CHAPTER II: PROFILE OF THE COMPANY

2.1. HISTORY
OF
INSURANCE IN
INDIA

2.11. HISTORY OF INSURANCE IN INDIA

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.

1818 saw the advent of life insurance business in India with the establishment of the Oriental
Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras
Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the
enactment of the British Insurance Act and in the last three decades of the nineteenth century, the
Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay
Residency. This era, however, was dominated by foreign insurance offices which did good
business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe
Insurance and the Indian offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies in India. The
Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life
business. In 1928, the Indian Insurance Companies Act was enacted 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. In 1938, with a view to protecting the
interest of the Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the activities of
insurers.

The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large
number of insurance companies and the level of competition was high. There were also allegations
of unfair trade practices. The Government of India, therefore, decided to nationalize insurance
business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life
Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16
non-Indian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC
had monopoly till the late 90s when the Insurance sector was reopened to the private sector.
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 British occupation. General Insurance in India has its roots in the establishment of Triton
Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile
Insurance Ltd, was set up. This was the first company to transact all classes of general insurance
business.

1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of
India. The General Insurance Council framed a code of conduct for ensuring fair conduct and
sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum solvency
margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company Ltd., the
New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India
Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a
company in 1971 and it commence business on January 1sst 1973.

This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.
The process of re-opening of the sector had begun in the early 1990s and the last decade and
more has seen it been opened up substantially. In 1993, the Government set up a committee under
the chairmanship of RN 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. They stated that
foreign companies be allowed to enter by floating Indian companies, preferably a joint venture
with Indian partners.
Following the 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. The IRDA was incorporated as a statutory body in
April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance
customer satisfaction through increased consumer choice and lower premiums, while ensuring the
financial security of the insurance market.

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.

Today there are 14 general insurance companies including the ECGC and Agriculture Insurance
Corporation of India and 14 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.

2.12. MILESTONES IN INDIAN LIFE INSURANCE BUSINESS

 1912: The Indian Life Assurance Companies Act came into force for regulating the life
insurance business.
 1928: The Indian Insurance Companies Act was enacted for enabling the government to
collect statistical information on both life and non-life insurance businesses.
  1938: The earlier legislation consolidated the Insurance Act with the aim of safeguarding
the interests of the insuring public.
 1956: 245 Indian and foreign insurers and provident societies were taken over by the
central government and they got nationalized. LIC was formed by an Act of Parliament,
viz. LIC Act, 1956. It started off with a capital of Rs. 5 crore and that too from the
Government of India.

The history of general insurance business in India can be traced back to Triton Insurance Company
Ltd. (the first general insurance company) which was formed in the year 1850 in Kolkata by the
British.

2.13. IMPORTANT MILESTONES IN THE INDIAN INSURANCE BUSINESS

 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its
type to transact all general insurance business.
 1957: General Insurance Council, an arm of the Insurance Association of India, framed a
code of conduct for guaranteeing fair conduct and sound business patterns.
 1968: The Insurance Act improved for regulating investments and set minimal solvency
levels and the Tariff Advisory Committee was set up.
 1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the
general insurance business in India. It was with effect from 1st January 1973.

107 insurers integrated 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 was incorporated as a company.

2.14. Economic policy context and imperatives of liberalization of insurance

sector:

There are several imperatives for opening of the insurance and health insurance sector in India for
private investment. Here we review some of these imperatives. Economic policy reforms started
during late eighties and speeded up in nineties are the context in which liberalization of insurance
sector happened in India. It was very obvious that the liberalization of the real (productive) and
financial sector of the economy has to go hand in hand. It is imperative that these sectors are
consistent with policies of each other and unless both function efficiently and are in equilibrium,
it would be difficult to ensure appropriate economic growth. Given these facts liberalization of
both sectors has to proceed simultaneously.Indian economic system has been developed on
paradigm of mixed economy in which public and private enterprises co-exist. The past strategies
of development based on socialistic thinking were focusing on the premise of restrictions,
regulations and control and less on incentives and market driven forces. This affected the
development process in the country in serious way. After the economic liberalization the paradigm
changed from central planning, command and control to market driven development.
Deregulation, decontrol, privatization, delicensing, globalization became the key strategies to
implement the new framework and encourage competition. The
social sectors did not remain unaffected by this change. The control of government expenditure,
which became a key tool to manage fiscal deficits in early 1990s, affected the social sector
spending in major way. The unintended consequences of controlling the fiscal deficits have been
reduction in capital expenditure and non-salary component of many social sector programmes.This
has led to severe resource constraints in the health sector in respect of non-salary expenditure and
this has affected the capacity and credibility of the government health care system to deliver good
quality care over the years. Given the increasing salaries, lack of effective monitoring and lack of
incentives to provide good quality services the provides in the government sector became
indifferent to the clients. Clients also did not demand good quality and better access, as government
services were free of cost.

