1. UNIVERSITY LAW COLLEGE
BANGALORE UNIVERSITY
PAPER #1: INSURANCE LAW
SEMINAR REPORT
The Insurance Act 1938 and The Insurance Regulatory Authority Act 2000
MAITRAYEE PATHAK
LLM-BUSINESS LAW

2. CONTENTS
 INTRODUCTION
 DEFINITION
 LIFE INSURANCE IN INDIA
 NON-LIFE INSURANCE
 JOURNEY FROM AN INFANT TO ADOLESCENCE
o (HISTORICAL PERSPECTIVE)
 INSURANCE ACTS IN INDIA
 MARKET SCENARIO BEFORE IRDA ACT 1999
 MARKET SCENARIO AFTER IRDA ACT 1999
 NATIONALIZATION OF LIFE INSURANCE
 A WORLD VIEWPOINT - LIFE INSURANCE IN INDIA
 LAW COMMISSION OF INDIA ON REVISION OF THE INSURANCE ACT 1938 -
190TH LAW COMMISSION REPORT

3.  EXPECTATION FROM IRDA
 DUTIES, POWERS AND FUNCTIONS OF IRDA
 INSURANCE SECTOR REFORM
 PRESENT SCENARIO OF INSURANCE INDUSTRY
 CONCLUSION
 BIBLIOGRAPHY

4. THE INSURANCE ACT 1938
AND
THE INSURANCE REGULATORY AUTHORITY ACT 2000
INTRODUCTION
"Insurance should be bought to protect you against a calamity that
would otherwise be financially devastating."
In simple terms, insurance allows someone who suffers a loss or accident to be
compensated for the effects of their misfortune. It lets you protect yourself
against everyday risks to your health, home and financial situation.
Insurance in India started without any regulation in the Nineteenth Century. It
was a typical story of a colonial epoch: few British insurance companies
dominating the market serving mostly large urban centers. After the
independence, it took a theatrical turn. Insurance was nationalized. First, the
life insurance companies were nationalized in 1956, and then the general
insurance business was nationalized in 1972. It was only in 1999 that the
private insurance companies have been allowed back into the business of
insurance with a maximum of 26% of foreign holding.
"The insurance industry is enormous and can be quite intimidating. Insurance
is being sold for almost anything and everything you can imagine. Determining
what's right for you can be a very daunting task."
Concepts of insurance have been extended beyond the coverage of tangible
asset. Now the risk of losses due to sudden changes in currency exchange
rates, political disturbance, negligence and liability for the damages can also be
covered.

5. But if a person thoughtfully invests in insurance for his property prior to any
unexpected contingency then he will be suitably compensated for his loss as
soon as the extent of damage is ascertained.
The entry of the State Bank of India with its proposal of bank assurance brings
a new dynamics in the game. The collective experience of the other countries in
Asia has already deregulated their markets and has allowed foreign companies
to participate. If the experience of the other countries is any guide, the
dominance of the Life Insurance Corporation and the General Insurance
Corporation is not going to disappear any time soon.
The aim of all insurance is to compensate the owner against loss arising from a
variety of risks, which he anticipates, to his life, property and business.
Insurance is mainly of two types: life insurance and general insurance.
General insurance means Fire, Marine and Miscellaneous insurance which
includes insurance against burglary or theft, fidelity guarantee, insurance for
employer's liability, and insurance of motor vehicles, livestock and crops.
 Definition:
In law and economics, insurance is a form of risk management primarily
used to hedge against the risk of a contingent, uncertain loss. Insurance is
defined as the equitable transfer of the risk of a loss, from one entity to
another, in exchange for payment.
Insurance is a hedging instrument used as a precautionary measure
against future contingent losses.
Insurance is concerned with protection of economic value of assets. Tangible
assets are human beings, house, furniture, motor cycle etc .Intangible assets
are liabilities.

