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The Insurance industry in India has witnessed a paradigm shift in recent years. The article would help in understanding the evolution of the insurance industry in India.

Insurance Sector

Before Independence
The insurance industry originated in India in the year 1818 with the formation of Life Insurance Corporation in Calcutta. The idea behind starting LIC was to provide insurance coverage for English widows and different premium was charged for the English and for the Indians. In 1870 Bombay Mutual Life Insurance Society established its Insurance business and the same premium was charged for both Indians and English. In 1912 the Insurance sector came under the purview of regulations when the government passed the Life Insurance Companies Act. But it was in the year 1938 when the government came up with the first legislation to bring the insurance sector under state control.

Post Independence
In 1956, the Government of India nationalized insurance companies bringing Indian Insurance sector under the purview of the Government. These state owned Insurance companies became highly inefficient and bureaucratic, had excess manpower and countless delay in settlement of claims but the nation did not have an alternative. Any effort by the government to privatize the industry met with stiff resistance from the trade unions.

Post Liberalization
Under the recommendation of Malhotra Committee the Insurance Regulatory And Development Authority was set up to monitor and control the Insurance industry .Some of the initiatives taken by the government after Insurance sector reforms are:
  • Government to have not more than 50 per cent stake in insurance companies.
  • Insurance sector to be opened up for private companies and any number of insurance enterprises can operate.
  • Private players with minimum paid up capital of Rs 1 billion should be given opportunity to do business.
  • Foreign companies can enter Indian market through joint ventures with Indian companies.
The state controlled Insurance companies like LIC and GIC faced stiff competition from private insurance companies post reforms. The monopoly of the national Insurance companies came to an end. The private Insurance companies were able to exploit the shortcomings in the state run Insurance companies. The private insurance companies launched a variety of new insurance products like health care, pension plans, annuity plans, income protection, market linked products which were welcomed by the end customers. The business for the private sector boomed in both urban and rural sector alike.

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