Insurance Companies in India - Detailed Notes | MODULE C: INDIAN FINANCIAL ARCHITECTURE

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Insurance Companies in India - Detailed Descriptive Notes

Insurance Companies in India - Detailed Notes | MODULE C: INDIAN FINANCIAL ARCHITECTURE

History and Development of Insurance

The concept of insurance is as old as civilization itself, with informal systems used in ancient India, Greece, and Rome. Modern insurance in India began with the Oriental Life Insurance Company in 1818 in Kolkata. Later, other companies emerged, such as Bombay Mutual and Bharat Insurance Company. The Indian Life Assurance Companies Act, 1912, was the first statutory measure. Post-independence, the Government nationalized the life insurance sector in 1956, forming Life Insurance Corporation (LIC). General insurance was also nationalized in 1972 into the General Insurance Corporation (GIC).

Privatization and Foreign Direct Investment (FDI) in Insurance Sector

With economic liberalization in the 1990s, the Malhotra Committee (1993) recommended the opening of the insurance sector to private and foreign investment. This led to the establishment of the Insurance Regulatory and Development Authority of India (IRDAI) in 1999. In 2000, the private sector was allowed to enter. Initially, FDI was capped at 26%, later increased to 49% in 2015, and 74% in 2021 to attract global capital and expertise.

Insurance Business Globally and in India

Globally, insurance plays a major role in economic risk management. In developed nations, penetration and coverage are high. In India, despite significant growth, a large population remains uninsured, creating vast untapped potential. Indian insurers offer products in life, health, crop, property, vehicle, and business insurance segments.

Insurance Penetration and Density

These are key metrics used by IRDAI and international organizations:

  • Insurance Penetration: Total premium as a percentage of GDP.
  • Insurance Density: Per capita premium (USD).

India’s penetration is around 4.2% (2023), compared to 7-10% in countries like the UK and Japan. Insurance density in India is approximately USD 78, much lower than the global average of USD 650.

Number of Insurance Companies Operating in India

  • Life Insurance: 24 companies including LIC (dominant public sector player)
  • General Insurance: 31 companies including four PSU insurers and private players like ICICI Lombard, Bajaj Allianz
  • Standalone Health Insurers: 5+ companies such as Star Health, Niva Bupa, Care Health
  • Reinsurer: GIC Re is India’s sole domestic reinsurer

Legislations Governing Operation of Insurance Companies

  • Insurance Act, 1938: Primary legislation regulating insurance companies in India
  • IRDAI Act, 1999: Established IRDAI as the regulator
  • Life Insurance Corporation Act, 1956: Governs LIC operations
  • Companies Act, 2013: Corporate governance of insurance companies

Insurance Intermediaries

Insurance intermediaries act as a bridge between the insurer and the insured. They include:

  • Agents: Represent one insurance company and sell policies
  • Brokers: Represent the insured and offer products from multiple insurers
  • Corporate Agents: Banks or corporates tied to one insurer
  • Web Aggregators: Digital platforms that compare policies (e.g., PolicyBazaar)
  • TPAs: Third-Party Administrators handle health claims and services

Reinsurance

Reinsurance allows insurance companies to spread risk by transferring portions of their risk portfolios to other insurers. It increases their capacity to underwrite large policies. GIC Re is India’s national reinsurer. Global players like Swiss Re, Munich Re, and Lloyd’s operate in India via branches or partnerships.

Insurance Repository and Insurance Account (eIA)

IRDAI introduced the electronic Insurance Account (eIA) system to digitize and simplify policy management. The repository system works similarly to a demat account for securities. Benefits include:

  • Centralized storage and access to all policies
  • Paperless documentation and servicing
  • Easy nomination and claim process

There are four licensed insurance repositories: NSDL, CDSL, Karvy, and CAMS.

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Indian Financial System - Regulators & their roles and Reforms & Developments in the Banking sector

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Tags: Insurance, FDI in Insurance, IRDAI, Reinsurance, Insurance Repository, Insurance Penetration, Insurance Regulation India

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