Growth of Insurance Industry Post Liberalisation

GROWTH OF amends patience POST LIBERALIZATION INTRODUCTION The journey of indemnity liberalization process in India is now several long time old. The first major milestone in this journey has been the passing of indemnity Regulatory and Development Authority Act, 1999. This along with amendments to the amends Act 1983, LIC and GIC Acts paves the track for the entry of netherground players and possibly the privatization of the hitherto public monopolies LIC and GIC. Opening up of indemnity to occult sector including foreign participation has resulted into various opportunities and ch anyenges. purpose OF damages In our daily animation, whenever there is uncertainly there is an closeness of jeopardy. The instinct of security against such risk is one of the basic actuate forces for determining human attitudes. As a sequel to this quest for security, the creation of policy must subscribe to been born. The urge to provide indemnity policy or security measures agains t the loss of life sentence and property must claim promoted pack to make some sort of sacrifice leaveingly in genial club to achieve security through collective co-operation. In this sense, the story of amends is probably as old as the story of mankind. LIFE INSURANCE n particular provides protection to household against the risk of premature close of its income earning member. livelihood indemnification in modern times also provides protection against other life related risks such as that of longevity (i. e. risk of outliving of source of income) and risk of disabled and sickness (health indemnification). The products provide for longevity be pensions and annuities ( indemnification against old age). Non-life redress provides protection against accidents, property damage, theft and other liabilities. Non-life redress contracts are typically shorter in duration as compared to life insurance contracts.The bundling together of risk coverage and saving is peculiar of life insurance. Life insurance provides two protection and investment. insurance is a grace to business concern concerns. Insurance provides short range and long range relief. The short-run relief is aimed at protecting the insured from loss of property and life by distri stilling the loss amongst large number of persons through the medium of professed(prenominal) risk bearers such as insurers. It enables a businessman to face an unexpected loss and, therefore, he request non worry about the contingent loss.The long-range object being the economic and industrial growth of the expanse by making an investment of huge funds available with insurers in the organized diligence and commerce. GENERAL INSURANCE Prior to nationalizations of General insurance industry in 1973 the GIC Act was passed in the Parliament in 1971, only if it came into effect in 1973. There was 107 General insurance companies including branches of foreign companies direct in the country upon nationaliz ation, these companies were amalgamated and grouped into the following four subsidiaries of GIC such as National Insurance Co.Ltd. , Calcutta The New India Assurance Co. Ltd. , Mumbai The Oriental Insurance Co. Ltd. , New Delhi and United India Insurance Co. Ltd. , Chennai and Now delinked. General insurance business in India is broadly divided into fire, marine and miscellaneous GIC apart from at once handling Aviation and Reinsurance business administers the Comprehensive Crop Insurance Scheme, individualised Accident Insurance, Social Security Scheme etc.The GIC and its subsidiaries in belongings with the accusive of nationalization to spread the message of insurance far and abundant and to provide insurance protection to weaker section of the society are making efforts to design spick-and-span covers and also to popularize other non-traditional business. LIBERALIZATION OF INSURANCE The comprehensive regulation of insurance business in India was brought into effect with th e depiction of the Insurance Act, 1983.It tried to create a strong and powerful superintendence and restrictive authority in the Controller of Insurance with powers to direct, advise, investigate, register and languish insurance companies etc. However, consequent upon the nationalization of insurance business, most(prenominal) of the regulatory campaigns were taken a charge from the Controller of Insurance and vested in the insurers themselves. The Government of India in 1993 had circumscribe up a high powered committee by R. N. Malhotra, masterminder Governor, Reserve rim of India, to examine the structure of the insurance industry and recommend changes to ake it more efficient and competitive keeping in belief the structural changes in other parts of the financial system on the country. Malhotra Committees Recommendations The committee submitted its report in January 1994 recommending that one-on-one insurers be allowed to co-exist along with political relation compani es like LIC and GIC companies. This recommendation had been prompted by several factors such as need for greater deeper insurance coverage in the economy, and a much a greater scale of mobilization of funds from the economy, and a much a greater scale of mobilization of funds from the economy for infrastructural development.Liberalization of the insurance sector is at least partly driven by fiscal necessity of tapping the big reserve of nest egg in the economy. Committees recommendations were as follows reproduction the capital base of LIC and GIC up to Rs. 200 crores, half retained by the government and rest sold to the public at large with sufficient reservations for its employees. Private sector is granted to enter insurance industry with a minimum paid up capital of Rs. 100 crores. Foreign insurance be allowed to enter by floating an Indian company sort of a joint venture with Indian partners. Steps are initiated to set up a strong and effective insurance regulatory in th e discrepancy of a statutory autonomous board on the lines of SEBI. exceptional number of private companies to be allowed in the sector. But no bulletproof is allowed in the sector. But no firm is allowed to operate in both lines of insurance (life or non-life). Tariff advisory Committee (TAC) is delinked form GIC to function as a separate statuary body under prerequisite supervision by the insurance regulatory authority. All insurance companies be treated on equal footing and governed by the provisions of insurance Act.No special dispensation is given to government companies. Setting up of a strong and effective regulatory body with independent source for financial support before allowing private companies into sector. COMPETITION TO GOVERNMENT SECTOR Government companies have now to face competition