Insurance is a form of risk management where one party agrees to pay an agreed amount of money to another party in the event of a loss or damage. The key aspects of insurance include risk transfer through premium payments, hedging against contingent losses, and regulatory requirements to protect policyholders. Reforms since the 1990s have opened India's insurance sector to private companies and increased competition, leading to greater access and customer choice. Further reforms aim to strengthen regulation and increase insurance coverage, especially for health, life and small businesses. A developed insurance sector supports the economy through risk protection, long-term funding, and financial stability.

1. What is INSURANCE? :
Insurance is a form of contract or agreement under one party
agrees in return of a consideration to pay an agreed amount of
money to another party to make goods for a loss, damage,
injury to something of value Insurance, in law and economics,
is a form of risk management primarily used to hedge against
the risk of a contingent loss. Insurance is defined as the
equitable transfer of the risk of a potential loss, from one entity
to another, in exchange for a premium. Insurance rate is a
factor used to determine the amount, called the premium, to
be charged for a certain amount of insurance coverage Risk
management, the practice of appraising and controlling risk,
has evolved as a discrete field of study and practice.
Evolution India :
Evolution India 1818 - Oriental Life Insurance Company – 1st
Insurance Company
1870 - Bombay Mutual Life Assurance Society – 1st Life
Insurance Company
1912 - The Indian Life Assurance Companies Act enacted the
1st Law to Regulate the Life Insurance Business
1928 - The Indian Insurance Companies Act enacted to enable
the government to collect statistical information about both life
& non-life insurance businesses
1938: Earlier legislation consolidated & amended the Insurance
Act with the objective of protecting the interests of the insuring
public
1956: 245 Indian & foreign insurers & provident societies are
taken over by the central government & nationalized. LIC
formed by an Act of Parliament, viz. LIC Act, 1956, with a
capital contribution of Rs. 5 crore from the Government of
India. The first General Insurance Company established in the
year 1850 in Calcutta by the British.

2. Insurance Sector Reforms :
Insurance Sector Reforms In 1993, Malhotra Committee headed by former Finance Secretary & RBI Governor R.N.
Malhotra.
Objective - to create more efficient & competitive financial
system. Key recommendations of the reform;
1 Structure: – a government stake 50% in insurance
companies.
2 Competition:
Private Companies with a minimum paid up capital of Rs.1bn
should be allowed to enter the sector.
No Company should deal in both life and general insurance
through a single entity.
Foreign companies may be allowed to enter the industry in
collaboration with the domestic companies.
Regulatory Body:
The insurance act should be changed. An insurance regulatory
body should be set up.
Controller of insurance-a part of the Finance Ministry – should
be made independent.
Investments :
Mandatory Investments of LIC Life Fund in government
securities to be reduced from 75% to 50%.
GIC and its subsidiaries are not to hold more than 5% in any
company.
Customer Service: LIC should pay interest on delay on
payment beyond 30 days. Insurance companies must be
encouraged to set up unit link pension plans.

3. overview
With largest number of life insurance policies in force in the
world, Insurance happens to be a mega opportunity in India.
It’s a business growing at the rate of 15-20 per cent annually
and presently is of the order of Rs 450 billion. Together with
banking services, it adds about 7 per cent to the country’s
GDP. Gross premium collection is nearly 2 per cent of GDP and
funds available with LIC for investments are 8 per cent of GDP.
Yet, nearly 80 per cent of Indian population is without life
insurance cover while health insurance and non-life insurance
continues to be below international standards. And this part of
the population is also subject to weak social security and
pension systems with hardly any old age income security. This
itself is an indicator that growth potential for the insurance
sector is immense.
A well-developed and evolved insurance sector is needed for
economic development as it provides long term funds for
infrastructure development and at the same time strengthens
the risk taking ability. It is estimated that over the next ten
years India would require investments of the order of one
trillion US dollar. The Insurance sector, to some extent, can
enable investments in infrastructure development to sustain
economic growth of the country.
Insurance is a federal subject in India. There are two
legislations that govern the sector- The Insurance Act- 1938
and the IRDA Act- 1999. The insurance sector in India has
come a full circle from being an open competitive market to
nationalisation and back to a liberalised market again. Tracing
the developments in the Indian insurance sector reveals the
360 degree turn witnessed over a period of almost two
centuries.

