Professional Documents
Culture Documents
Tapen Sinha
by
Abstract
We examine the institution of insurance in India. Over the past century, Indian insurance
industry has gone through big changes. It started as a fully private system with no
restriction on foreign participation. After the independence, the industry went to the
other extreme. It became a state-owned monopoly. In 1991, when rapid changes took
place in many parts of the Indian economy, nothing happened to the institutional structure
of insurance: it remained a monopoly. Only in 1999, a new legislation came into effect
signaling a change in the insurance industry structure. We examine what might happen
in the future when the domestic private insurance companies are allowed to compete with
some foreign participation. Because of the time dependence of insurance contracts, it is
highly unlikely that these erstwhile monopolies are going to disappear.
Acknowledgement: I would like to thank Rebecca Benedict and Samik Dasgupta for their
input in this article without implication. The views expressed here are personal. I alone
am responsible for any error.
1
Introduction
Insurance in India started without any regulation in the Nineteenth Century. It
was a typical story of a colonial era: a few British insurance companies dominating the
market serving mostly large urban centers. After the independence, it took a dramatic
turn. Insurance was nationalized. First, the life insurance companies were nationalized
in 1956, and then the general insurance business was nationalized in 1972. Only in 1999
private insurance companies have been allowed back into the business of insurance with
a maximum of 26% of foreign holding. In what follows, we describe how and why of
regulation and deregulation. The entry of the State Bank of India with its proposal of
bancassurance brings a new dynamics in the game. We study the collective experience of
the other countries in Asia already deregulated their markets and have 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
Life insurance in the modern form was first set up in India through a British
company called the Oriental Life Insurance Company in 1818 followed by the Bombay
Assurance Company in 1823 and the Madras Equitable Life Insurance Society in 1829.
All of these companies operated in India but did not insure the lives of Indians. They
were there insuring the lives of Europeans living in India. Some of the companies that
started later did provide insurance for Indians. But, they were treated as "substandard"
and therefore had to pay an extra premium of 20% or more. The first company that had
2
policies that could be bought by Indians with "fair value" was the Bombay Mutual Life
The first general insurance company, Triton Insurance Company Ltd., was
established in 1850. It was owned and operated by the British. The first indigenous
general insurance company was the Indian Mercantile Insurance Company Limited set up
in Bombay in 1907.
By 1938, the insurance market in India was buzzing with 176 companies (both
life and non-life). However, the industry was plagued by fraud. Hence, a comprehensive
set of regulations was put in place to stem this problem (see Table 1). By 1956, there
provident societies that were issuing life insurance policies. Most of these policies were
centered in the cities (especially around big cities like Bombay, Calcutta, Delhi and
3
TABLE 1
MILESTONES OF INSURANCE REGULATIONS IN THE 20TH CENTURY
Year Significant Regulatory Event
1912 The Indian Life Insurance Company Act
1938 The Insurance Act: Comprehensive Act to regulate insurance business in India
1956 Nationalization of life insurance business in India
1972 Nationalization of general insurance business in India
1993 Setting up of Malhotra Committee
1994 Recommendations of Malhotra Committee
1995 Setting up of Mukherjee Committee
1996 Setting up of (interim) Insurance Regulatory Authority (IRA)Recommendations
of the IRA
1997 Mukherjee Committee Report submitted but not made public
1997 The Government gives greater autonomy to LIC, GIC and its subsidiaries with
regard to the restructuring of boards and flexibility in investment norms aimed
at channeling funds to the infrastructure sector
1998 The cabinet decides to allow 40% foreign equity in private insurance
companies-26% to foreign companies and 14% to NRI’s, OCB’s and FII’s
1999 The Standing Committee headed by Murali Deora decides that foreign equity in
private insurance should be limited to 26%. The IRA bill is renamed the
Insurance Regulatory and Development Authority (IRDA) Bill
1999 Cabinet clears IRDA Bill
2000 President gives Assent to the IRDA Bill
Sources: Various
Monopoly Raj
The nationalization of life insurance was justified mainly on three counts. (1) It
was perceived that private companies would not promote insurance in rural areas. (2)
The Government would be in a better position to channel resources for saving and
investment by taking over the business of life insurance. (3) Bankruptcies of life
insurance companies had become a big problem (at the time of takeover, 25 insurance
companies were already bankrupt and another 25 were on the verge of bankruptcy). The
4
Life Story of the Life Insurance Corporation
The life insurance industry was nationalized under the Life Insurance Corporation
(LIC) Act of India. In some ways, the LIC has become very successful. (1) Despite
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. (2) The level of customer satisfaction is high for the LIC (one of the
findings of the Malhotra Committee, see below). This is somewhat surprising given the
frequent delays in claim settlement. (3) Market penetration in the rural areas has grown
substantially. 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
One exogenous factor has helped the LIC to grow rapidly in recent years: a high
saving rate in India. Even though the saving rate is high in India (compared with other
countries with a similar level of development), Indians exhibit 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. In
addition, some 1.3- percent of the GDP are in life insurance related savings vehicles.