6.  LIFE INSURANCE IN INDIA
"Life insurance is the heartfelt love letter ever written.
It calms down the crying of a hungry baby at night. It relieves the heart of a
bereaved widow.
It is the comforting whisper in the dark silent hours of the night."
Life insurance made its debut in India well over 100 years ago. Its salient
features are not as widely understood in our country as they ought to be. There
is no statutory definition of life insurance, but it has been defined as a contract
of insurance whereby the insured agrees to pay certain sums called premiums,
at specified time, and in consideration thereof the insurer agreed to pay certain
sums of money on certain condition sand in specified way upon happening of a
particular event contingent upon the duration of human life.
Life insurance is superior to other forms of savings!
"There is no death. Life Insurance exalts life and defeats death.
It is the premium we pay for the freedom of living after death."
Savings through life insurance guarantee full protection against risk of death of
the saver. In life insurance, on death, the full sum assured is payable (with
bonuses wherever applicable) whereas in other savings schemes, only the
amount saved (with interest) is payable.
The essential features of life insurance are a) it is a contract relating to human
life, which b) provides for payment of lump-sum amount, and c) the amount is
paid after the expiry of certain period or on the death of the assured. The very
purpose and object of the assured in taking policies from life insurance
companies is to safeguard the interest of his dependents viz., wife and children
as the case may be, in the even of premature death of the assured as a result of
the happening in any contingency. A life insurance policy is also generally
accepted as security for even a commercial loan.

7.  NON-LIFE INSURANCE
"Every asset has a value and the business of general insurance is related to the
protection of economic value of assets."
Non-life insurance means insurance other than life insurance such as fire,
marine, accident, medical, motor vehicle and household insurance. Assets
would have been created through the efforts of owner, which can be in the form
of building, vehicles, machinery and other tangible properties. Since tangible
property has a physical shape and consistency, it is subject to many risks
ranging from fire, allied perils to theft and robbery.
Few of the General Insurance policies are:
Property Insurance: The home is most valued possession. The policy is
designed to cover the various risks under a single policy. It provides protection
for property and interest of the insured and family.
Health Insurance: It provides cover, which takes care of medical expenses
following hospitalization from sudden illness or accident.
Personal Accident Insurance: This insurance policy provides compensation
for loss of life or injury (partial or permanent) caused by an accident. This
includes reimbursement of cost of treatment and the use of hospital facilities
for the treatment.
Travel Insurance: The policy covers the insured against various eventualities
while traveling abroad. It covers the insured against personal accident, medical
expenses and repatriation, loss of checked baggage, passport etc.
Liability Insurance: This policy indemnifies the Directors or Officers or other
professionals against loss arising from claims made against them by reason of
any wrongful Act in their Official capacity.
Motor Insurance: Motor Vehicles Act states that every motor vehicle plying on
the road has to be insured, with at least Liability only policy. There are two
types of policy one covering the act of liability, while other covers insurers all
liability and damage caused to one's vehicles.

8.  JOURNEY FROM AN INFANT TO ADOLESCENCE
Historical Perspective
In India, insurance has a deep-rooted history. It finds mention in the writings
of Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya
( Arthasastra ). The writings talk in terms of pooling of resources that could be
re-distributed in times of calamities such as fire, floods, epidemics and famine.
This was probably a pre-cursor to modern day insurance. Ancient Indian
history has preserved the earliest traces of insurance in the form of marine
trade loans and carriers’ contracts. Insurance in India has evolved over time
heavily drawing from other countries, England in particular.
The history of life insurance in India dates back to 1818 when it was conceived
as a means to provide for English Widows. Interestingly in those days a higher
premium was charged for Indian lives than the non-Indian lives as Indian lives
were considered more risky for coverage.
The Bombay Mutual Life Insurance Society started its business in 1870. It was
the first company to charge same premium for both Indian and non-Indian
lives. The Oriental Assurance Company was established in 1880. The General
insurance business in India, on the other hand, can trace its roots to the Triton
(Tital) Insurance Company Limited, the first general insurance company
established in the year 1850 in Calcutta by the British. Till the end of
nineteenth century insurance business was almost entirely in the hands of
overseas companies.
Insurance regulation formally began in India with the passing of the Life
Insurance Companies Act of 1912 and the Provident Fund Act of 1912. Several
frauds during 20's and 30's desecrated insurance business in India. By 1938
there were 176 insurance companies. The first comprehensive legislation was
introduced with the Insurance Act of 1938 that provided strict State Control
over insurance business. The insurance business grew at a faster pace after
independence. Indian companies strengthened their hold on this business but