Under this situation more and more clients turned to the private sector health providers and thus
the private sector healthcare has expanded. Given the socialistic political thinking and populist
policy it has been generally difficult for any government to introduce cost recovery in public health
sector. Given that government is unable to provide more resources for health care, and institute
cost recovery, one of the ways to reduce the under-funding and augment the resources in the health
sector was to encourage the development health insurance.

Another imperative for liberalization of the insurance sector was the need for long-term financial
resources on sustainable basis for the development of infrastructure sector such as roads, transports
etc. It was realized that during the course of economic liberalization, the funds to development the
infrastructure also became a major constraint. Country certainly needed infrastructure
development. For this the finances are major constraint. In these investments the benefits are more
social than private. The major concern was how these finances can be made available at low costs.
In past the development of social sector were financed using government channeled funds through
various semi-government financial institutions. Under the liberalized economy this may not be
possible. One hope is that if the insurance sector develops rapidly under privatization then it can
provide long-term finance to the infrastructure sector.

The financial sector, which consists of banks, financial institutions, insurance companies,
provident funds schemes, mutual funds were all under government control. There was less
competition across these units. As a result these institutions remained significantly less developed
in their approach and management. Insurance sector has been most affected by the government
controls. Government had significant control on the policies these insurance companies could offer
and utilization of the resources mobilized by insurance companies. One can see that most of the
insurance products (e.g., life insurance products) were promoted as mechanisms to improve the
savings and tax shelters rather as risk coverage instruments. Other segments of the insurance
products grew because of the statutory obligations (e.g., Motor Vehicle, Marine and Fire) under
various acts. The management and organization of insurance sector companies remained less
developed and they neglected new product development and marketing. Thus one of the hopes in
opening of the insurance sector was that the private and foreign companies would rapidly develop
the sector and improve coverage of the population with insurance using new products and better
management.

Last imperative for opening of the insurance sector was signing the WTO India. After this there
was little choice but to open the entire financial sector - including insurance sector to private and
foreign investors. (Dholakia 1999).

2.15. LIST OF INSURANCE COMPANIES IN INDIA:

LIFE INSURERS Websites

Public Sector

Life Insurance Corporation of India www.licindia.com

Private Sector

Allianz Bajaj Life Insurance Company Limited www.allianzbajaj.co.in

Birla Sun-Life Insurance Company Limited www.birlasunlife.com

HDFC Standard Life Insurance Co. Limited www.hdfcinsurance.com

ICICI Prudential Life Insurance Co. Limited www.iciciprulife.com

ING Vysya Life Insurance Company Limited www.ingvysayalife.com

Max New York Life Insurance Co. Limited www.maxnewyorklife.com

MetLife Insurance Company Limited www.metlife.com

Om Kotak Mahindra Life Insurance Co. Ltd. www.omkotakmahnidra.com

SBI Life Insurance Company Limited www.sbilife.co.in

TATA AIG Life Insurance Company Limited www.tata-aig.com

AMP Sanmar Assurance Company Limited www.ampsanmar.com

Dabur CGU Life Insurance Co. Pvt. Limited www.avivaindia.com

GENERAL INSURERS

Public Sector

National Insurance Company Limited www.nationalinsuranceindia.com

New India Assurance Company Limited www.niacl.com

Oriental Insurance Company Limited www.orientalinsurance.nic.in

United India Insurance Company Limited www.uiic.co.in

Private Sector

Bajaj Allianz General Insurance Co. Limited www.bajajallianz.co.in

ICICI Lombard General Insurance Co. Ltd. www.icicilombard.com

IFFCO-Tokio General Insurance Co. Ltd. www.itgi.co.in

Reliance General Insurance Co. Limited www.ril.com

Royal Sundaram Alliance Insurance Co. Ltd. www.royalsun.com

TATA AIG General Insurance Co. Limited www.tata-aig.com

Cholamandalam General Insurance Co. Ltd. www.cholainsurance.com

Export Credit Guarantee Corporation www.ecgcindia.com

HDFC Chubb General Insurance Co. Ltd.