to private sector insurance companies not only in issuing various range of insurance products but also in various aspects in terms of customer service, transmit of distributi on, effective techniques of selling the products etc. privatization of the insurance sector has opened the doors to innovations in the way business can be transacted.New age insurance companies are embarking on new-fangled concepts and more cost effective way of transacting business. The idea is clear to cater to the maximum business at the lest cost. And tardily with time, the age-old norm prevalent with government companies to expand by riding horse up branches seems getting lost. Among the techniques that seem to catching up fast as an alternative to cater to the rural and social sector insurance is hub and mouth administration. These along with the participants of NGOs and Self Help Group (SHGs) have done with most of the selling of the rural and social sector policies.The main challenges is from the commercial banks that have vast electronic network of branches. In this regard, it is central to mention here that LIC has entered into an arrangement with Mangalore based f lowerpots Bank to leverage their infrastructure for mutual benefit with the insurance monolith acquiring a strategic stake 27 per cent, Corporation Bank has decided to abandon its plans of promoting a life insurance company. The bank entrust act as a corporate agent for LIC in early and receive commission on policies sold through its branches.LIC with its branch network of close to 2100 offices will allow Corporation Bank to set up extension centers. ATMs or branches with in its premises. Corporation Bank would in mold implement an effective Cash Flow Management System for LIC. IRDA Act, 1999 preface of IRDA Act 1999 reads An Act to provide for the establishment of an authority to protect the interests of holders of insurance policies, to regulate, to promote and ensure fixly growth of the insurance industry and for matters committed therewith or incidental thereto. component 14 of IRDA Act, lays the duties, powers and functions of the authority.The powers and functions of the authority. The powers and functions of the Authority shall hold the following. Issue to the applicant a certificate of registration, to renew, modify withdraw, suspend or cancel such registration. To protect the interest of policy holders in all matters concerning nomination of policy, surrender value f policy, insurable interest, settlement of insurance claims, other terms and conditions of contract of insurance. Specifying requisite qualification and practical rearing for insurance intermediates and agents. Specifying code of cover for surveyors and loss assessors. Promoting efficiency in the conduct of insurance business Promoting and regulating professional regulators connected with the insurance and reinsurance business. Specifying the form and manner in which books of accounts will be maintained and statement of accounts rendered by insurers and insurance intermediaries. Adjudication of disputes between insurers and intermediates. Specifying the percentage of life insurance and public and ecumenic business to be undertaken by the insurers in rural or social sectors etc.Section 25 provides that Insurance Advisory Committee will be constituted and shall consist of not more than 25 members. Section 26 provides that Authority may in consultation with Insurance Advisory Committee make regulations consists with this Act and the rules made there under to declare the purpose of this Act. Section 29 seeks amendment in certain provisions of Insurance Act, 1938 in the manner as set out in for the first time Schedule. The amendments to the Insurance Act are consequential in order to present IRDA to effectively regulate, promote, and ensure orderly growth of the Insurance industry.Section 30 & 31seek to amend LIC Act 1956 and GIC Act 1972. IMPACT OF LIBERALIZATION While nationalized insurance companies have done a commendable job in extending mint of the business opening up of insurance sector to private players was a necessity in the context of lib eralization of financial sector. If traditional infrastructural and public goods industries such as banking, airlines, telecom, power etc. have significant private sector presence, continuing state monopoly in provision of insurance was baseless and therefore, the privatization of insurance has been done as discussed earlier.Its impact has to be seen in the form of creating various opportunities and challenges. Opportunities 1. Privatization if Insurance was eliminated the monopolistic business of Life Insurance Corporation of India. It may supporter to cover the wide range of risk in general insurance and also in life insurance. It helps to introduce new range of products. 2. It would also result in better customer go and help improve the variety and price of insurance products. 3. The entry of new player would speed up the spread of both life and general insurance.It will increase the insurance penetration and measure of density. 4. Entry of private players will ensure the mob ilization of funds that can be apply for the purpose of infrastructure development. 5. Allowing of commercial banks into insurance business will help to mobilization of funds from the rural areas because of the availability of vast branches of the banks. 6. Most important not the least tremendous employment opportunities will be created in the field of insurance which is a burning problem of the presence twenty-four hours today issues. CURRENT SCENARIO After opening up of insurance in private sector, various leading private companies including joint ventures have entered the handle of insurance both life and non-life business. Tata AIG, Birla Sun life, HDFC standard life Insurance, trustingness General Insurance, Royal Sundaram Alliance Insurance, Bajaj Auto Alliance, IFFCO Tokio General Insurance, INA Vysya Life Insurance, SBI Life Insurance, Dabur CJU Life Insurance and Max New York Life. SBI Life insurance has launched three products Sanjeevan, Sukhjeevan and Young Sanjeevan so far and it has already sold 320 policies under its plan.CONCLUSION From the above discussion we can conclude that the entry of private players in insurance business is needful and justifiable in order to enhance the efficiency of operations, achieving greater density and insurance coverage in the country and for a greater mobilization of long term savings for long gestation infrastructure prefects. New players should not be treated as rivalries to government companies, but they can supplement in achieving the objective of growth of insurance business in india. THE GROWTH OF INSURANCE INDUSTRY POST LIBERALIZATION Prepared by ashish