Introduction:
Since independence, the Indian insurance sector has evolved from an open competitive market to nationalization and then back to the liberalized market. Insurance is an indigenous part of the financial system, firstly it incubates the habit of saving, secondly, it provides a security guarantee to urban and rural enterprise and lastly it for infrastructure buildings it generates long term funds. Thus it promotes financial stability in the society. During liberalization uninterruptedly controlling the policies of Indian economy, initially private investment was essential part due to which insurance sector was opened and till date monopoly of Life Insurance Corporation of India and government-controlled general insurance companies continue. Before 1999, the Insurance Act of 1938 governed the insurance business in India.
After 1999, another Act named Insurance Regulatory and Development Authority Act, 1999 was passed to control, develop, and regulate the insurance market. Under the Insurance Regulatory and Development Authority Act, 1999 Insurance Regulatory Development Authority (IRDA) was set up which ended the monopoly of Life Insurance Corporation(LIC) in the insurance sector. For a decade, LIC of India was the sole provider in respect of life insurance service. Shifting the economy by adopting the process of liberalization, privatization and globalization government made a paradigm changes at the end of the decade. After privatization, private life insurance companies were embraced in the market with the goal of insurance penetration, wider range to the customers, technology, cost-efficiency, product range and innovation to promote fierce competition.
Allowing Foreign Direct Investment (FDI) in the life insurance sector was one of the historic changes in Indian economic policy. In India privatization of insurance sector was viewed as a boon from prospective of businessmen because it places the risk in the hand of private enterprise, they have to be more demonstrative and innovative to deal with customer complaints.[1]
Privatization of the Life Insurance Sector
During 1818 in British rule practice of the modern concept of Insurance Corporation was initiated when Oriental Life Insurance Company was established in Calcutta. Since 1956, Life Insurance Corporation has been treated as one of the biggest pioneer organisation in India. With the amalgamation of 245 companies, Life Insurance Corporation was nationalized. At that time basic objective of the corporation was to establish a mechanism through which government can inculcate a habit of savings in Indians as it was a government-regulated monopoly. Initially, the Life Insurance Companies Act of 1912 and the Provident Fund Act of 1912 regulate the insurance. Liberalization and privatization bring a structural change in the Indian insurance industry.
Privatisation means where the role of government is reduced by transferring the ownership, business, industry or service to the private sector. It was essential to privatize the insurance sector as there was a byzantine problem from the side of public enterprises. Public enterprises lack flexibility and are too rigid to yield higher productivity. Insurance Regulatory Authority is sanctioned to allow public and private company which are incorporated in India to operate their life insurance business and 49% for foreign shareholders. Now, the insurance industry has observed healthy competition between private and public companies and it ensures good service and sound business. After privatization which results in competition Life Insurance Corporation market share was 78% in 2005 which was comparatively reduced as in 2000 it has a market share of 92%.
It’s Impact on LIC
Lots of opportunities have been provided to all the participants who want to enter into the insurance industry after privatization. All grievances of customers are properly addressed all maturity contends are settled according to the policyholder. There was a change in marketing strategy as within insurance industry advertisement play a vital role. All the major and large business industry uses it to sustain and make goodwill in the marketplace whereas the micro and small enterprises try to grow and build their business. Various marketing strategies were used from campaigning on national television to distributing the fliers to promote the industry. LIC establish corporate active data warehouse which was one of the biggest data warehouses in the world to launch a customer-focused campaign.
All the office record of the customer was digitalized by the LIC to enable the concept of anywhere anytime service. Many innovative products were launched by the private enterprises which led to the failure of traditional products of LIC. LIC launched 40 new products after the entry of a private player in the industry. LIC came up with the electronic bill presentation and payment through which any customer can pay the premium through any bank or tech process. LIC did not cover health insurance or neither have they had many products in respect of health insurance prior to privatization. The entry of Private and foreign player change the whole concept and they enter with health insurance policies also.
After observing that there were more opportunities in the health insurance part, LIC also establish health insurance department which has policies like health protection plus and Jeevan Arogya Plan. No micro insurance plans were there in LIC for rural areas neither there was any proper plan to cater to the needs of rural people. But to cater the competition LIC launches various policy programs for rural also such as Jeevan Madhur plan. With several changes in the regulatory framework, the life insurance industry’s future is bemusing as those changes will lead to change the conduct of business and more engagement with their customers.[2]
Insurance Regulatory and Development Authority Act, 1999
Insurance Regulatory and Development Authority (IRDA) is an independent and statutory body which govern the laws related to insurance, under the Insurance Regulatory and Development Authority Act was established. An n Act of parliament constitute IRDA, it consists of 10 members. One chairman, five whole-time member and four part-time members. The main objective of the authority is to protect the in the interest of insurance policyholders and to ensure the growth of the insurance industry by regulating and promoting it. Revolutionary changes can be seen after the establishment of the authority as the insurance industry has experienced tremendous growth. The act has provided certain powers and functions to IDRA which are as follows:
- To determine the capital structure of all insurance corporations, to specify the amount which has to be deposited to RBI by the company?
- It issue, modify, renew, withdraw, cancel or suspend the registration certificate of applicants in the insurance arena. Regulate the investment of funds by insurance companies.
- For insurance company and mediator it provides a code of conduct and practical instruction.
- In the insurance and reinsurance industry, it upholds and regulates it and also endorses their business. Decides how to book of account is maintained
- It is entitled to undertake the inspection and investigation of an audit of mediator, issuer and other organization.
- Those provisions which are not regulated by the Tariff Advisory Committee, It regulates the rates, profit, provisions and condition in respect of general insurance. Supervise the functioning of the tariff advisory committee.
- Determine the percentage of insurance policy in the social and rural sector. IRDA can penalise the company which not compile with its rules and regulation.
Statement of investment should be submitted to IRDA by the insurance companies. Every insurance agent has to have their licence from IRDA. Prior permission of IRDA is required if any insurance company is appointing chief executive officer.[3]
Conclusion
The Indian insurance industry had witnessed every type of market from an open competitive market to nationalised and then back to liberalise. Life insurance companies show growth after sartorial reform. By providing a favourable environment through the policies declared by the government and made by IDRA all the private, public and foreign company expand their business. Twenty four out of fifty-two companies are in the life insurance business till 2013. Life Insurance Corporation of India is one of the oldest and biggest companies in the insurance sector had they have established value for its customer. Privatisation led to the establishment of new legislation in respect of the insurance sector. Lifting privatisation helps the foreign companies to enter into the Indian market but they have to hold at least 26% of equity capital to enter into Indian insurance industry but now FDI limits have been increased to 49%. Both life and non- life sector of insurance seems to improve because of penetration and density of insurance. Both the parts life and non- life insurance sector of the insurance industry is rapidly growing beyond expectation. Share of a private company in respect of the insurance industry is increasing day by day, in return, public sector companies had a redesign and establish various policies and strategy to compete with the private companies in the market.
References:
[1] https://shodhganga.inflibnet.ac.in/bitstream/10603/110787/12/12_chapter3.pdf accessed on 25th July 2020 at 1:00 p.m
[2] https://www.researchgate.net/publication/309463086_PRIVATIZATION_OF_LIFE_INSURANCE_IN_INDIA-SUCCESSFUL_OR_NOT accessed on 25th July 2020 at 11:00 p.m
[3] https://www.researchgate.net/publication/309463086_PRIVATIZATION_OF_LIFE_INSURANCE_IN_INDIA-SUCCESSFUL_OR_NOT accessed on 25th July 2020 at 2:00 p.m
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