REINSURER

General Insurance Corporation of India www.gicindia.com

2.16. CONCEPT AND FUNCTIONS OF INSURANCE

Insured, are you? The functions of Insurance will give you an idea on how to go ahead with the
approach of insurance and what type of insurance to choose. In a layman's words, insurance
means, ‘a guard against pecuniary loss arising on the happening of an unforeseen event’. In
developing economies, the insurance sector still holds a lot of potential which can be tapped.
Majority of the people in the developing countries remains unaware of the functions and benefits
of insurance and it is for this reason that the insurance sector is still to grow.

Tangible or intangible – an individual can insure anything! Be it a house, car, factory, or the
voice of a singer, leg of a footballer, and the hand of an author.....etc. It is possible to insure all
these as they have the possibility of becoming non functional by any disaster or an accident.
BASIC FUNCTIONS OF INSURANCE:

1. 1.Primary Functions
2. 2.Secondary Functions
3. 3.Other Functions

Primary functions of insurance

 Providing protection – The elementary purpose of insurance is to allow security against

future risk, accidents and uncertainty. Insurance cannot arrest the risk from taking place,
but can for sure allow for the losses arising with the risk. Insurance is in reality a
protective cover against economic loss, by apportioning the risk with others.
 Collective risk bearing – Insurance is an instrument to share the financial loss. It is a
medium through which few losses are divided among larger number of people. All the
insured add the premiums towards a fund and out of which the persons facing a specific
risk is paid.
 Evaluating risk – Insurance fixes the likely volume of risk by assessing diverse factors
that give rise to risk. Risk is the basis for ascertaining the premium rate as well.
 Provide Certainty – Insurance is a device, which assists in changing uncertainty to
certainty.

Secondary functions of insurance

 Preventing losses – Insurance warns individuals and businessmen to embrace

appropriate device to prevent unfortunate aftermaths of risk by observing safety
instructions; installation of automatic sparkler or alarm systems, etc.
 Covering larger risks with small capital – Insurance assuages the businessmen from
security investments. This is done by paying small amount of premium against larger
risks and dubiety.
 Helps in the development of larger industries – Insurance provides an opportunity to
develop to those larger industries which have more risks in their setting up.
Other functions of insurance

 Is a savings and investment tool – Insurance is the best savings and investment option,
restricting unnecessary expenses by the insured. Also to take the benefit of income tax
exemptions, people take up insurance as a good investment option.
 Medium of earning foreign exchange – Being an international business, any country
can earn foreign exchange by way of issue of marine insurance policies and a different
other ways.
 Risk Free trade – Insurance boosts exports insurance, making foreign trade risk free
with the help of different types of policies under marine insurance cover.

Insurance provides indemnity, or reimbursement, in the event of an unanticipated loss or disaster.

There are different types of insurance policies under the sun cover almost anything that one
might think of. There are loads of companies who are providing such customized insurance
policies.

2.17. CHALLENGES FACING INSURANCE INDUSTRY:

 Threat of New Entrants: The insurance industry has been budding with new entrants
every other day. Therefore the companies should carve out niche areas such that the
threat of new entrants might not be a hindrance. There is also a chance that the big
players might squeeze the small new entrants.
 Power of Suppliers: Those who are supplying the capital are not that big a threat. For
instance, if someone as a very talented insurance underwriter is presently working for a
small insurance company, there exists a chance that any big player willing to enter the
insurance industry might entice that person off.
 Power of Buyers: No individual is a big threat to the insurance industry and big
corporate houses have a lot more negotiating capability with the insurance companies.
Big corporate clients like airlines and pharmaceutical companies pay millions of dollars
every year in premiums.
  Availability of Substitutes: There exist a lot of substitutes in the insurance industry.
Majorly, the large insurance companies provide similar kinds of services – be it auto,
home, commercial, health or life insurance.

How to choose an insurance company?

There are many factors to probe into when an investor chose an insurance company.

