Effect of Liberalisation in Insurance Industry

Introduction

The journey of insurance liberalization process in India is now over seven years old. the primary major milestone during this journey has been the passing of Insurance Regulatory and Development Authority Act, 1999. This along side amendments to the Insurance Act 1983, LIC and GIC Acts paves the way for the entry of personal players and possibly the privatization of the hitherto public monopolies LIC and GIC. Opening from insurance to non-public sector including foreign participation has resulted into various opportunities and challenges.

Concept of Insurance

In our lifestyle , whenever there's uncertainly there's an involvement of risk. The instinct of security against such risk is one among the essential motivating forces for determining human attitudes. As a sequel to the present go after security, the concept of insurance must are born. The urge to supply insurance or protection against the loss of life and property must have promoted people to form some kind of sacrifice willingly so as to realize security through collective co-operation. during this sense, the story of insurance is perhaps as old because the story of mankind.

Life insurance especially provides protection to household against the danger of premature death of its income earning member. life assurance in times also provides protection against other life related risks like that of longevity (i.e. risk of outliving of source of income) and risk of disabled and sickness (health insurance). The products provide for longevity are pensions and annuities (insurance against old age). Non-life insurance provides protection against accidents, property damage, theft and other liabilities. Non-life insurance contracts are typically shorter in duration as compared to life assurance contracts. The bundling together of risk coverage and saving is peculiar of life assurance . life assurance provides both protection and investment.

Insurance may be a boon to business concerns. Insurance provides short range and long range relief. The short-term relief is aimed toward protecting the insured from loss of property and life by distributing the loss amongst sizable amount of persons through the medium of professional risk bearers like insurers. It enables a businessman to face an unforeseen loss and, therefore, he needn't worry about the possible loss. The long-range object being the economic and industrial growth of the country by making an investment of giant funds available with insurers within the organized industry and commerce.

General Insurance

Prior to nationalizations of General insurance industry in 1973 the GIC Act was passed within the Parliament in 1971, but it came into effect in 1973. There was 107 General insurance companies including branches of foreign companies operating within the country upon nationalization, these companies were amalgamated and grouped into the subsequent four subsidiaries of GIC like social insurance Co.Ltd., Calcutta; The New India Assurance Co. Ltd., Mumbai; The Oriental Insurance Co. Ltd., New Delhi and United India Insurance Co. Ltd., Chennai and Now delinked.

General insurance business in India is broadly divided into fire, marine and miscellaneous GIC aside from directly handling Aviation and Reinsurance business administers the great Crop Insurance Scheme, Personal Accident Insurance, Social Security Scheme etc. The GIC and its subsidiaries keep with the target of nationalization to spread the message of insurance far and wide and to supply insurance protection to weaker section of the society are making efforts to style new covers and also to popularize other non-traditional business.

Liberalization of Insurance

The comprehensive regulation of insurance business in India was brought into effect with the enactment of the Insurance Act, 1983. It tried to make a robust and powerful supervision and regulatory agency within the Controller of Insurance with powers to direct, advise, investigate, register and liquidate insurance companies etc. However, consequent upon the nationalization of insurance business, most of the regulatory functions were removed from the Controller of Insurance and vested within the insurers themselves. the govt of India in 1993 had found out a high powered committee by R.N.Malhotra, former Governor, Federal Reserve Bank of India, to look at the structure of the insurance industry and recommend changes to form it more efficient and competitive keeping in sight the structural changes in other parts of the economic system on the country.

Malhotra Committee's Recommendations

The committee submitted its report in January 1994 recommending that non-public insurers be allowed to co-exist along side government companies like LIC and GIC companies. This recommendation had been prompted by several factors like need for greater deeper coverage within the economy, and a way a greater scale of mobilization of funds from the economy, and a way a greater scale of mobilization of funds from the economy for infrastructural development. Liberalization of the insurance sector is a minimum of partly driven by fiscal necessity of tapping the large reserve of savings within the economy. Committee's recommendations were as follows:

o Raising the capital base of LIC and GIC up to Rs. 200 crores, half retained by the govt and rest sold to the general public at large with suitable reservations for its employees.
o Private sector is granted to enter insurance industry with a minimum paid up capital of Rs. 100 crores.
o Foreign insurance be allowed to enter by floating an Indian company preferably a venture with Indian partners.
o Steps are initiated to line up a robust and effective insurance regulatory within the sort of a statutory autonomous board on the lines of SEBI.
o Limited number of personal companies to be allowed within the sector. But no firm is allowed within the sector. But no firm is allowed to work in both lines of insurance (life or non-life).
o Tariff Advisory Committee (TAC) is delinked form GIC to function as a separate statuary body under necessary supervision by the insurance regulatory agency .
oAll insurance companies be treated on equal footing and governed by the provisions of insurance Act. No special dispensation is given to government companies.
oSetting from a robust and effective regulatory body with independent source for financing before allowing private companies into sector.

competition to government sector:

Government companies have now to face competition to non-public sector insurance companies not only in issuing various range of insurance products but also in various aspects in terms of customer service, channels of distribution, effective techniques of selling the products etc. privatization of the insurance sector has opened the doors to innovations within the way business are often transacted.

New age insurance companies are embarking on new concepts and more cost effective way of transacting business. the thought is obvious to cater to the utmost business at the lest cost. And slowly with time, the age-old norm prevalent with government companies to expand by fixing branches seems getting lost. Among the techniques that appear to catching up fast as an alternate to cater to the agricultural and social sector insurance is hub and spoke arrangement. These along side the participants of NGOs and Self Help Group (SHGs) have through with most of the selling of the agricultural and social sector policies.

The main challenges is from the commercial banks that have vast network of branches. during this regard, it's important to say here that LIC has entered into an appointment with Mangalore based Corporations Bank to leverage their infrastructure for mutual benefit with the insurance monolith acquiring a strategic stake 27 per cent, Corporation Bank has decided to abandon its plans of promoting a life assurance company. The bank will act as a company agent for LIC in future and receive commission on policies sold through its branches. LIC with its branch network of on the brink of 2100 offices will allow Corporation Bank to line up extension centers. ATMs or branches with in its premises. Corporation Bank would successively implement an efficient income Management System for LIC.