In many countries, insurance has been a form of savings. Table 2 shows that in
developing countries is more surprising. For example, South Africa features at the
5
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 bodes well for
future growth. Specifically, when the income level improves, insurance (especially life)
Table 2
LIFE INSURANCE PREMIUM AS PERCENTAGES OF THE GROSS
DOMESTIC SAVING (GDS) AND THAT OF GROSS DOMESTIC PRODUCT (GDP)
Rank Country % of GDS % of GDP
1. United Kingdom 52.50 7.31
2. South Africa 51.55 10.32
3. Japan 32.46 10.10
4. France 26.20 4.91
5. USA 25.20 3.63
6. South Korea 23.66 9.10
7. Finland 23.10 4.98
8. Switzerland 21.92 5.99
9. Netherlands 19.04 4.51
10. Israel 18.84 4.41
11. Sweden 17.88 3.51
12. Australia 17.78 3.48
13. Canada 17.05 3.04
14. Zimbabwe 15.88 6.27
15. Ireland 14.96 4.59
16. Greece 13.87 1.12
17. New Zealand 12.75 3.04
18. Taiwan 12.29 3.64
19. Denmark 12.00 2.71
20. Spain 11.68 2.23
21. Germany 11.40 2.80
22. Norway 9.57 2.33
23. Belgium 9.13 2.38
24. Portugal 8.76 1.65
25. Austria 6.96 2.10
26. Chile 6.96 1.95
27. India 5.95 1.29
28. Italy 5.60 1.13
29. Malaysia 5.35 2.30
30. Singapore 4.72 2.73
Source: Roy (1999). Figures for 1994.
6
The General Insurance Corporation
Although efforts were made to maintain an open market for the general insurance
industry by amending the Insurance Act of 1938 from time to time, malpractice escalated
beyond control. Thus, the general insurance industry was nationalized in 1972. The
General Insurance Corporation (GIC) was set up as a holding company. It had four
subsidiaries: New India, Oriental, United India and the National Insurance companies
(collectively known as the NOUN). It was understood that these companies would
compete with one another in the market. It did not happen. They were supposed to set
up their own investment portfolios. That did not happen either. It began to happen after
29 years. The NOUN has kicked off an internal exercise to segregate the entire
The GIC has a quarter of a million agents. It has more than 2,500 branches, 30
million individual and group insurance policies and assets of about USD 1,800 million at
market value (at the end of 1999). It has been suggested that the GIC should close 20-
25% of its nonviable branches (Patel, 2001). The GIC has so far been the holding
company and re-insurer for the state-run insurers. It reinsured about 20% of their
business.
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).
7
Malhotra Committee
released in 1994 by the Malhotra Committee, indicating that the market should be opened
investigated the level of satisfaction of the customers of the LIC. Curiously, the level of
customer satisfaction seemed to be high. The union of the LIC made political capital out
The following are the purposes of the committee. (a) To suggest the structure of
the insurance industry, to assess the strengths and weaknesses of insurance companies in
terms of the objectives of creating an efficient and viable insurance industry, to have a
wide coverage of insurance services, to have a variety of insurance products with a high
resources for development. (b) To make recommendations for changing the structure of
the insurance industry, for changing the general policy framework etc. (c) To take
specific suggestions regarding LIC and GIC with a view to improve the functioning of
LIC and GIC. (d) To make recommendations on regulation and supervision of the
insurance sector in India. (e) To make recommendations on the role and functioning of
surveyors, intermediaries like agents etc. in the insurance sector. (f) To make
recommendations on any other matter which are relevant for development of the
(a) The LIC should be selective in the recruitment of LIC agents. Train these people after
the identification of training needs. (b) The committee suggested that the Federation of
8
Insurance Institute, Mumbai should start new courses and diploma courses for
intermediaries of the insurance sector. (c) The LIC should use an MBA specialized in
(c) It suggested that settlement of claims were to be done within a specific time frame
without delay. (d) The committee has several recommendations on product pricing,
vigilance, systems and procedures, improving customer service and use of technology.
