The history of insurance in India has seen a lot of growth and evolution, from the establishment of the first life insurance company in the 19th century to the nationalization of the life insurance industry in the mid-20th century.
Introduction
Insurance in India dates back to the early 19th century when the first life insurance company, the Oriental Life Insurance Company, was established by Europeans in Calcutta. Initially, these companies only insured the European community, but later Indian lives were also covered. In 1870, the first Indian life insurance company, the Bombay Mutual Life Assurance Society, was established. With the growth of the Swadeshi movement, more insurance companies were established, including Bharat Insurance Company, United India in Madras, National Indian and National Insurance in Calcutta, Hindustan Co-operative Insurance Company, and Indian Mercantile, General Assurance, among others.
The Life Insurance Companies Act of 1912 was the first legislation to regulate the insurance business in India, but it put Indian companies at a disadvantage. The insurance business grew rapidly in the first two decades of the 20th century, with the number of companies growing from 44 to 176. However, many unsound companies also emerged, leading to the Insurance Act of 1938, which provided strict state control over the insurance business.
The demand for nationalization of the life insurance industry increased in the mid-20th century, and on January 19, 1956, the life insurance industry was nationalized. The Parliament of India passed the Life Insurance Corporation Act on June 19, 1956, creating the Life Insurance Corporation of India (LIC) with the objective of spreading life insurance to all insurable persons in the country, particularly in rural areas, at a reasonable cost.
The Beginning of Life Insurance in India
Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. All the insurance companies established during that period were brought up with the purpose of looking after the needs of the European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as substandard lives and heavy extra premiums were being charged on them.
The First Indian Life Insurance Company
Bombay Mutual Life Assurance Society heralded the birth of the first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. Starting as an Indian enterprise with highly patriotic motives, insurance companies came into existence to carry the message of insurance and social security through insurance to various sectors of society. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies.
The Rise of Indian Insurance Companies
The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta.
The Regulation of Insurance Business in India
The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies established during the same period. Prior to 1912 India had no legislation to regulate insurance business. In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.
The Growth of Insurance Business in India
The first two decades of the twentieth century saw a lot of growth in the insurance business. From 44 companies with total business-in-force as Rs.22.44 crore, it rose to 176 companies with total business-in-force as Rs.298 crore in 1938. During the mushrooming of insurance companies many financially unsound concerns were also floated which failed miserably.
The Nationalization of Life Insurance in India
The Insurance Act 1938 was the first legislation governing not only life insurance but also non-life insurance to provide strict state control over insurance business. The demand for nationalization of the life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.
The Expansion of LIC Operations
However, it was much later on the 19th of January, 1956, that life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization.
The Convenience for LIC Policyholders
Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.
LIC’s Dominance in the Liberalized Insurance Market
LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office in 1956. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services needed in the later years to expand the operations and place a branch office at each district headquarter. Re-organization of LIC took place and large numbers of new branch offices were opened. As a result of re-organisation servicing functions were transferred to the branches, and branches were made accounting units. It worked wonders with the performance of the corporation.
It may be seen that from about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crore mark of new business. But with re-organisation happening in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on new policies.
The Growth of LIC in the Current Era
Today LIC functions with 2048 fully computerized branch offices, 113 divisional offices, 8 zonal offices, 1381 satallite offices and the Corporate office. LIC’s Wide Area Network covers 113divisional offices and connects all the branches through a Metro Area Network. LIC has tied up with some Banks and Service providers to offer on-line premium collection facility in selected cities.
LIC’s ECS and ATM premium payment facility is an addition to customer convenience. Apart from on-line Kiosks and IVRS, Info Centres have been commissioned at Mumbai, Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, New Delhi, Pune and many other cities. With a vision of providing easy access to its policyholders, LIC has launched its SATELLITE SAMPARK offices. The satellite offices are smaller, leaner and closer to the customer. The digitalized records of the satellite offices will facilitate anywhere servicing and many other conveniences in the future.
LIC continues to be the dominant life insurer
LIC continues to be the dominant life insurer even in the liberalized scenario of Indian insurance and is moving fast on a new growth trajectory surpassing its own past records. LIC has issued over one crore policies during the current year. It has crossed the milestone of issuing 1,01,32,955 new policies by 15th Oct 2005, posting a healthy growth rate of 16.67% over the corresponding period of the previous year. From then to now, LIC has crossed many milestones and has set unprecedented performance records in various aspects of life insurance business. The same motives which inspired our forefathers to bring insurance into existence in this country inspire us at LIC to take this message of protection to light the lamps of security in as many homes as possible and to help the people in providing security to their families.
Important milestones in the life insurance business in India
- 1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning.
- 1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business.
- 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.
- 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.
