This includes objectives of Privatisation of Insurance, advantages and disadvantages of privatisation of insurance.

1. Privatisation of Insurance
Asst. Prof. Parasmani Jangid
SDJ INTERNATIONAL COLLEGE

2. Introduction
• Earlier before 1956 Insurance sector in India was completely privatized.
• It get nationalized in 1956 i.e Life Insurance Corporation of India, as government was in need of fund for
developmental activities.
• The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. Before
that, the industry consisted of only two state insurers: Life Insurers (Life Insurance Corporation of India, LIC)
and General Insurers (General Insurance Corporation of India, GIC). GIC had four subsidiary companies.

3. • In 1972 with the General Insurance Business (Nationalisation) Act was passed by the Indian
Parliament, and consequently, General Insurance business was nationalized with effect from 1
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 commenced business on 1
January 1973.
• But public sector enterprise did not perform effectively and efficiently. As India has mixed
economy(meaning it can also be legislated by the Central Government with public in large.) with
huge population and with too much of expectation from public enterprises, which couldn’t realize
actually.
• Recommendation had been made by Malhotra Committee set up in 1994 for regulation and
supervision of insurance company after assessing strength and weakness of insurance sector.

4. Privatisation of Insurance
• With effect from December 2000, these subsidiaries have been de-linked from the parent company and
were set up as independent insurance companies: Oriental Insurance Company Limited, New India
Assurance Company Limited, National Insurance Company Limited and United India Insurance
Company.
• India allowed private companies in insurance sector in 2000, after passing of IRDA (insurance
regulatory and Development Authority) Act. This IRDA aimed at ending the monopoly of the LIC and
GIC in insurance sector. Since the privatisation in 2001, the largest life-insurance company in India, Life
Insurance Corporation of India has seen its market share slowly slipping to private giants like HDFC Life,
ICICI Prudential Life Insurance and SBI Life Insurance Company.

5. Objectives
1. To Develop the competition
2. To Make both public & private co. work efficiently
3. To Create more option for customers
4. To Attract more people for insurance business
5. To Raise capital investment
6. To Raise economic development
7. To Increase in GDP
8. To Create more employment
9. To earn foreign exchange

6. Advantages
1. Motivate to rural people to invest
2. Increase in economic development and per capita income
3. Research and development increases
4. Satisfaction level of customers will increase by improved provisions
5. Take advantages of world’s best insurance co.
6. Have advantage of using global technologies
7. Increase in employment opportunity
8. Increase in social safety of rural people
9. Selection field of customers(alternatives for customers) will be increased
10. Get better services due to privatization of insurance sector

7. Disadvantages
• Poor/rural people may not have benefit
• Initially Private insurance Cos. Convince the people, but after some time as people may not have a capacity
to pay further premiums which results into forfeiting their earlier paid premium.
• It means instead of investment it become a expenditure against which they don’t get anything.
• Chance of mischief
• Just for the sake of profit, some private insurance Cos. play fraudulent tactics with customers.
• Cut-throat Competition
• To survive in competitive market, some Cos. only make fools to their customers so that initial investment
in insurance can be forfeited by adopting the alluring strategies.

8. • Stressful target for employees
• Company may relieve their employee who is unable to reach their minimum target of attracting
customer and selling policies.
• Transfer of Profit to Foreign Country
• Foreign insurance co. doing business in India may transfer profit to its own country, in such
case Our country will not get benefit of investment done by Indians.
• Danger of unavailability of finance
• Danger of chaos in economic availability of money.
• Lack of Trust
• People of India have lack of trust in Non-Govt. Companies, hence less chance of development
of private insurance business