In India, the history of insurance dates back to 3000 B.C. In its most basic form, insurance existed during this prehistoric era. During this time, insurance was conducted in a disorganized way, utilizing the fundamental principle of pooling and sharing. During this time, insurance became widely used in joint families when it first began to be practiced in India. Subsequently, the idea gained traction in many areas and even inside nuclear families.
When the family experienced losses, the insurance provided them with security during those difficult times. Different types of life insurance policies were created in the nation as a result of this financial savings strategy that started out in joint families and eventually spread to nuclear families in the modern period.
The history of insurance in contemporary India dates back to the year 1800. India’s modern insurance history began when foreign insurance companies launched a maritime insurance company.
1818: The first insurance firm in India was established in that year. The insurance provider was called Oriental Life Insurance, and its main office was located in Kolkata.
1870: The first insurance firm in India was founded in 1870 when Bombay Mutual Life Insurance Society was founded, adding a local flavour to the country’s insurance history.
1912: The Indian Life Insurance Companies Act was first introduced in 1912. The country’s life insurance industry is governed by the act.
1938: The Insurance Act revised the previous combined legislation to safeguard the interests of the insured.
1956: On September 1 st , 1956, the Life Insurance Company was nationalized. The LIC Act, which paved the way for the establishment of the Life Insurance Corporation of India, was also passed in 1956. An investment of rupees five crore was made by the Indian government. During that time, the nation’s life insurance market was dominated by 170 businesses and 75 provident fund groups. The LIC had exclusive authority to conduct life insurance business throughout the nation from 1956 to 1999.
1972: The nation’s non-life insurance industry was nationalized in that year. The nationalization of the non-life insurance industry occurred with the passage of the General Insurance Business Nationalization Act. Additionally, the General Insurance Corporation of India’s four subsidiaries were established. During that time, there were 106 insurers operating in the nation for non-life insurance, and those insurers were combined to establish GIC’s four subsidiaries.
A contract governs the insurance. Therefore, the contract’s requirements must all be met.
The subject matter that contains an insurable interest should serve as the foundation for the insurance contract. For example, a car owner’s vehicle is an insured interest since, in the event that the vehicle is lost or damaged, the owner may incur losses or financial difficulties. If they had insurance on their car, the loss could be covered by it.
Insurance covers only pure risk. A person cannot obtain insurance for topics where there is no likelihood of risk. Therefore, the insurance contract pays for any losses or damages that an insurer may sustain as a result of this risk.
A few guiding principles underpin the insurance. The parties to the insurance contract must behave in line with these principles, and if they don’t, the aggrieved party may pursue legal action or pursue the terms of the insurance contract.
By its very nature, insurance is a way for a large number of people to share risk with the select few who are willing to take it on for various reasons.
When a large number of insured individuals work together to compensate a small number of those who are exposed to uncertain risk, this type of insurance is referred to as a cooperative device.
The terms and conditions of the insurance contract specify the amount of compensation that will be paid out.
Insurance offers some financial support in the event of an unforeseen circumstance.
The value of the insurance policy or contract is the primary factor that determines how much compensation is paid out under an insurance contract.
Insurance is governed by due process of law since it is a contractual product. Because of this, the insurance amount must be paid in accordance with the terms and conditions of the insurance contract, and it may be paid as charity or as a gambling.
For Indians, the idea of pooling resources goes back as far as the hills. The significance of combining resources to deal with disasters like floods, fires, epidemics, and famine is discussed in the writings of Dharmashastra, Manusmrithi, and Arthashastra. This legendary archetype serves as the basis for modern insurance.
The foundation of the nation’s risk management is the insurance sector. The insurance business in India was founded in the nineteenth century. Oriental Life Insurance Company was founded in Kolkata, India, in 1818 by Europeans with the express purpose of serving their community. Racial prejudice on the part of colonial masters unfairly characterized Indians’ age and premium.
Policyholders from India paid a higher premium than their European counterparts. Indians yearned for Indian insurance companies to enter the industry. The first Indian insurance provider to insure Indian lives at standard rates was Bombay Mutual Life Assurance Society, which was founded in 1870. The first general insurance company was founded in 1850 and was called Triton Insurance Company Ltd. With time, the insurance industry expanded into a sizable industry that helped India’s economy.
It wasn’t until the early 1900s that new businesses began to spring up in India. The Provident Fund Act and the Life Insurance Companies Act were passed in 1912 in order to regulate these insurance companies. The insurance industry has gone through three stages of development: nationalization, privatization, and pre-nationalization. Only after the Life Insurance Corporation Act of 1956 was passed was the insurance sector nationalized. More than two hundred insurance companies with European and Indian roots were present.