4. Historical Perspective
The history of life insurance in India dates back to 1818 when it
was conceived as a means to provide for English Widows.
Interestingly in those days a higher premium was charged for
Indian lives than the non-Indian lives as Indian lives were
considered more riskier for coverage.
The Bombay Mutual Life Insurance Society started its business
in 1870. It was the first company to charge same premium for
both Indian and non-Indian lives. The Oriental Assurance
Company was established in 1880. The General insurance
business in India, on the other hand, can trace its roots to the
Triton (Tital) Insurance Company Limited, the first general
insurance company established in the year 1850 in Calcutta by
the British. Till the end of nineteenth century insurance
business was almost entirely in the hands of overseas
companies.
Insurance regulation formally began in India with the passing
of the Life Insurance Companies Act of 1912 and the provident
fund Act of 1912. Several frauds during 20's and 30's sullied
insurance business in India. By 1938 there were 176 insurance
companies. The first comprehensive legislation was introduced
with the Insurance Act of 1938 that provided strict State
Control over insurance business. The insurance business grew
at a faster pace after independence. Indian companies
strengthened their hold on this business but despite the growth
that
was
witnessed,
insurance
remained
an
urban
phenomenon.
The Government of India in 1956, brought together over 240
private life insurers and provident societies under one
nationalised monopoly corporation and Life Insurance
Corporation (LIC) was born. Nationalisation was justified on the
grounds that it would create much needed funds for rapid
industrialization. This was in conformity with the Government's
chosen path of State lead planning and development.
The (non-life) insurance business continued to thrive with the
private sector till 1972. Their operations were restricted to

5. organised trade and industry in large cities. The general
insurance industry was nationalised in 1972. With this, nearly
107 insurers were amalgamated and grouped into four
companies- National Insurance Company, New India Assurance
Company, Oriental Insurance Company and United India
Insurance Company. These were subsidiaries of the General
Insurance Company (GIC).
Important milestones in the life insurance business in India:
1912: The Indian Life Assurance Companies Act enacted as the
first statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable
the government to collect statistical information about both life
and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the
Insurance Act with the objective of protecting the interests of
the insuring public.
1956: 245 Indian and foreign insurers and provident societies
taken over by the central government and nationalised. LIC
formed by an Act of Parliament- LIC Act 1956- with a capital
contribution of Rs. 5 crore from the Government of India.
Important milestones in the general insurance business in India
are:
1907: The Indian Mercantile Insurance Ltd. set up- the first
company to transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance
Association of India, frames a code of conduct for ensuring fair
conduct and sound business practices.
1968: The Insurance Act amended to regulate investments and
set minimum solvency margins and the Tariff Advisory
Committee set up.
1972: The general insurance business in India nationalised
through The General Insurance Business (Nationalisation) Act,

6. 1972 with effect from 1st January 1973. 107 insurers
amalgamated and grouped into four companies- the National
Insurance Company Limited, the New India Assurance
Company Limited, the Oriental Insurance Company Ltd. and
the United India Insurance Company Ltd. GIC incorporated as a
company.
Insurance Sector Reforms
In 1993, Malhotra Committee- headed by former Finance
Secretary and RBI Governor R.N. Malhotra- was formed to
evaluate the Indian insurance industry and recommend its
future direction.The Malhotra committee was set up with the
objective of complementing the reforms initiated in the
financial sector. The reforms were aimed at creating a more
efficient and competitive financial system suitable for the
requirements of the economy keeping in mind the structural
changes currently underway and recognising that insurance is
an important part of the overall financial system where it was
necessary to address the need for similar reforms. In 1994, the
committee submitted the report and some of the key
recommendations included:
i) Structure
Government stake in the insurance Companies to be brought
down to 50%. Government should take over the holdings of
GIC and its subsidiaries so that these subsidiaries can act as
independent corporations. All the insurance companies should
be given greater freedom to operate.
ii) Competition
Private Companies with a minimum paid up capital of Rs.1bn
should be allowed to enter the sector. No Company should deal
in both Life and General Insurance through a single entity.
Foreign companies may be allowed to enter the industry in
collaboration with the domestic companies.
Postal Life Insurance should be allowed to operate in the rural
market. Only one State Level Life Insurance Company should
be allowed to operate in each state.