9. despite the growth that was witnessed, insurance remained an urban
phenomenon.
The Government of India in 1956, brought together over 240 private life
insurers and provident societies under one nationalized monopoly corporation
and Life Insurance Corporation (LIC) was born. Nationalization was justified on
the grounds that it would create much needed funds for rapid industrialization.
This was in conformity with the Government's chosen path of State lead
planning and development.
The (non-life) insurance business continued to prosper with the private sector
till 1972. Their operations were restricted to organized trade and industry in
large cities. The general insurance industry was nationalized in 1972. With
this, nearly 107 insurers were amalgamated and grouped into four companies -
National Insurance Company, New India Assurance Company, Oriental
Insurance Company and United India Insurance Company. These were
subsidiaries of the General Insurance Company (GIC).
 Some of the important milestones in the life insurance business in India are
given in the table 1.Table 1: milestone’s in the life insurance business
in India
Year Milestones in the life insurance business in India
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
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.

10. 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.
Some of the important milestones in the general insurance business
in India are given in the table 2.
Table 2: milestone’s in the general insurance business in India
Year 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 Acts in India:
The insurance sector went through a full circle of phases from being
unregulated to completely regulate and then currently being partly deregulated.
The Insurance Sector in India is regulated by a number of acts. The insurance
Acts in India are as follows:
i. The Insurance Act, 1938
ii. General Insurance Business (Nationalization) Act, 1972
iii. Life Insurance Corporation Act, 1956
iv. Marine Insurance Act, 1963

11. v. Insurance Regulatory and Development Authority (IRDA) Act, 1999
 The Insurance Act of 1938 was the first legislation governing all forms of
insurance to provide strict state control over insurance business.
 Life insurance in India was completely nationalized on January 19, 1956,
through the Life Insurance Corporation Act. All 245 insurance companies
operating then in the country were merged into one entity, the Life Insurance
Corporation of India.
 The General Insurance Business Act of 1972 was enacted to nationalize the
about 100 general insurance companies then and subsequently merging them
into four companies. All the companies were amalgamated into National
Insurance, New India Assurance, Oriental Insurance and United India
Insurance, which were headquartered in each of the four metropolitan cities.
 Until 1999, there were not any private insurance companies in India. The
government then introduced the Insurance Regulatory and Development
Authority Act in 1999, thereby de-regulating the insurance sector and allowing
private companies. Furthermore, foreign investment was also allowed and
capped at 26% holding in the Indian insurance companies.
 In 2006, the Actuaries Act was passed by parliament to give the profession
statutory status on par with Chartered Accountants, Notaries, Cost & Works
Accountants, Advocates, Architects and Company Secretaries.
 A minimum capital of US$20 million is required by legislation to set up an
insurance business.
Market Scenario before IRDA Act 1999
Life insurance company
1. LIC of India
General insurance companies

12. 1. National insurance company ltd
2. New India assurance company ltd
3.Oriental insurance company ltd
4. United India insurance company ltd
Market Scenario after IRDA Act 1999
Stage of Liberalization
Privatization
Globalization
(Competition between public sector & private sector)
Nationalisation Of Life Insurance
The life insurance industry was nationalized under the Life Insurance
Corporation (LIC) Act of India. In some ways, the LIC has become very
flourishing. Regardless of being a monopoly, it has some 60-70 million
policyholders. Given that the Indian middle-class is around 250-300 million,
the LIC has managed to capture some 30 odd percent of it. Around 48% of the
customers of the LIC are from rural and semi-urban areas. This probably
would not have happened had the charter of the LIC not specifically set out the
goal of serving the rural areas. A high saving rate in India is one of the
exogenous factors that have helped the LIC to grow rapidly in recent years.
Despite the saving rate being high in India (compared with other countries with
a similar level of development), Indians display high degree of risk aversion.
Thus, nearly half of the investments are in physical assets (like property and
gold). Around twenty three percent are in (low yielding but safe) bank deposits.

