DEVELOPMENT OF INSURANCE LEGISLATION IN

INDIA AND INSURANCE ACT 1938

 Insurance has deep rooted history and it finds mention in the writings
of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya
(Arthasastra).

The writings in terms of Pooling of resources that could be re-

distributed in times of calamities such as Fire, Floods, Epidemics and
Famine.

Ancient Indian history has preserved traces of Insurance in the form

of Marine Trade Loans and Carriers Contracts.
 The Constitution of India is federal in nature. There is division of
powers between the Centre and States.

Insurance is included in the Union List, Wherein the subjects included

in this list are of the exclusive legislative competence of the Centre.

The Central Legislature is empowered to regulate the Insurance

Industry in India and hence the law in this regard is uniform
throughout the territories of India.
Stages in the development of Life Insurance in India
Oriental Life Insurance Company in 1818 (British Firm)
Bombay Life Assurance Company in 1823
The Madras Equitable Life Insurance Society in 1829
Oriental Life Assurance Company in 1874
Bombay Mutual Life Assurance Society in 1871
(Prior to establishment of this Insurer Indians were charged an extra
premium up 20% as compared to British nationals
Few Foreign Insurers which dominated the Indian Markets prior to
Independence Era.
Albert Life Assurance
Royal Insurance
Liverpool Insurance
London Globe Insurance
 In 1912, the Indian Life Assurance Companies Act was enacted as the
first statute to regulate the life insurance business (Based on English
Act of 1909).
For Other Lines of Insurance Business, legislative controls were not
considered satisfactory.
In 1928, the Indian Insurance Companies Act was enacted to enable
the Government to collect statistical information about both life and
non-life insurance businesses. The Insurance Act was subsequently
reviewed and a comprehensive legislation was enacted called the
Insurance Act, 1938
Presently 24 Life Insurers including one Public sector are operating in
Indian Insurance market.
1. Bajaj Allianz Life Insurance Company Ltd (H O Pune)
2. Birla Sun Life Insurance Company Ltd (H O Mumbai)
3. HDFC Standard Life Insurance Company Ltd (H O Mumbai)
4. ICICI Prudential Life Insurance Company Ltd (H O Mumbai)
5. Exide Life Insurance Company Ltd (H O Bengaluru)
6. Life Insurance Corporation of India (H O Mumbai)
7. Max Life Insurance Company Ltd (H O Gurugram)
8. PNB Metlife India Insurance Company Ltd (H O Mumbai)
9. Kotak Mahindra Old Mutual Life Insurance Company Ltd
(H O Mumbai)
10. SBI Life Insurance Company Ltd (H O Mumbai)
11. Tata AIA Life Insurance Company Ltd (H O Mumbai)
12. Reliance Nippon Life Insurance Company Ltd (H O Mumbai)
13. Aviva Life Insurance Company Ltd (H O Gurugram)
14. Sahara India Life Insurance Company Ltd (H O Lucknow)
15. Shriram Life Insurance Company Ltd (H O Hyderabad)
16. Bharti AXA Life Insurance Company Ltd (H O Mumbai)
17. Future Generali India Life Insurance Company Ltd
(H O Mumbai)
18. IDBI Federal Life Insurance Company Ltd (H O Mumbai)
19. Canara HSBC Oriental Bank of Commerce Life Insurance
Company Ltd (H O Mumbai)
20. AEGON Life Insurance Company Ltd (H O Mumbai)
21. DHFL Pramerica Life Insurance Company Ltd (H O Mumbai)
22. Star Union Dai-ichi Life Insurance Company Ltd (H O Mumbai)
23. India First Life Insurance Company Ltd (H O Mumbai)
24. Edelweiss Tokio Life Insurance Company Ltd (H O Mumbai)
Stages in the development of General Insurance in India
First General Insurer Estd by British Nationals was Triton Insurance
Company Limited 1850 (Kolkata Erstwhile Calcutta)
First General Insurer Estd by Indian was Indian Mercantile Insurance
Company Limited in 1907 (Mumbai Erstwhile Bombay)
In 1928, the Indian Insurance Companies Act was enacted to enable
the Government to collect statistical information about both life and
non-life insurance businesses. The Insurance Act was subsequently
reviewed and a comprehensive legislation was enacted called the
Insurance Act, 1938
Presently 31 Non Life Insurers including 4 Public Sector Units, 1
Agriculture Insurer, 1 Export credit guarantee corporation, 6
Standalone Health Insurers and 19 Private Insurers are operating
in Indian Insurance market.
1. Bajaj Allianz General Insurance Company Ltd (H O Pune)
2. ICICI Lombard General Insurance Company Ltd (H O Mumbai)
3. IFFCO Tokio General Insurance Company Ltd (H O Gurugram)
4. National Insurance Company Ltd (H O Kolkata) PSU
5. The New India Assurance Company Ltd (H O Mumbai) PSU
6. The Oriental Insurance Company Ltd (H O New Delhi) PSU
7. United India Insurance Company Ltd (H O Chennai) PSU
8. Reliance General Insurance Company Ltd (H O Mumbai)
9. Royal Sundaram General Insurance Company Ltd (H O Chennai)
10. Tata AIG General Insurance Company Ltd (H O Mumbai)
11. Cholamandalam MS General Insurance Company Ltd (H O
Chennai)
12. HDFC ERGO General Insurance Company Ltd (H O Mumbai)
13. Export Credit Guarantee Corporation of India Ltd (H O Mumbai)
14. Agriculture Insurance Company of India Ltd (H O New Delhi)
15. Star Health and Allied Insurance Company Ltd (H O Chennai)
16. Apollo Munich Health Insurance Company Ltd (H O Gurugram)
17. Future Generali India Insurance Company Ltd (H O Mumbai)
18. Universal Sompo General Insurance Company Ltd (H O Mumbai)
19. Shriram General Insurance Company Ltd (H O Jaipur)
20. Bharti AXA General Insurance Company Ltd (H O Bengaluru)
21. Raheja QBE General Insurance Company Ltd (H O Mumbai)
22. SBI General Insurance Company Ltd (H O Mumbai)
23. Max Bupa Health Insurance Company Ltd (H O New Delhi)
24. L&T General Insurance Company Ltd (H O Mumbai) (Taken Over by HDFC Ergo)