(f) It also made a number of recommendations to alter the existing structure of the LIC
and the GIC. (g) The committee insisted that the insurance companies should pay special
attention to the rural insurance business. (h) In the case of liberalization of the insurance
sector the committee made several recommendations, including entry to new players and
the minimum capital level requirements for such new players should be Rs. 100 crores
(about USD 24 million). However, a lower capital requirement could be considered for a
co-operative sectors' entry in the insurance business. (i) The committee suggested some
norms relating to promoters’ equity and equity capital by foreign companies, etc.
Mukherjee Committee
committee (called the Mukherjee Committee) was set up to make concrete plans for the
Mukherjee Committee were never made 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. He argued (probably on the advice of some of the potential entrants)
9
Insurance Regulatory Act (1999)
After the report of the Malhotra Committee came out, changes in the insurance
The dramatic climax came in 1999. On March 16, 1999, the Indian Cabinet
approved an Insurance Regulatory Authority (IRA) Bill that was designed to liberalize
the insurance sector. The bill was awaiting ratification by the Indian Parliament.
However, the BJP Government fell in April 1999. The deregulation was put on hold
once again.
An election was held in late 1999. A new BJP-led government came to power.
On December 7, 1999, the new government passed the Insurance Regulatory and
Development Authority (IRDA) Act. This Act repealed the monopoly conferred to the
Life Insurance Corporation in 1956 and to the General Insurance Corporation in 1972.
The authority created by the Act is now called IRDA. It has ten members.
New licenses are being given to private companies (see below). IRDA has
separated out life, non-life and reinsurance insurance businesses. Therefore, a company
has to have separate licenses for each line of business. Each license has its own capital
requirements (around USD24 million for life or non-life and USD48 million for
reinsurance).
On July 14, 2000, the Chairman of the IRDA, Mr. N. Rangachari set forth a set of
regulations in an extraordinary issue of the Indian Gazette that details of the regulation.
Regulations
10
The first covers the Insurance Advisory Committee that sets out the rules and
regulation.
The second stipulates that the "Appointed Actuary" has to be a Fellow of the
Actuarial Society of India. Given that there has been a dearth of actuaries in India with
the qualification of a Fellow of the Actuarial Society of India, this becomes a requirement
of tall order. As a result, some companies have not been able to attract a qualified
Appointed Actuary (Dasgupta, 2001). The IRDA is also in the process of replacing the
Curiously, for life insurers the Appointed Actuary has to be an internal company
Third, the Appointed Actuary would be responsible for reporting to the IRDA a
Fourth, insurance agents should have at least a high school diploma along with
training of 100 hours from a recognized institution. More than a dozen institutions have
been recognized by the IRDA for training insurance agents (the list appears online at
http://www.irdaonline.org/press.asp).
Fifth, the IRDA has set up strict guidelines on asset and liability management of
the insurance companies along with solvency margin requirements. Initial margins are
set high (compared with developed countries). The margins vary with the lines of
business (for example, fire insurance has a lower margin than aviation insurance).
11
Sixth, the disclosure requirements have been kept rather vague. This has been
recommendations.
Seventh, all the insurers are forced to provide some coverage for the rural sector.
(1) In respect of a life insurer, (a) five percent in the first financial year; (b) seven
percent in the second financial year; (c) ten percent in the third financial year; (d) twelve
percent in the fourth financial year; (e) fifteen percent in the fifth year (of total policies
written direct in that year). (2) In respect of a general insurer, (a) two percent in the first
financial year; (b) three percent in the second financial year; (c) five percent thereafter (of
New Entry
Immediately after the passage of the Act, a number of companies announced that
they would seek foreign partnership. In mid-2000, the following companies made public
statements that they already were in the process of setting up insurance business with
foreign partnerships (see Table 3). However, not all the partnerships panned out in the
12
TABLE 3
INDIAN COMPANIES WITH FOREIGN PARTNERSHIP
Indian Partner International Partner
Alpic Finance Allianz Holding, Germany
Tata American Int. Group, US
CK Birla Group Zurich Insurance, Switzerland
ICICI Prudential, UK
Sundaram Finance Winterthur Insurance, Switzerland
Hindustan Times Commercial Union, UK
Ranbaxy Cigna, US
HDFC Standard Life, UK
Bombay Dyeing General Accident, UK
DCM Shriram Royal Sun Alliance, UK
Dabur Group Allstate, US
Kotak Mahindra Chubb, US
Godrej J Rothschild, UK
Sanmar Group Gio, Australia
Cholamandalam Guardian Royal Exchange, UK
SK Modi Group Legal & General, Australia
20th Century Finance Canada Life
M A Chidambaram Met Life
Vysya Bank ING
Source: U.S. Department of State FY 2001 Country Commercial Guide: India
Three days before the deadline that the IRDA had set upon itself (October 25, 2000),
(1) HDFC Standard Life. This will be jointly set up by India's Housing Development
Finance Company - the largest housing finance company in India and the Scotland
Sundaram Finance and three other companies of the TVS Group of Chennai (Madras)
(3) Reliance General Insurance. This company is fully owned by Mumbai based
finance industries.