7. iii) Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory
body should be set up. Controller of Insurance- a part of the
Finance Ministry- should be made independent
iv) Investments
Mandatory Investments of LIC Life Fund in government
securities to be reduced from 75% to 50%. GIC and its
subsidiaries are not to hold more than 5% in any company
(there current holdings to be brought down to this level over a
period of time)
v) Customer Service
LIC should pay interest on delays in payments beyond 30 days.
Insurance companies must be encouraged to set up unit linked
pension plans. Computerisation of operations and updating of
technology to be carried out in the insurance industry.
The committee emphasised that in order to improve the
customer services and increase the coverage of insurance
policies, industry should be opened up to competition. But at
the same time, the committee felt the need to exercise caution
as any failure on the part of new players could ruin the public
confidence in the industry. Hence, it was decided to allow
competition in a limited way by stipulating the minimum capital
requirement of Rs.100 crores.
The committee felt the need to provide greater autonomy to
insurance companies in order to improve their performance and
enable them to act as independent companies with economic
motives. For this purpose, it had proposed setting up an
independent regulatory body- The Insurance Regulatory and
Development Authority.
Reforms in the Insurance sector were initiated with the
passage of the IRDA Bill in Parliament in December 1999. The
IRDA since its incorporation as a statutory body in April 2000
has fastidiously stuck to its schedule of framing regulations and
registering the private sector insurance companies. Since being
set up as an independent statutory body the IRDA has put in a
framework of globally compatible regulations. The other

8. decision taken simultaneously to provide the supporting
systems to the insurance sector and in particular the life
insurance companies was the launch of the IRDA online service
for issue and renewal of licenses to agents. The approval of
institutions for imparting training to agents has also ensured
that the insurance companies would have a trained workforce
of insurance agents in place to sell their products.
Present Scenario
The Government of India liberalised the insurance sector in
March 2000 with the passage of the Insurance Regulatory and
Development Authority (IRDA) Bill, lifting all entry restrictions
for private players and allowing foreign players to enter the
market with some limits on direct foreign ownership. Under the
current guidelines, there is a 26 percent equity cap for foreign
partners in an insurance company. There is a proposal to
increase this limit to 49 percent.
The opening up of the sector is likely to lead to greater spread
and deepening of insurance in India and this may also include
restructuring and revitalizing of the public sector companies. In
the private sector 12 life insurance and 8 general insurance
companies have been registered. A host of private Insurance
companies operating in both life and non-life segments have
started selling their insurance policies since 2001.

9. Insurance Sector Reform
The government's policies since July 2004 have been to develop and
reform the financial sector; regulate markets and upgrade their
organizational and legislative structures, strengthen capital
structures of financial institutions and protect investors' rights. The
non-bank financial sector reform program consists of two phases;
the first phase (2005-2008) and the second phase (2009-2012). The
first phase aimed at building financial institutions, ensuring they are
soundly structured and subjugated to strict supervision in order to
enhance the financial sector's efficiency and ensure its stability and
liquidity. As for the insurance sector, this phase aimed at restructuring the insurance companies by adopting a set of goals as
follows:
First: Restructuring State-held Insurance Companies.
This goal was achieved by:
• Establishing the Insurance Holding Company.
• Merging public insurance companies.
• Establishing Misr Real Estate Asset Management Company.
• Injecting new bloods to achieve efficiency of management.
Second: Strengthening Legislative Structure of the Insurance Sector.
This goal was achieved by:
• Implementing the approach of supervision on the basis of risk
assessment and management and rules of financial adequacy of
institutions operating in the market.
• Supporting financial and administrative independence of the
regulatory authority.
• Enhancing the role of the Insurance Federation and making its
membership obligatory for insurance companies and associations.