25. Religare Health Insurance Company Ltd (H O Gurugram)

26. Magma HDI General Insurance Company Ltd (H O Kolkata)
27. Liberty Videocon General Insurance Company Ltd (H O Mumbai)
28. Cigna TTK Health Insurance Company Ltd (H O Mumbai)
29. Kotak Mahindra General Insurance Company Ltd (H O Mumbai)
30. Aditya Birla Health Insurance Company Ltd (H O Mumbai)
31. DHFL General Insurance Ltd (H O Mumbai)
 The 6 Standalone Health Insurers are registered to underwrite
policies exclusively in Health, Personal Accident and Travel Insurance
Segments in India.
Export Credit Guarantee Corporation of India Ltd is a specialized
insurer in Credit Insurance in India
Agriculture Insurance Company of India Limited (AIC) was
incorporated under the Indian Companies Act 1956 on 20th
December, 2002 with an authorised share capital of INR 15 billion and
paid up capital of INR 2 billion.
the implementation and administration of crop insurance schemes,
which were being done by General Insurance Corporation of India
(GIC), was taken over by Agriculture Insurance Company of India Ltd.
(AIC) since its commencement of business from 1st April 2003.
Other Stake Holders in Indian Insurance
Markets
Licensed Individual Agents
Licensed Corporate Agents
Insurance Brokers
Common Service Centres
Web- Aggregators
Insurance Surveyors and Loss Assessor
Third Party Administrators (TPAs) servicing Health Insurance Claims
Nationalisation of the Insurance Business in India
On January 19, 1956, the management of Life Insurance business of 245
(Including of 154 Indian and 16 foreign insurer and 75 provident societies).
Then operating in India was taken over by the Central Government.
The Life Insurance Corporation of India had monopoly till the late 90s when
the Insurance sector was reopened to the private sector.
The Life Insurance Corporation of India (LIC) was formed in 1st September
1956 by the Life Insurance Corporation Act, 1956 (LIC Act) which granted
LIC the exclusive privilege to conduct Life Insurance business in India.
Nationalisation was accomplished in 2 stages
Initially the management of the companies was taken over by means of an
ordinance
Later, the ownership of the companies was taken by means of a
comprehensive bill
 The general insurance business was also nationalized with effect from
January 1, 1973, through the introduction of the General Insurance
Business (Nationalisation) Act , 1972 (GIC Act)
Prior to 1973, there were 107 General Insurers including foreign
Insurers which were amalgamated and grouped into four subsidiaries
of General Insurance Corporation namely
National Insurance Company Ltd (H O Kolkata) Estd 1906