13
There are three other companies with "in principal" approvals:
(1) Max New York Life. It is a partnership between Delhi based pharmaceutical
company Max India and New York Life, the New York based life insurance
company.
(2) ICICI Prudential Life Insurance Company. This is a joint venture between Mumbai
based Industrial Credit & Investment Corporation and the London based Prudential
PLC.
(3) IFFCO Tokio General Insurance Company. It is a joint venture between Indian
To date (end of April 2001), the following companies have thus been granted
licenses: ICICI -Prudential, Reliance General, Reliance Life, Tata-AIG General, HDFC-
Cardiff Life. Note that all of these companies are either in the life insurance business or
in the non-life insurance business. No license has been granted for reinsurance business
so far (the size of the reinsurance business can be 10-20% of the total revenue). No
partnership with Cardif SA (the insurance arm of BNP Paribas Bank). This partnership
won over several others (with Fortis and with GE Capital). The entry of the SBI has been
awaited by many. It is well known that the SBI has long harbored plans to become a
universal bank (a universal bank has business in banking, insurance and in security). For
14
a bank with more than 13,000 branches all over India, this would be a natural expansion.
There were several reasons for this delay. First, the SBI was seeking a foreign
partner to help with new product design. Second, it did not want the partner to become
dominant in the long run (when the 26% foreign investment cap is eventually lifted). It
wanted to retain its own brand name. Third, it wanted a partner that is well versed in the
universal banking business. This ruled out an American partner (where underwriting
insurance business by banks have been strictly forbidden by law). Cardif is the third
largest insurance company in France. More than 60% of life insurance policies in France
are sold through the banks. Fourth, the Reserve Bank of India (RBI) needed to clear
participation by the SBI because in India banks are allowed to enter other businesses on a
Over the course of the next twelve months, the SBI will sell insurance in 100
branches. Over a period of 2-3 years it will expand operation in 500 branches. Initially it
will hold 74% ownership of the joint venture company with Cardif. Over time, it will
The SBI entry is groundbreaking for several reasons. This was the first for a bank
to enter the insurance market. This kind of synergy between a bank and an insurance
company is extremely rare in many parts of the world. In Continental Europe, it is called
bancassurance (in France) or allfinanz (in Germany). Second, even though the regulators
have said that banks would not (generally) be allowed to hold more than 50% of an
insurance company, the SBI was allowed to do so (with a promise that its share would be
eventually diluted).
15
Broken Marriages
Several partnerships broke down during the year 2000. Probably the most
dramatic breakdown took place between Hindustan Times (a newspaper group) and the
Commercial Union of the UK. The management of Hindustan Times realized that they
are heavily reliant on a steady daily cash flow (Kumari, 2001). Insurance is a completely
different business. Their shareholders would revolt if they faced large one-time losses
Similarly, by the end of July 2000, Kotak-Mahindra and Chubb declared their
divorce. Dabur Group and Allstate also parted company. Allianz and Alpic broke their
partnership.