10. • Achieving specialty of insurance activity by separating life insurance
from property insurance.
• Re-organizing the insurance brokerage profession, allowing legal
entities to perform this activity and training brokerage staff.
• Increasing minimum issued capital to LE 60 million for life
insurance companies and LE 60 million for general insurance
companies and adjusting existing companies' situations within five
years.
Third: Increasing the Sector's Contribution to Economic Activity:
This goal was achieved by:
• Reducing the cost of transactions and developing valuation and
pricing mechanisms of insurance services.
• Developing the accounting framework of insurance activity in line
with international standards.
• Developing rules and procedures regulating different insurance
services.
The second phase of the financial reform program (2009-2012) will
adopt the following components to develop and reform the
insurance sector:
1. Focus on insurance of SMEs and micro insurance in co-operation
with expert institutions, benefiting from experiences of large
companies and other countries including Singapore, S.Korea, Brazil
and Malaysia.
2. New legislation to be developed in the insurance sector; including
the issuance of private and optional pension funds law and medical
care companies' law, finalizing a policyholders’ protection fund,
while issuing legislation and standards necessary for performing
micro insurance.
3. The General Authority for Financial Supervision, which started its
mission in July 2009. It was established to enhance supervision of
non-bank financial institutions, including insurance companies,
develop regulatory coordination and increase efficiency.
4. Developing rules of supervision on insurance companies operating

11. in the Egyptian market as well as insurance funds by adopting
approaches of risk assessment and implementing regulatory
procedures and standards accurately.
5. Implementing rules of increasing competition among existing
institutions, to be ensured by the General Authority for Financial
Supervision.
6. Enforcement of corporate governance and corporate social
responsibility (CSR) principles; which focus on respecting human
rights, ensuring workers' rights, preserving the environment and
avoiding any suspected corruption in transactions. According to
these principles, companies should undertake their duties towards
the community in useful activities. Insurance companies contributed
effectively in El Masry Community Service Organization, which was
initiated to present a land plot in Been Al Sarayat to Cairo University.
7. Encourage financial innovation and development so that the
insurance sector delivers its services using stable instruments, with
definite cost and return, while subject to prudent supervision.
8. focus on the issuance of a code of ethics for the insurance
industry, in cooperation with the Insurance Federation of Egypt and
the General Authority for Financial Supervision.
9. Expanding insurance services nationwide by establishing branches
of public and private insurance companies. New companies may not
be approved unless they have plans for presence in Upper and Lower
Egypt.
10. Enhance the regional presence of Egyptian insurance companies
in Arab, Asian and Gulf countries.
11. Insurance companies to work on diversifying their investments in
different and multi-risk and return instruments; including all types of
bonds, shares, long term investments and deposits.
12. Continuous development of experience and human resources in
the sector as well as new experiences for Egyptians working
abroad.

12. •
•
•
•
A developed insurance sector contributes in many ways
to a well-rounded financial sector and economy:
Risk protection. This can include loss or damage to
assets ranging from properties (residential, commercial
and industrial) to other assets (e.g. cars, trucks,
machinery) and to cover potential liabilities arising
from injuries, health, and loss of earnings.
Financial stability. Insured assets add value and
protection to, for example, the collateral taken by a
bank, assets leased by a leasing company, investments
made by a private equity/venture capital firm,
investments of shareholders in listed companies.
Against this, in financial conglomerates care also needs
to be taken to ensure that badly run insurance
subsidiaries can not, through contagion, affect the
banking part of the group (this was one of the factors
behind the Jamaican banking crisis in the 1980s).
Poverty reduction. Better protection against risks
to health, small savings and essential assets, may
provide a buffer against financial disaster for a poor
family. For example, in many parts of the world a
serious illness, not covered by basic medical health
insurance, can wipe out a life-time saving; climactic
disasters can wipe out a herd or a crop with no course
to recover. Without deposit insurance, savings in a
collapsing bank may be lost.
Growth and diversification of the financial sector.
Insurance companies need to invest collected
premiums in suitably prudent and relatively liquid

13. securities. This imperative facilitates growth of capital
markets. Life insurance companies frequently engage
in managing pension fund schemes because they have
the infrastructure to collect savings and to manage
investment funds – an added impetus towards growth
of capital markets, with the extra advantage of
providing an alternative vehicle to banking for savings
mobilisation.