The New India Assurance Company Ltd (H O Mumbai) Estd 1919

United India Insurance Company Ltd (H O Chennai) Estd 1938

The Oriental Insurance Company Ltd (H O New Delhi) Estd 1947

Insurance Sector Reforms
In 1993, Government of India appointed R N Malhotra Committee to
lay down road map for opening up of the Insurance Sector to Private
Sector Participation.
The Committee submitted its report in 1994, enabling legislation was
passed in the year 1999, amending the Insurance Act 1938 and
legislating the IRDAI Act of 1999
The same year IRDAI started issuing licenses to Private Insurance
companies registered under Companies Act 1956 (Amended
Presently) to be set up with sole purpose of carrying out Life
Insurance Business, General Insurance Business and Reinsurance
Business
 As per the Foreign Direct Investment (FDI) norms, foreign participation in
India Insurance Company was restricted to 26% equity/ordinary sharing
capital with the balance being funded by Indian Promoter entities.
In April 2015 the Reserve Bank of India notified governments decision to
raise FDI in Insurance Sector to 49%
Prior to 2015, up to 26 per cent FDI is permitted through the automatic
approval route. For FDI up to 49 per cent, the approval of the Foreign
Investment Promotion Board is required.
The foreign investment proposals up to 49 per cent of the total paid up
equity of the Indian insurance company shall be allowed on the
automatic route subject to verification by the Insurance Regulatory and
Development Authority of India.
The Insurance Laws (Amendment) Bill, 2015. It was first passed in Lok
Sabha on 4 March 2015 and later in Rajya Sabha on 12 March 2015,
Insurance Association of India, Councils and
Committees
All Insurers and provident societies incorporated or domiciled in India
are Members of Insurance Association of India (IAI) Sec 64 A
All Insurers and Provident societies incorporated or domiciled
elsewhere other than in India are associate members of the IAI
There are two councils of the Insurance Association, Namely
I. The Life Insurance Council
II. The General Insurance Council
The Life Insurance Council (https://www.lifeinscouncil.org)
It is a forum that connects the various stakeholders of the Life
Insurance sector.
It Develops and Coordinates all discussions between the Government,
Regulatory Body and the Public
In short it is the face of the Life Insurance Industry
It Constituted under Sec 64C of the Insurance Act 1938,
It fixes the limits for actual expenses of Management by which the
insurer carrying on life insurance business or any group of insurers
can exceed from prescribed limits under the Insurance Act.
 Mission of Life Insurance Council
To function as an active forum to aid, advise and assist insurers in
maintaining high standards of conduct and service to policyholders.
Interact with the Government and other bodies on policy matters.
Actively participate in spreading insurance awareness in India.
Take steps to develop education and research in insurance.
Help India enjoy the benefits of global practices.
The General Insurance Council (https://www.gicouncil.in)
The General Insurance Council recognizes its role in the changing
business environment by articulating the following vision and mission.
The Vision for the industry and the GI Council:
A sustainably profitable and growing non-life insurance industry in
India.
An industry trusted and recognised as contributing to society and the
economy.
An economic and public policy climate conducive to a flourishing
industry.
A body (GI Council) recognised as providing active leadership and an
authoritative collective voice for the non-life insurance industry in
India.
The GI Council's mission:
To provide leadership on issues having a bearing on the industry's
collective strength and image and to shape and influence decisions
made by the Government, regulator and other public authorities,
within the country, in order to benefit the industry collectively.
 This will be achieved on an active, collective and non-competitive basis by:
pro-active analysis and lobbying to secure improvement in the legal and
regulatory framework.
analysis and representations in response to initiatives from others which
affect the industry.
being recognised as a leading contributor to public policy thinking on
issues relevant to non-life insurance industry.
presenting a positive image of the industry to the public, the media and
other opinion-formers.
providing leadership and guidance to the industry on issues which may
affect its public image and reputation.
maintaining a core secretariat with staff of high caliber and relevant skills
drawn from the industry on project to project basis, working under the
guidance of the Board and its committees, focused on delivering the
mission.
 The General Insurance Council, through its Executive Committee, may
fix the limits for actual expenses of Management incurred by an
insurer carrying on general insurance business which may exceed
from prescribed limits under the Insurance Act.
GI Council will provide other services to member companies (such as
an active role in management of commercial vehicle third party
liability motor pool) which benefit the industry collectively and such
activities carried on by GI Council cannot be done more effectively by
any other body.
General Insurance Business (Nationalisation) Act,
1972 (GIBNA)
The General Insurance Corporation of India (GIC) was formed as a government
company under sub section (1) of section 9 of the General Insurance Business
(Nationalisation) Act, 1972 (GIBNA, 1972) and it commenced business from
January 1, 1973.
The Purpose of establishment if GIC as a holding company of the four operating
subsidiaries companies, as stated in the General Insurance Business
(Nationalisation) Act, was superintending, controlling and carrying on the
business of General Insurance.
The Act was later amended in the year 2002 by passing another Act, namely,
General Insurance Business (Nationalization) Amendment Act 2002. After this
amendment in the Act, GIC ceased to superintend, control and carry on the
general insurance business, but it would carry on reinsurance business only.
GIC was designated as the Indian Reinsurer (GIC-Re) to which all the domestic
Insurers were obliged to cede 20% of Gross direct premium in India. In order to
ensure retention of maximum business in the country and to secure the best
terms for foreign reinsurers.
 Liberalisation of Insurance markets

Liberalisation of Insurance involves transformation of the industry from a Government

monopoly to a competitive environment. Free markets allow for better resource allocation and
creation of wealth and prosperity of people and the country. It enables development of health
care, education and infrastructure of the country. In a liberalized insurance market, consumers
are able to choose from different insurance providers having a wide range of products.
A liberal insurance market is one in which the market determines who should be allowed to
sell insurance, what, how and the prices at which these insurance products should be sold. The
issues like market access and equality of competitive opportunity and national treatment will
decide who will be allowed to sell insurance. Second and fourth items commonly deal with
issues such as product, price and market conduct regulation.
There are certain pre-conditions to make liberalisation of insurance effective:
Sound competition law
Efficient and reliable regulation
Phased liberalisation
Consistency and impartiality between competitors
Optimum quantum of regulation
Efficient disclose and dissemination of information to the society.
Insurance markets in India possess certain imperfections justifying the need for
competition as well as regulation.