13. In addition, some 1.3 percent of the GDP are in life insurance related savings
vehicles. This figure has doubled between 1985 and 1995.
A World viewpoint - Life Insurance in India
In many countries, insurance has been a form of savings. In many developed
countries, a significant fraction of domestic saving is in the form of donation
insurance plans. This is not surprising. The prominence of some developing
countries is more surprising. For example, South Africa features at the number
two spot. India is nestled between Chile and Italy. This is even more surprising
given the levels of economic development in Chile and Italy. Thus, we can
conclude that there is an insurance culture in India despite a low per capita
income. This promises well for future growth. Specifically, when the income
level improves, insurance (especially life) is likely to grow rapidly.
LAW COMMISSION OF INDIA ON REVISION OF THE INSURANCE ACT 1938 -
190th Law Commission Report
The Law Commission on 16th June 2003 released a Consultation Paper on the
Revision of the Insurance Act, 1938. The previous exercise to amend the
Insurance Act, 1938 was undertaken in 1999 at the time of enactment of the
Insurance Regulatory Development Authority Act, 1999 (IRDA Act).
The Commission undertook the present exercise in the context of the changed
policy that has permitted private insurance companies both in the life and non-
life sectors. A need has been felt to toughen the regulatory mechanism even
while streamlining the existing legislation with a view to removing portions that
have become superfluous as a consequence of the recent changes.
Among the major areas of changes, the Consultation paper suggested the
following:
a. merging of the provisions of the IRDA Act with the Insurance Act to avoid
multiplicity of legislations;

14. b. deletion of redundant and transitory provisions in the Insurance Act, 1938;
c. Amendments reflect the changed policy of permitting private insurance
companies and strengthening the regulatory mechanism;
d. Providing for stringent norms regarding maintenance of 'solvency margin'
and investments by both public sector and private sector insurance companies;
e. Providing for a full-fledged grievance redressal mechanism that includes:
o The constitution of Grievance Redressal Authorities (GRAs) comprising one
judicial and two technical members to deal with complaints/claims of
policyholders against insurers (the GRAs are expected to replace the present
system of insurer appointed Ombudsman);
o Appointment of adjudicating officers by the IRDA to determine and levy
penalties on defaulting insurers, insurance intermediaries and insurance
agents;
o Providing for an appeal against the decisions of the IRDA, GRAs and
adjudicating officers to an Insurance Appellate Tribunal (IAT) comprising a
judge (sitting or retired) of the Supreme Court/Chief Justice of a High Court as
presiding officer and two other members having sufficient experience in
insurance matters;
o Providing for a statutory appeal to the Supreme Court against the decisions
of the IAT.
EXPECTATION FROM IRDA:
The law of India has following expectations from IRDA
To protect the interest of and secure fair treatment to policyholders.

15. To bring about speedy and orderly growth of the insurance industry (including
annuity and superannuation payments), for the benefit of the common man,
and to provide long term funds for accelerating growth of the economy.
To set, promote, monitor and enforce high standards of integrity, financial
soundness, fair dealing and competence of those it regulates.
To ensure that insurance customers receive precise, clear and correct
information about products and services and make them aware of their
responsibilities and duties in this regard.
To ensure speedy settlement of genuine claims, to prevent insurance frauds
and other malpractices and put in place effective grievance redressal
machinery.
To promote fairness, transparency and orderly conduct in financial markets
dealing with insurance and build a reliable management information system to
enforce high standards of financial soundness amongst market players.
To take action where such standards are inadequate or ineffectively enforced.
To bring about optimum amount of self-regulation in day to day working of the
industry consistent with the requirements of prudential regulation.
Duties, Powers and Functions of IRDA
Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of
IRDA
Subject to the provisions of this Act and any other law for the time being in
force, the Authority shall have the duty to regulate, promote and ensure orderly
growth of the insurance business and re-insurance business.