Government insurance companies were losing money even after being nationalized. For efficient distribution and marketing strategy execution, privatization was the better option. The insurance industry virtually completely changed after it was privatized. Effective product advertising was mandated by competition. The insurance industry improved after private players were allowed entry.
Insurance companies not only provided property and life insurance, but they also created a ton of jobs. The insurance industry is now more efficient as a result of privatization. A plethora of new private companies developed appealing products. ICICI Prudential, Bajaj Allainz Life Insurance, Tata AIG Life, Kotak Life Insurance, HDFC Standard Life, Reliance Life, ICICI Lombard, and other prominent private players are some of the prominent players in the Indian market.
With the advent of computers this millennium, insurance administration saw significant changes. The insurance industry can now be reached and used more easily thanks to the internet. You can now purchase the policy of your choosing while lounging in your house. The biggest advantage of online shopping is the ability to compare life insurance plans provided by various providers on a single website. The internet and insurance revolution in India have come together to form E India Insurance. When we compare the colonial era to the present, we can see that the insurance industry has a lot of room to grow.
The Insurance Regulatory and Development Authority (IRDA) reports that the Indian insurance sector experienced a remarkable 120% growth rate in 2008. By 2010, domestic insurance in India is expected to reach US $60.5 billion, according to economists.
Austrian economist Joseph Schumpeter believed that long-term growth required the constant innovation mechanism known as “creative destruction,” which results in new production units replacing obsolete ones. For the insurance sector in India, the health-cum-economic virus COVID-19 has sparked a similar process of creative destruction. Aside from the lone national reinsurer General Insurance Company of India, the key players in the Indian insurance market are customers, life and non-life (general) insurance companies, and the regulator IRDAI. In India, 50% of insurance companies are in the life insurance business, which holds a 75% market share.
The insurance business grew by double digits prior to the COVID-19 pandemic, with the life insurance segment expanding by 11–12% a year. The cost of business premiums was more than the prior year. COVID-19 has, nevertheless, had two negative effects on the insurance industry: It undid a lot of the gains from earlier times and opened up new opportunities for future growth.
COVID-19 had an impact on numerous insurance companies’ operations. IRDAI claims that as customers’ purchasing power decreased, fewer new policies were issued; as a result, companies’ assets under management decreased due to a decline in the stock market and an increase in policy redemptions by customers needing cash.
Additionally, COVID-19 created fresh chances for expansion. People became aware of the value of insurance due to the virus’s financial burden in the form of increased hospital bills. PWC claims that insurance is no longer seen as an affluent person’s investment choice but rather as an essential tool for mitigating risk. This has prompted some people to ask for insurance. Additionally, COVID-19 has normalized remote work, opening up a market for new insurance products. For instance, cybercrime insurance. For businesses to meet this new demand, new products will need to be developed. Insurance companies are being forced to digitize the distribution of insurance products, premium underwriting, and claim filing due to the new normal of social distancing and online transactions.
The pandemic has also altered the pattern of insurance claims: following the second wave, life insurance claims rose five to ten times, while general insurance, such as auto insurance, saw a decline. The number of new policies issued is nearly equal to pre-Covid levels, indicating that the impact of these changes is already apparent. Business premiums have increased by 16% year over year, and the life insurance market grew by 21% in February 2021 compared to February 2020, according to IRDAI.
In addition to these new prospects, IRDAI had mandated the introduction of standard insurance products in guidelines to support the industry. There were two common insurance products introduced: Corona Kavach is a required indemnity product that covers claims based on actual hospital bills for families and individuals.
But in FY21, only 15% of COVID deaths were covered by insurance. Even though the products were standardized, there was a significant premium variation, which contributed significantly to the low uptake. Second, the majority of transactions had shifted to digital due to COVID restrictions and social distancing; however, very few insurers offered insurance products online. Moreover, even if they were aware of the existence of insurance, many Indians were unable to purchase it due to the country’s widening digital divide. Thirdly, because excessive claims could jeopardize insurers’ financial stability, there were restrictions on the online products sold to individuals with co-morbidities. This prevented a lot of buyers. Finally, COVID-19 caught everyone off guard. The majority of businesses required some time to adjust to the new normal, and a prompt response was required.
In light of this, is it possible for the insurance sector to take advantage of the shifting market conditions? The industry is currently facing numerous challenges, making the answer complex. First, insufficient media attention: According to PWC estimates, just 18% of people living in cities and about 14% of people living in rural areas have insurance. The percentage of GDP devoted to premiums in life insurance is 2.82% in FY2020, which is less than the global average of 3.35%, and the ratio of premiums to population is 58 USD, which is significantly less than the global average of 379 USD.