Re-pairing of Partners
A curious trend has developed by the end of 2000. Several divorced partners
have come back to the field to tie knots to some other partners. Dabur has decided to tie
the knot with another divorcee - Commercial Union. Allianz has announced a new
At present, 312 million middle class consumers in India have enough financial
resources to purchase insurance products like pension, health care, accident benefit, life,
property and auto insurance. Only 2.5 per cent of this insurable population, however,
have insurance coverage in any form. The potential premium income is estimated at
around US $80 billion. This will place India as the sixth largest market in the world
16
Lessons from China
China is the most populous country in the world (at 1.2 billion); India is a close
second (just over a billion). Both have followed the path of deregulation and
processes are described in Sinha and Sinha (1997). In this section, I will concentrate only
on the insurance industry in the two countries. The insurance business in India has a
premium volume of $8.3 billion in 1999 whereas in China the premium volume is $16.8
billion in 1999. However, premium per capita is not all that dissimilar: $13.7 per person
in China and $8.5 in India in 1999. As a percent of GDP, insurance is 1.93% in India and
between 1949 and 1959. In 1959, insurance business was deemed capitalistic and all
forms of insurance were suspended (and the insurance business was taken over by the
Peoples Bank of China). The insurance business reopened in 1979, the PICC reassumed
There are many differences in the way China and India have handled
deregulation. First, in China, the China Insurance Regulatory Commission (CIRC) was
set up in November 1998, well after the first Insurance Law was promulgated in 1995. In
India, the IRDA was launched first with the authority to issue licenses. It took almost a
year before it issued licenses for the first set of private insurance companies. Second, in
China, foreign insurers need to have a representative office for three years before they
can submit a proposal for operation (in practice, this has been reduced to two years in
some cases). In India, there is no such requirement. Third, foreign insurers can only own
17
25% of the total value of the market (although, in reality, it has been much less than that
in Shanghai). In India, the limit is set at 26% per company. In China, there is no limit at
the company level. Thus, a foreign company can own 100% of an approved insurance
company in China. Fourth, in India, the licenses are national. A company with a license
can operate in any part of the country. In China, on the other hand, foreign companies
are restricted to operation in two metropolitan areas: Shanghai and Guangzhou. Fifth, the
IRDA is a law-implementing body. It can only interpret the laws that have been passed
by the Indian Parliament. On the other hand, it seems that the CIRC has been a law-
making body, it is setting up rules as it sees fit. Sixth, China seems to have been forced
to issue insurance licenses to a host of foreign companies by the end of 2000 simply
because it wanted an assured entry into the World Trade Organization (WTO). In India,
In this section, we gaze into the future of the insurance industry in India. A
Convergence
In many other regions around the world, one sure sign is emerging in the
insurance business. Different parts of the financial sectors are converging. This
happened first in European Union (with the so-called Third Directive). It is now
happening in the United States with the effective repealing of the Glass-Steagall Act of
1933. In India, it will surely come. Not everybody in India, however, believes so. For
18
Rangachari said that India is not yet ready for the convergence of all financial sectors
under one supervisory authority as suggested by the banking division of the finance
ministry. The RBI (Reserve Bank of India) has erected a firewall between banks and
With the insurance sector transforming from total regulation to being opened up
after 35 years, fears have been expressed on how it would move. However, the
insurance proposals received for license by the IRDA have come in from companies who
are in the pure or applied finance sector. It may appear curious, but clearly the
companies who want to enter the insurance sector see some kind of a synergy between
How would the insurance market be divided up between the incumbent Life
Insurance Corporation and the newcomers? The Monitor Group (from Boston) has
published a study at the end of 1999 (reported in Business Today, 2000). It estimates that
the $5 billion market of life insurance in India (figure for 1998) will become a $23 billion
market by 2008. The report estimates that the LIC will have some 70-80% of the market
whereas the new companies will share some 20-30%. The bright prognostics for the LIC
come from several key observations. (1) The LIC has a vast distribution network in the
rural and semi-urban areas. This would be hard to duplicate. (2) The LIC has had a real
annual growth rate of 8% over the last decade. This is much larger than industrial
growth. Therefore, the LIC has a head start. (3) As life insurance benefits accrue over
19
time, it becomes more expensive to switch - because switching would mean a loss of
accrued benefits.
The general insurance business is expected to grow from USD 1.8 billion (1998)
to 12 billion in 2008. The Monitor Group Report predicts that the private companies
would have an easier access to the general insurance business. The market share of the
newcomers will be 40-50% of the total market. The cause for better market penetration
for the new companies come from the fact that it makes no difference for the insured to
switch companies. Unlike life insurance, it is not expensive to switch insurers. However,
the lack of good data would hamper the newcomers (see below).