16. Without prejudice to the generality of the provisions contained in sub-section
(1), the powers and functions of the Authority shall include,
 issue to the applicant a certificate of registration, renew, modify,
withdraw, suspend or cancel such registration;
 protection of the interests of the policy holders in matters concerning
assigning of policy, nomination by policy holders, insurable interest,
settlement of insurance claim, surrender value of policy and other terms
and conditions of contracts of insurance;
 specifying requisite qualifications, code of conduct and practical training
for intermediary or insurance intermediaries and agents;
 specifying the code of conduct for surveyors and loss assessors;
 promoting efficiency in the conduct of insurance business;
 promoting and regulating professional organizations connected with the
insurance and re-insurance business;
 levying fees and other charges for carrying out the purposes of the Act;
 calling for information from, undertaking inspection of, conducting
enquiries and investigations including audit of the insurers,
intermediaries, insurance intermediaries and other organizations
connected with the insurance business;
 control and regulation of the rates, advantages, terms and conditions
that may be offered by insurers in respect of general insurance business
not so controlled and regulated by the Tariff Advisory Committee under
section 64U of the Insurance Act, 1938 (4 of 1938);
 specifying the form and manner in which books of account shall be
maintained and statement of accounts shall be rendered by insurers and
other insurance intermediaries;
 regulating investment of funds by insurance companies;
 regulating maintenance of margin of solvency;
 adjudication of disputes between insurers and intermediaries or
insurance intermediaries;

17.  supervising the functioning of the Tariff Advisory Committee;
 specifying the percentage of premium income of the insurer to finance
schemes for promoting and regulating professional organizations.
 specifying the percentage of life insurance business and general
insurance business to be undertaken by the insurer in the rural or social
sector; and
 exercising such other powers as may be prescribed.
Advisory committee
IRDA consists of a Chairman and some permanent as well as part time
members. The regulations, however, are enacted under the guidance of a
statutory advisory committee. The advisory committee consists of following
individuals and ex-officio authorities:
Chiarman: Hari Narayana is the current Chairman of IRDA.
Full-time Members: Currently, they are Mr K K Srinivasan (Nonlife Member),
Sri G Prabhakara (Life Member), Dr R Kannan(Member, Actuary) and Sri R.K.
Nair (Member, F & I). There is provision for a panel of other members and part
time members. IRDA formed a high powered Insurance Law Reforms
Committee known as KPN Committee with important insurance advisors like
Mr N Govardhan and Dr K C Mishra as its members. There were also a few
non-advisory committee members like Mr Liaquat Khan and Mr T
Viswanathan etc.
Full force and utility of various institutions like Advisory Committee and self-
regulatory organizations are not yet realized as the regulator seems to be in a
long learning mode. Due to over delegations, Individual incumbents decide the
pace and extent of utilization of prudential and statutory bodies. Research is
limited to opinion seeking through legacy channels. Market waits for revision of
insurance act and establishment meaningfully functioning regulatory organs
devoid of excess delegation and subjective localization of development agencies.

18. IRDA Journal is available as soft copy in its website. Unlike other Indian
administrative Regulatory Agencies IRDA is perceived as a silent regulator with
activities confined to its local existence.
Chairman selection process
Government of India has circulated to broad base IRDA chairman selection
process. It is felt in the market that placing of retired civil servants as IRDA
Chairman has served the purpose of administrative fiefdom of the regulator.
Mostly, the regulator has become passive to market realities and most of the
original public policy intentions have been systematically replaced by personal
preferences. There seems to be no oversight of public policy erosions. Taking
advantage of the completion of term of current incumbent, there seem to be an
attempt to correct the future course but people do not perceive any outcome to
result as the market does not seem to throw up candidates of the stature
of Howard Davies for Indian market. But a right leadership is the solution to
the requirement of this booming market.
INSURANCE SECTOR REFORM:
Committee Reports: One Known, One Anonymous!
Although Indian markets were privatized and opened up to foreign companies
in a number of sectors in 1991, insurance remained out of bounds on both
counts. The government wanted to proceed with caution. With pressure from
the opposition, the government (at the time, dominated by the Congress Party)
decided to set up a committee headed by Mr. R. N. Malhotra (the then Governor
of the Reserve Bank of India).
Malhotra Committee

