanship of BN Malhotra. The committee was to analyze the structure of the insurance industry and suggest changes to enable a better framework. It also had to recommend new regulations in respect of LIC and GIC policy structures. The Malhotra committee submitted its report in 1994 and recommended the liberalization of the insurance market amongst other suggestions. The unstable government and critical opposition from the left alliance members did not allow action on the recommendations until 1999. It is when the newly elected BJP-led alliance passed the Insurance Regulatory Bill, 1999.
The setting up of IRDA: Insurance Regulatory And Development Authority Act, 1999
The Insurance Regulatory and Development Authority Act, 1999 amongst other provisions established the IRDAI. This newly found authority open the monopolize Indian Insurance market to private players. In 2000, the IRDA starts inviting registrations from private companies with the foreign share in the market. It is to limit at twenty-six percent. The IRDA is suppose to make sure that the companies setting up shop had proper business structure. Also have minimum capital to begin operations. IRDA ensures the protection of policyholders’ interests in matters related to policy allocation, policyholder appointments, insurable interests. And also settlement of insurance claims, policy refunds, and other terms of the insurance contract.
It specifies the required qualifications, code of conduct, and practical training for intermediaries or intermediaries and insurance agents. It also needs to work proactively to make sure the policyholders remain to have an active interest and confidence in the market. The insurance sector has grown tremendously since the foundation of IRDA.
IRDA and Insurance in India
IRDA has effectively tried to oversee and govern an industry with complexity and harsh market competition. The IRDA has therefore also had to work with the Competition Commission of India to ensure that unfair trade practices are disallow and Competition Laws are follow. IRDA has, therefore, also kept the market in control by the application of fines to ensure fair practices. For example, IRDA fined Bajaj Allianz Group a total of three-point one zero crores for flouting norms related to early death claims and group insurance.
With the allowance of foreign companies to hold ownership up to 100% in the insurance market in the 2019 budget, a hoard of international insurance giants has tried to exploit the urban markets to their advantage. However, the IRDA has made sure that the companies make provisions to include micro-insurance policies for the cover of the economically vulnerable sector of society. These are often sold as health insurance contracts or small covers with little or no premium with the possibility of an accident benefit rider.
Conclusion
Even though the government followed the second five-year plan of Industrial Policy Resolution, the pooling of resources by the subsequent nationalization was not entirely feasible. While the LIC and the GIC were fairly successful they encapsulate within themselves a problematic of mobilization and other problems faced by early corporations with no competition. India is one of the largest insurance markets in the world with the potential to overtake premiums of the biggest insurance market countries in the next decade. With that level of possibility comes the emergence of companies opting in the business willing to make a payday. The IRDA works to ensure that the businesses entering the industry follow the laws set up for their corporate structures and market practices. IRDA sets up strict standards of legal compliance before granting licenses to keen players and therefore protects the industry.
0 Comments