Second, there is a lot of moral hazard in the sector. The percentage of non-standard claims is on the rise, with variations based on the severity of the illness. Since COVID is a disease that is constantly changing, it can be challenging to determine if co-morbidity or the virus caused the death. As a result, estimates claims are now less accurate, further exacerbating the industry’s information asymmetry.
Thirdly, IRDAI is mandated by law to perform both regulatory and supervisory duties. Despite the amazing work that IRDAI does, due to its large geographic reach, large number of insurance holders, and complexity in this specialized industry, it lacks the manpower to handle the volume of potential consumer complaints. Furthermore, regulation and supervision serve different purposes. Regulation entails creating rules to promote growth, whereas supervision makes sure that the same rules are followed, safeguarding consumers from scams and other misdeeds. Therefore, IRDAI should only be given the role of regulation in order to maximize efficiency.
Finally, the industry’s viability is impacted by the deadweight loss of PSUs: The insurance industry is dominated by public companies, but their market share is shrinking: Private companies’ market share in the life insurance business increased from 2% in FY03 to 33% in FY19. Moreover, 82% of losses in the insurance sector are attributable to PSUs. Given this, it is encouraging that the Indian government recently increased the foreign direct investment (FDI) limit from 49% to 74%. For distinctive products and focused marketing to boost insurance penetration and density, private enterprises must exist.
India’s history with insurance began in the early 1800s when European settlers founded the Oriental Life Insurance Company in Calcutta, India’s first life insurance company. These companies only insured Europeans at first, but eventually they also covered Indian lives. The Bombay Mutual Life Assurance Society was the first life insurance company in India, founded in 1870. More insurance companies were founded as the Swadeshi movement grew, including Indian Mercantile, General Assurance, Bharat Insurance Company, United India in Madras, National Indian and National Insurance in Calcutta, and Hindustan Co-operative Insurance Company.
The first law to regulate the insurance industry in India was the Life Insurance Companies Act of 1912, but it was unfavourable to Indian businesses. In the first two decades of the 20 th century, the number of insurance companies increased from 44 to 176, indicating a rapid growth in the industry. But a lot of bankrupt businesses also popped up, which is how the 1938 Insurance Act came to be, giving the government tight control over the insurance industry.
In response to mounting calls for nationalization in the middle of the 20 th century, the life insurance sector was nationalized on January 19, 1956. On June 19, 1956, the Indian Parliament passed the Life Insurance Corporation Act, establishing the Life Insurance Corporation of India (LIC) with the goal of providing affordable life insurance to all eligible citizens of the nation, especially those living in rural areas.
In the year 1818, life insurance as we know it today was brought to India from England. The first life insurance company on Indian soil was Oriental Life Insurance Company, founded in Calcutta by Europeans. Indian natives were not covered by any of the insurance companies founded during that time because they were all founded with the intention of serving the needs of the European community. However, later on, foreign life insurance companies began insuring Indian lives thanks to the efforts of notable individuals like Babu Muttylal Seal. However, Indian lives were being treated as inferior, and they were subject to significant premium increases
In 1870, Bombay Mutual Life Assurance Society was established, marking the beginning of the first life insurance company in India. The company provided regular rates of coverage for Indian lives. Insurance companies began as an Indian business with strong patriotic beliefs, spreading the word about social security and insurance to a range of societal segments. Of these, Bharat Insurance Company (1896) was another company drawn to nationalism. There are now more insurance companies as a result of the Swadeshi movement of 1905–1907.
In 1906, three organizations were founded: United India in Madras, National Indian and National Insurance in Calcutta, and Co-operative Assurance in Lahore. The Hindustan Co-operative Insurance Company was founded in 1907 in one of the rooms of the renowned poet Rabindranath Tagore’s Calcutta home, the Jorasanko.
Among the businesses founded in the same time frame were General Assurance, Swadeshi Life (later known as Bombay Life), and Indian Mercantile. India had no laws governing the insurance industry prior to 1912. The Provident Fund Act and the Life Insurance Companies Act were passed in 1912. The Life Insurance Companies Act of 1912 mandated that an actuary certify the premium rate tables and the companies’ periodic valuations. However, the Act discriminated against Indian and foreign companies on numerous grounds, which was detrimental to Indian companies.
The current COVID pandemic has had an unparalleled impact on the business sector, the economy, and families in addition to individuals and families. Specifically concerning is the insurance industry. It is anticipated that this industry will rise to the occasion by rapidly inventing new products to meet the needs of different kinds of people looking for life insurance.