Reinsurance
The GIC has decided to spin off its reinsurance business as a separate company to
be called Indian Reinsurer. The insurance business in India is less than USD $1 billion at
present (2000). In the near term (three to five years), it is expected to double in size for
two simple reasons. (1) Under the new regime, the reinsurance requirements are higher
(as a percentage of total insurance business). (2) Privately run non-life insurance
On January 26, 2001, an earthquake measuring 6.9 on the Richter scale hit parts
of Gujarat. Many buildings toppled. An estimated 20,000 persons were killed - most of
them in Bhuj district of Gujarat (around 18,000). Estimated damage was in the order of
20
The disaster was once in a lifetime event. In a curious way, it will help the new
entrants in the insurance industry in India. It is well known in the psychology literature
that disasters make people more aware of their insurance needs. Given what happened in
Gujarat, most Indians will now have a higher awareness about buying an insurance policy
cover in the new policy forms adopted from 1 April 2000 and began to offer the
(TAC) report. Many policyholders were unaware of the change and so the relatively few
individuals and companies that have been prudent enough to buy insurance may discover
Life Insurance
The traditional life insurance business for the LIC has been a little more than a
savings policy. Term life (where the insurance company pays a predetermined amount if
the policyholder dies within a given time but it pays nothing if the policyholder does not
die) has accounted for less than 2% of the insurance premium of the LIC (Mitra and
Nayak, 2001). For the new life insurance companies, term life policies would be the
21
Health Insurance
most other countries with the same level of economic development. Of that, 4.7% is
private and the rest is public. What is even more striking is that 4.5% are out of pocket
expenditure (Berman, 1996). There has been an almost total failure of the public health
care system in India. This creates an opportunity for the new insurance companies.
Thus, private insurance companies will be able to sell health insurance to a vast number
of families who would like to have health care cover but do not have it.
Pension
The pension system in India is in its infancy. There are generally three forms of
plans: provident funds, gratuities and pension funds. Most of the pension schemes are
confined to government employees (and some large companies). The vast majority of
workers are in the informal sector. As a result, most workers do not have any retirement
benefits to fall back on after retirement. Total assets of all the pension plans in India
Therefore, there is a huge scope for the development of pension funds in India.
The finance minister of India has repeatedly asserted that a Latin American style reform
of the privatized pension system in India would be welcome (Roy, 1997). Given all the
pros and cons, it is not clear whether such a wholesale privatization would really benefit
22
Other Non-Life Insurance
The flurry of activities of the new companies in the life insurance market has not
been repeated in other types of insurance. The reason is basic: lack of data. Unless the
new companies have access to reliable data on accidents of different kinds under Indian
Conclusions
It seems unlikely that the LIC and the GIC will shrivel up and die within the next
decade or two. The IRDA has taken a "slowly slowly" 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 incentive for the
newcomers; too relaxed regulations may induce failure and fraud that led to
India is not unique among the developing countries where the insurance business
has been opened up to foreign competitors. From Table 4, we observe that the openness
of the market did not mean a takeover by foreign companies even in a decade. Thus, it is
unlikely that the same will happen in India, especially when the foreign insurers cannot
23
TABLE 4
RESULTS OF OPENNESS AND FOREIGN PENETRATION OF INSURANCE IN ASIA
Country Years
Years Market Open Foreign Penetration
0-5 6-10 11+ 0-10% 11-20%
China X (partial) X
Malaysia X X
Taiwan X X
Korea X X
Indonesia X X
Japan X X
Source: Speech by Lawrence P. Moews, CEO, Allstate International, International
Insurance Society Conference, Sydney, Australia, 1997.
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.
Growth in per capita GDP also helps the insurance business to grow.
24
References
Berman, Peter. "Rethinking Health Care Systems: Private Health Care Provision in
India." Harvard School of Public Health Working Paper, November 1996.
Business Today. "The Monitory Group Study on Insurance I and II." March 22 and April
7, 2000.
Dasgupta, Samik. "RSA, Iffco-Tokio yet to appoint actuaries," Economic Times, January
23, 2001.
Kumari, Vaswati, "India Insurers Seek Perfect Partners." National Underwriters, March
5, 2001, 38-39.
Mitra, Sumit and Nayak, Shilpa. "Coming to Life." India Today, May 7, 2001.
Patel, Freny. "Centre wants GIC to merge unviable outfits before recast." Business
Standard, April 13, 2001.
Roy, Abhijit. "Pension fund business in India." The Hindu, July 16, 1997, p. 25.
Roy, Samit. "Insurance Sector: India." Industry Sector Analysis, National Trade and
Development Board, US Department of State, Washington, DC, December 1999.
Sinha, Tapen. Pension Reform in Latin America and Its Implications for International
Policymakers. Boston, USA, Huebner Series Volume No. 23, Kluwer Academic
Publishers, 2000.
Sinha, Tapen and Sinha, Dipendra. "A Comparison of Development Prospects in India
and China." Asian Economies, Vol. 27(2), June 1997, 5-31.
25