19. Liberalization of the Indian insurance market was suggested in a report
released in 1994 by the Malhotra Committee, indicating that the market should
be opened to private-sector competition, and eventually, foreign private-sector
competition. It also investigated the level of satisfaction of the customers of the
LIC. Inquisitively, the level of customer satisfaction seemed to be high.
In 1993, Malhotra Committee - headed by former Finance Secretary and RBI
Governor Mr. R. N. Malhotra - was formed to evaluate the Indian insurance
industry and recommend its future course. The Malhotra committee was set up
with the aim of complementing the reforms initiated in the financial sector. The
reforms were aimed at creating a more efficient and competitive financial
system suitable for the needs of the economy keeping in mind the structural
changes presently happening and recognizing that insurance is an important
part of the overall financial system where it was necessary to address the need
for similar reforms.
In 1994, the committee submitted the report and some of the key
recommendations included:
o Structure
Government bet in the insurance Companies to be brought down to 50%.
Government should take over the holdings of GIC and its subsidiaries so that
these subsidiaries can act as independent corporations. All the insurance
companies should be given greater freedom to operate.
Competition
Private Companies with a minimum paid up capital of Rs.1 billion should be
allowed to enter the sector. No Company should deal in both Life and General
Insurance through a single entity. Foreign companies may be allowed to enter
the industry in collaboration with the domestic companies. Postal Life
Insurance should be allowed to operate in the rural market. Only one State
Level Life Insurance Company should be allowed to operate in each state.

20. Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should
be set up. Controller of Insurance - a part of the Finance Ministry- should be
made Independent.
Investments
Compulsory Investments of LIC Life Fund in government securities to be
reduced from 75% to 50%. GIC and its subsidiaries are not to hold more than
5% in any company (there current holdings to be brought down to this level
over a period of time).
o Customer Service
LIC should pay interest on delays in payments beyond 30 days. Insurance
companies must be encouraged to set up unit linked pension plans.
Computerization of operations and updating of technology to be carried out in
the insurance industry. The committee accentuated that in order to improve
the customer services and increase the coverage of insurance policies, industry
should be opened up to competition. But at the same time, the committee felt
the need to exercise caution as any failure on the part of new competitors could
ruin the public confidence in the industry. Hence, it was decided to allow
competition in a limited way by stipulating the minimum capital requirement of
Rs.100 crores.
The committee felt the need to provide greater autonomy to insurance
companies in order to improve their performance and enable them to act as
independent companies with economic motives. For this purpose, it had

21. proposed setting up an independent regulatory body - The Insurance
Regulatory and Development Authority.
Reforms in the Insurance sector were initiated with the passage of the IRDA
Bill in Parliament in December 1999. The IRDA since its incorporation as a
statutory body in April 2000 has meticulously stuck to its schedule of framing
regulations and registering the private sector insurance companies.
Since being set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. The other decision taken at the
same time to provide the supporting systems to the insurance sector and in
particular the life insurance companies was the launch of the IRDA online
service for issue and renewal of licenses to agents. The approval of institutions
for imparting training to agents has also ensured that the insurance companies
would have a trained workforce of insurance agents in place to sell their
products.
The Government of India liberalized the insurance sector in March 2000 with
the passage of the Insurance Regulatory and Development Authority (IRDA)
Bill, lifting all entry restrictions for private players and allowing foreign players
to enter the market with some limits on direct foreign ownership. Under the
current guidelines, there is a 26 percent equity lid for foreign partners in an
insurance company. There is a proposal to increase this limit to 49 percent.
The opening up of the sector is likely to lead to greater spread and deepening of
insurance in India and this may also include restructuring and revitalizing of
the public sector companies. In the private sector 12 life insurance and 8
general insurance companies have been registered. A host of private Insurance
companies operating in both life and non-life segments have started selling
their insurance policies since 2001.