- 1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.
- 1956: 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalised. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.
Important milestones in the general insurance business in India
- 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.
- 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.
- 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.
- 1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
Insurance Industry in India: A Growing Trend – Present Scenario
India has emerged as one of the fastest-growing insurance markets in the world. The Swiss-re Sigma Report 03/2021 ranks India at 11th position in the global insurance business. The report highlights India’s progress in terms of insurance penetration and density.
Share of India in the Global Insurance Market: India’s share in the global total insurance market was 1.72 per cent in 2020, while its share in the global life insurance market was 2.90 per cent during the same year. Life insurance business accounts for a major portion of the total insurance premium in India, with a share of 75.24 per cent, while the non-life insurance business constitutes 24.76 per cent.
Growth in Insurance Penetration: The total insurance penetration in India has grown from 3.76 per cent in 2019-20 to 4.20 per cent in 2020-21, showing a growth of 11.70 per cent. Similarly, the life insurance penetration has increased from 2.82 per cent in 2019-20 to 3.20 per cent in 2020-21, registering a growth of 13.48 per cent.
Insurance Density: The total insurance density in India has remained constant at USD 78 for the past 2 years, but the life insurance density has increased from USD 58 in 2019-20 to USD 59 in 2020-21.
Regulatory Initiatives and Life Insurance Companies: The growth in the life insurance sector can be attributed to the combined efforts of regulatory authorities and life insurance companies. The insurance regulator IRDAI has taken several steps to boost insurance penetration in India, such as permitting video-based KYC, launching standardized insurance products, and allowing insurers to offer rewards for low-risk behaviour.
Digital Insurance and Online Channels: Digital issuance and online channels have continued to grow, with the share of web aggregators in digital insurance constantly increasing. The growth in digital insurance is a positive trend that is likely to continue in the coming years.
Growth of 13% in New Business Premium in 2022
In FY 2022 life insurance industry has seen a growth of 13% in New Business Premium. The life insurance industry is expected to grow at a CAGR of 5.3% between 2019 to 2023. Growing middle class, young insurable population and growing awareness of the need for protection and retirement planning will be factors leading to the growth of life insurance in India.
Impact of Pandemic on Consumer Behaviour and Insurance Awareness
The pandemic has significantly changed the consumer’s behavior towards insurance products. Insurance awareness among the consumers have increased since pandemic. In the Dear Stakeholders, The global economy was on the path of recovery in 2021, post significant disruption due to Covid-19 pandemic. Vaccinations have proven effective in mitigating the adverse health impacts of Covid-19. Overall, 2021-22 remained volatile with global prospects getting impacted by economic fallout of the pandemic. backdrop of pandemic, the need for financial immunity led to many first-time buyers of health and life insurance, the trend is expected to continue. The key factors driving the long-term potential of India’s life insurance industry remains intact.
Economic Growth of India
Rising Inflation fuelled by supply side constraints on account of geopolitical tensions has led to increased financial volatility and affected global economic recovery. Global growth is projected at 3.6 percent in 2022-23 by International Monetary Fund (IMF) in their April’ 22 outlook. The markets expect inflation to moderate over the medium term as central banks around the world have started responding. India is poised to grow at faster pace year-on-year among major economies as per the projections of IMF. Reserve Bank of India has maintained its GDP growth projection at 7.2 percent for FY23.
Impact of Digitalization on Business Continuity and Customer Service
Digitalization has made penetration and the coverage seamless. During these difficult times technology enabled the business continuity, introduced new and innovative products, and helped serve customers more efficiently. Indian companies have adopted smarter ways of on-boarding partners, identifying prospective customers and faster system integration. Companies are constantly using and enhancing analytics capabilities by using Machine Learning and Artificial Intelligence (Al) for improving efficiency, reducing risk while growing business. An emphasis on technology initiatives across the value chain of agency channel has resulted in improved business performance.
The Government’s Financial Inclusion Project
The Government of India launched an ambitious project of “Financial Inclusion” to provide Banking and other Financial Services like Life and Non-Life Insurance to the Rural population. India being an underpenetrated insurance market aims to boost the development of micro-insurance as a coverage tool for low-income individuals and insurance Companies are part of these initiatives. With a focus on financial inclusion for allowing lower-income groups of society to gain access to the products that enable them to protect their life and savings, companies are offering various insurance products such as PMJJBY, Grameen Bima and Grameen Super Suraksha policies, in order to protect the most economically vulnerable section of the society.
Conclusion
India has a long way to go in terms of insurance penetration and density, but the current trends are promising. With the right regulatory initiatives and technology-driven solutions, India has the potential to become a global leader in the insurance industry.
(Source: LIC/India CSR Research)
(Copyright @ India CSR)
