The Evolution of Insurance Industry in India - The Struggles & the Introduction of Laws

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The Evolution of Insurance Industry in India - The Struggles & the Introduction of Laws

History of the Insurance Industry and Laws

The journey of the Insurance Sector in India can be traced back to 1818, with the establishment of The Oriental Life Insurance Company by the Europeans in Calcutta. The company was established to address the needs of Europeans only, and the Indian natives were not insured by the company. Thereafter, many insurance companies were brought up but they also looked after the needs of the Europeans, ignoring the Indians. However, with the efforts made by influential people like Babu Muttyal Seal, the foreign life insurance companies began to provide insurance to the Indians as well. Despite this, Indian lives were treated as substandard lives and heavy premiums up to 20 percent were charged on them. In 1870, however, in a breaking move, Bombay Mutual Life Assurance Society was established and it covered Indian lives at normal rates.

Indian Mercantile Insurance Company Ltd., established in 1907 in Bombay, was the first general insurance company established by an Indian. Eventually, with the growth of fire, accident and marine insurance, a need was felt to cover such kinds of insurance under the Act of 1912. There were multiple attempts to introduce such legislation over years, but it wasn’t until 1938 that a non-life insurance company was finally regulated. This became possible with the enactment of the Insurance Act, 1938 (Act of 1938). Till date, the Act of 1938 along with various amendments over the years continues to be the one definitive piece of legislation on insurance and controls both life insurance and general insurance.

Nationalization of the Insurance Business in India

In January 1956, the Central government took over the management of life insurance business of 245 Indian and foreign insurers and provident societies. In September 1956, the Life Insurance Corporation (LIC) was established under the Life Insurance Corporation Act, 1956 (LIC Act). This act granted LIC the exclusive rights to conduct life insurance business in India. Since 1956, with the nationalization of the insurance industry, the LIC has been a leader in India's life insurance sector.

Role of Insurance Regulatory and Development Authority of India (IRDAI)

The Insurance Regulatory and Development Authority (“IRDAI” or “Authority”) was established under the Insurance Regulatory and Development Authority Act, 1999 (IRDA Act, 1999) as a statutory regulator to ensure the insurance industry runs smoothly and efficiently, and to protect the interests of policyholders. 

Since the enactment of IRDA, there has been a series of amendments; the Act conferred the powers of the Controller of Insurance on the IRDAI. IRDAI members are appointed by the Central Government based on their ability, integrity and knowledge or experience in life insurance, general insurance, actuarial science, law, accountancy, finance, economics, administration, etc. IRDAI consists of 10 members i.e., the chairman, five full-time and four part-time members. IRDAI has been entrusted with numerous duties and functions which include, regulating investments of funds by insurance companies by prescribing guidelines, supervising the functioning of the Tariff Advisory Committee, solving disputes between insurers and intermediaries and specifying the percentage of life insurance business and general insurance business to be undertaken by the insurer in the rural or social sector. IRDAI is responsible for providing IRDA License to those who want to start an insurance business, and also for registering Insurance Marketing Firms (IMFs)

Conclusion

India’s insurance sector has undergone a major transition. During colonial rule, having health insurance was a dream for the Indians. Whereas, now in the 21st century, there are multiple insurance options to choose from. A single insurance company has many different insurance plans to choose from, as opposed to insurance companies back when the Brits still ruled us. The journey of the insurance sector was one filled with struggles but it ultimately gained success, all thanks to the laws passed by the Central Government and the establishment of a dedicated authority known as IRDAI, which works on the smooth functioning of the insurance sector. IRDAI promises to protect the rights of both the insurers and insurance companies alike. As of January 2024, IRDAI recognizes the presence of 57 insurance companies. Out of these, 26 companies deal with life insurance while 31 companies deal with non-life insurance. All of them cater to the different insurance needs of the insurers.

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