22. Mukherjee Committee :Immediately after the publication of the Malhotra
Committee Report, a new committee, Mukherjee Committee was set up to make
concrete plans for the requirements of the newly formed insurance companies.
Recommendations of the Mukherjee Committee were never disclosed to the
public. But, from the information that filtered out it became clear that the
committee recommended the inclusion of certain ratios in insurance company
balance sheets to ensure transparency in accounting. But the Finance Minister
objected to it and it was argued by him, probably on the advice of some of the
potential competitors, that it could affect the prospects of a developing
insurance company.
PRESENT SCENARIO OF INSURANCE INDUSTRY
India with about 200 million middle class household shows a huge untapped
potential for players in the insurance industry. Saturation of markets in many
developed economies has made the Indian market even more attractive for
global insurance majors. The insurance sector in India has come to a position
of very high potential and competitiveness in the market. Indians, have always
seen life insurance as a tax saving device, are now suddenly turning to the
private sector that are providing them new products and variety for their
choice.
Consumers remain the most important centre of the insurance sector. After the
entry of the foreign players the industry is seeing a lot of competition and thus
improvement of the customer service in the industry. Computerization of
operations and updating of technology has become imperative in the current
scenario. Foreign players are bringing in international best practices in service
through use of latest technologies

23. The insurance agents still remain the main source through which insurance
products are sold. The concept is very well established in the country
like India but still the increasing use of other sources is imperative. At present
the distribution channels that are available in the market are listed below.
 Direct selling
 Corporate agents
 Group selling
 Brokers and cooperative societies
 Ban assurance
Customers have tremendous choice from a large variety of products from pure
term (risk) insurance to unit-linked investment products. Customers are
offered unbundled products with a variety of benefits as riders from which they
can choose. More customers are buying products and services based on their
true needs and not just traditional money back policies, which is not
considered very appropriate for long-term protection and savings. There is lots
of saving and investment plans in the market. However, there are still some key
new products yet to be introduced - e.g. health products.
The rural consumer is now exhibiting an increasing propensity for insurance
products. A research conducted exhibited that the rural consumers are willing
to dole out anything between Rs 3,500 and Rs 2,900 as premium each year. In
the insurance the awareness level for life insurance is the highest in
rural India, but the consumers are also aware about motor, accidents and
cattle insurance.
In a study conducted by MART the results showed that nearly one third said
that they had purchased some kind of insurance with the maximum
penetration skewed in favor of life insurance. The study also pointed out the
private companies have huge task to play in creating awareness and credibility
among the rural populace. The perceived benefits of buying a life policy range

24. from security of income bulk return in future, daughter's marriage, children's
education and good return on savings, in that order, the study adds.
CONCLUSION
It seems cynical that the LIC and the GIC will wither and die within the next
decade or two. The IRDA has taken "at a snail's pace" approach. It has been
very cautious in granting licenses. It has set up fairly strict standards for all
aspects of the insurance business (with the probable exception of the
disclosure requirements). The regulators always walk a fine line. Too many
regulations kill the motivation of the newcomers; too relaxed regulations may
induce failure and fraud that led to nationalization in the first place. India is
not unique among the developing countries where the insurance business has
been opened up to foreign competitors.
The insurance business is at a critical stage in India. Over the next couple of
decades we are likely to witness high growth in the insurance sector for two
reasons namely:
 financial deregulation always speeds up the development of the
insurance sector and
 growth in per capita GDP also helps the insurance business to grow.
The IRDA opened up the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed ownership of up
to 26%. The Authority has the power to frame regulations under Section 114A
of the Insurance Act, 1938 and has from 2000 onwards framed various
regulations ranging from registration of companies for carrying on insurance
business to protection of policyholders’ interests.
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. Parliament passed a bill de-linking
the four subsidiaries from GIC in July, 2002.

25. Today there are 24 general insurance companies including the ECGC and
Agriculture Insurance Corporation of India and 23 life insurance companies
operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-
20%. Together with banking services, insurance services add about 7% to the
country’s GDP. A well-developed and evolved insurance sector is a boon for
economic development as it provides long- term funds for infrastructure
development at the same time strengthening the risk taking ability of the
country.
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