Insurance denotes protection from financial loss in which, one party (an insurance company) in exchange for the amount of premiums it collects agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss. The history of insurance traces the development of the modern business of insurance against risks, especially regarding cargo, property, death, automobile accidents, and medical treatment.
Insurance in some form is as old as historical society. In the ancient world, the first forms of insurance were recorded by the Babylonian and Chinese traders. To limit the loss of goods, merchants would divide their items among various ships that had to cross treacherous waters. One of the first documented loss limitation methods was noted in the Code of Hammurabi, which was written around 1750 BC. Under this method, a merchant receiving a loan would pay the lender an extra amount of money in exchange for a guarantee that the loan would be canceled if the shipment were stolen.
The history of the modern insurance business dates back to the 17th century. It came to India as a legacy of the British occupation. In the initial stages insurance business in India was dominated by foreign insurance offices like Albert Life Assurance, Royal Insurance, Liverpool, and London Globe Insurance which did good business in India.
Development of Life Insurance business in India in chronological order:
The year 1818: Oriental Life Insurance Company established a modern form of insurance business in Calcutta. However, the company died in 1834.
The year 1829: The Madras Equitable had begun transacting life insurance business in the Madras Presidency.
The year 1870: The British Government enacted the British Insurance Act.
In the year 1871: Bombay Mutual started an insurance business in Bombay Residency.
In the year 1897: the Empire of India started an insurance business in Bombay Residency.
The year 1912: The Indian Life Assurance Companies Act, of 1912 was the first statutory measure to regulate life business.
The year 1914: The Government of India started publishing returns of Insurance Companies in India.
The year 1928: The Government of India enacted the Indian Insurance Companies Act to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies.
The year 1938: The earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.
The year 1950: The Insurance Amendment Act of 1950 abolished Principal Agencies as there were allegations of unfair trade practices. The Government of India also decided to nationalize all the insurance companies.
Year 1956: On 19th January 1956, the Government passed an ordinance to nationalize the Life Insurance sector in India. The Life Insurance Corporation (LIC) came into existence in the same year. The LIC absorbed 154 Indian, and 16 non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had a monopoly till the late 90s when the Insurance sector was reopened to the private sector.
General Insurance:
The history of general insurance dates back to the Industrial Revolution in the West and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of the British occupation.
The year 1850: British legacy Triton Insurance Company Ltd was established as a General Insurance in India.
The year 1907: The Indian Mercantile Insurance Ltd was set up. This was the first company to transact all classes of general insurance business.
The year 1957: The General Insurance Council, a wing of the Insurance Association of India was formed. The General Insurance Council framed a code of conduct to ensure fair conduct and sound business practices.
Year 1968: The Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.
The Year 1971: The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on January 1st, 1973.
The year 1972: In the year 1972 all the 107 insurers were grouped, amalgamated, and nationalized into four companies under the General Insurance Business (Nationalisation) Act.
The year 1973: The general insurance business was nationalized with effect from 1st January 1973. The amalgamated four companies are National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd, and the United India Insurance Company Ltd.
Reopening of Insurance business to the private sector::
Year 1993: The Government of India set up a committee under the chairmanship of R.N. Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. The committee advised allowing foreign companies to enter by floating Indian companies, preferably a joint venture with Indian partners.
Year 1999: Under recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. IRDA was incorporated as a statutory body in April 2000 and framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests. The key objectives of the IRDA are the promotion of competition to enhance customer satisfaction through increased consumer choice and lower premiums while ensuring the financial security of the insurance market. IRDA opened up the market in August 2000 with the invitation for applications for registrations. Foreign companies were allowed ownership of up to 26% of an insurance company. IRDA has the power to frame regulations under Section 114A of the Insurance Act, of 1938
Year 2000: In December 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies, and at the same time GIC was converted into a national re-insurer.
Year 2002: In July 2002, the Indian Parliament passed a bill de-linking the four subsidiaries from GIC.
Today there are 58 insurance companies in India. 34 insurance companies are general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.
References: IRDA, Media Reports
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