 The consumers as well as the investors should only focus on the insurer's financial
strength and capability to meet ongoing responsibilities to its policyholders.
 The fundamentals of the insurance company should be strong and should not indicate a
poor investment opportunity as this might also deter growth.

2.18. TOP INSURANCE COMPANIES IN INDIA:

Life Insurance Corporation of India -

The Life Insurance Corporation of India (LIC) is undoubtedly India's largest life insurance
company. Fully owned by government, LIC is also the largest investor of the country. LIC has an
estimated asset of Rs. 8 Trillion. It also funds almost 24.6% of the expenses of Government of
India.

Established in 1956 and headquartered in Mumbai, Life Insurance Corporation of India has 8
zonal offices, 100 divisional offices, 2,048 branch offices and a vast network of 10,02,149 agents
spread across the country.

Tata AIG Insurance Solutions-

Tata AIG Insurance Solutions, one of the leading insurance providers in India, started its
operation on April 1, 2001. A joint venture between Tata Group (74% stake) and American
International Group, Inc. (AIG) (26% stake), Tata AIG Insurance Solutions has two different
units for life insurance and general insurance. The life insurance unit is known as Tata AIG Life
Insurance Company Limited, whereas the general insurance unit is known as Tata AIG General
Insurance Company Limited.

AVIVA Life Insurance -

AVIVA Life Insurance, one of the popular insurance companies in India, is a joint venture
between the renowned business group, Dabur and the largest insurance group in the UK, Aviva
plc. AVIVA Life Insurance has an extensive network of 208 branches and about 40
Bancassurance partnerships, spread across 3,000 cities and towns across the country. There are
more than 30,000 Financial Planning Advisers (FPAs) working for AVIAV Life Insurance. It
offers various plans like Child, Retirement, Health, Savings, Protection and Rural.

MetLife Insurance -

MetLife India Insurance Company Limited is another popular player in Indian insurance sector.
A joint venture between the Jammu and Kashmir Bank, M. Pallonji and Co. Private Limited and
other private investors and MetLife International Holdings, Inc., MetLife Insurance offers a wide
range of financial solutions to its customers including Met Suraksha, Met Suraksha TROP, Met
Mortgage Protector and Met Suraksha Plus etc. It has its branches situated over 600 locations
across the country. More than 50,000 Financial Advisors work for MetLife.

ING Vysya Life Insurance -

ING Vysya Life Insurance entered into the Indian insurance industry in September 2001. A joint
venture between ING Group, Ambuja Cements, Exide Industries and Enam Group, ING Vysya
Life Insurance uses its two channels, viz. the Alternate Channel and the Tied Agency Force to
distribute its products. The first channel has branches in 234 cities across the country and has got
366 sales teams. On the other hand, the later one has more than 60,000 advisors. Currently, ING
Vysya Life Insurance has tie ups with more than 200 cooperative banks.

Birla Sun Life Financial Services -

Birla Sun Life Financial Services is a joint venture between Aditya Birla Group and Sun Life
Financial Inc, Canada. It has got an extensive network of more than 600 branches. More than
1,75,000 empanelled advisors work for Birla Sun Life, which currently covers over 2 million
lives.

MAX New York Life -

Max New York Life Insurance Company Ltd. is one of the top insurance companies in India. A
joint venture between Max India Limited and New York Life International (a part of the Fortune
100 company - New York Life), Max New York Life Insurance Company Ltd. started its
operation in April 2001. It currently has around 715 offices located in 389 cities across the
country. It also has around 75,832 agent advisors. Max New York Life offers 39 products, which
cover both, life and health insurance.

Bajaj Allianz -

Bajaj Allianz is a joint venture between Bajaj Finserv Limited and Allianz SE, where Bajaj
Finserv Limited holds 74% of the stake, whereas Allianz SE holds the rest 26% stake. Bajaj
Allianz has been rated iAAA by ICRA for its ability to pay claims. The company also achieved a
growth of 11% with a premium income of Rs. 2866 crore as on March 31, 2009.

Bharti AXA Life Insurance -

Bharti AXA Life Insurance, one of the top insurance companies in India, is a joint venture
between Bharti group and world leader AXA. Bharti holds 74% stakes, whereas AXA holds the
rest of 26%. Bharti AXA has its branches located in 12 states across the country. It offers a range
of individual, group and health plans for its customers. Currently more than 8000 employees
work for Bharti AXA Life Insurance.