The Insurance Regulatory and Development Authority of India (IRDAI) and Indian insurance companies are now permitted to operate following the implementation of the necessary social distancing and preventive measures, in light of the entry into the second phase of lockdown 3.0.
The pandemic era has caused issues for policyholders, who find it difficult to pay premiums and maintain the continuity of their policies—two things that are most important during these unpredictable times. Traditional insurance distribution channels that involve in-person solicitations have also been impacted. However, in the long run, social norms that discourage closeness will undoubtedly encourage the sale of insurance through online and distant marketing channels.
IRDAI is keeping a close eye on the situation and has taken some proactive steps to support the insurance industry and its policyholders. The IRDAI made the following significant modifications to the relevant regulatory framework:
This circular states that the IRDA has instructed insurance providers to expeditiously resolve hospitalization claims related to COVID-19 and provide coverage for reasonable medical costs incurred during the quarantine period in accordance with policy provisions. Only after a comprehensive investigation by the insurance claims review committee may such claims be denied. It has been requested of insurers to create products that will address the health needs of different segments of the population and help alleviate the cost of Covid-19 treatment. As a result, they have released a few distinctive goods for both individuals and organizations. Among them is insurance for business travel after the pandemic passes.
The IRDAI circular on “COVID-19 Global Pandemic Related Instructions to Life Insurers” is scheduled for March 23, 2020.
In accordance with this directive, the IRDAI has addressed four topics:
Office operations ,Grace time for premium payments ,Statements and regular reports.
All classes of insurers have been provided with these detailed instructions regarding the pandemic situation. Insurance companies and other regulated organizations have been urged by the IRDAI to staff their offices only with those who are necessary to provide basic insurance services like hospitalization authorizations, policy renewals, and settlements of claims. The regulatory body has also directed agents and intermediaries working from home in the offices of insurers.
NOTICES FROM THE MINISTER OF FINANCE DATES APRIL 1, 2020 AND APRIL 15, 2020; IRDAI CIRCULARS DATES APRIL 3, 2020 AND APRIL 16, 2020
In accordance with these notifications, policyholders whose health and third-party auto insurance are up for renewal between March 25, 2020, and April 14, 2020, are permitted to pay their premiums through April 21, 2020, in order to maintain their coverage starting on the date the policy is up for renewal. Insurers are required to assume risk in situations where renewal premiums are due but cannot be paid for, as the IRDA made clear.
2020 April 4-IRDAI CIRCULAR
This means that all life insurance premium payments that are due in March and April 2020 will have an additional grace period of 30 days granted by the IRDAI. The IRDAI ordered insurers to provide policyholders with a one-time option to avail settlements in accordance with Regulation 25 of IRDAI for policies maturing up to May 31, 2020, in order to protect best life insurance policyholders from a volatile market.
2020 April 8 th -IRDAI CIRCULAR
In order to lessen borrowers’ difficulties, the RBI (Central bank) issued instructions on a moratorium for term loan repayment. In order to avoid late payments for instalments that were due between March 1, 2020, and May 30, 2020, insurers were granted a three-month moratorium by the IRDAI. For term loans, the repayment schedule would be moved forward by three months.
Since its inception in the years preceding independence, the insurance industry in India has undergone numerous reformations. India’s insurance industry has made significant financial and GDP growth contributions, both during nationalisation and privatisation. It has strengthened the Indian economy, given policyholders safety and security, and stabilized the government’s savings account.
It was clear that many more new insurance providers would be entering the Indian insurance market now that the Insurance Regulatory and Development Authority of India (IRDAI) had assumed control over all insurance-related matters in India. For instance, a large number of new insurance companies entered the market shortly after the insurance industry was privatized. They established their markets by providing policyholders with both life and non-life insurance, which sparked competition among insurance companies. At this point, IRDAI intervenes and controls these insurers’ operations in the best interests of policyholders. For this reason, if you wish to provide insurance in the Indian market, you must abide by the laws enforced by IRDAI.
The chief controller is IRDAI, but other authorities oversee the particular conditions in the insurance sector.
1938’s Insurance Act
The 1938 Insurance Act is a comprehensive piece of legislation that outlines the fundamental framework and operations of the sector. It includes the rules and regulations that the legal authorities and insurers need to manage the industry. Originally, the pre-independence Indian government of Great Britain supplied it.
The 1999 Act of the Insurance Regulatory and Development Authority of India
In addition to amending the Insurance Act of 1938, the Life Insurance Corporation Act of 1956, and the General Insurance Business (Nationalization) Act of 1972, the IRDAI Act defines itself as an Act that establishes an Authority to safeguard the interests of policyholders and to regulate, promote, and ensure the insurance industry grows in an orderly manner.
The 1939 Insurance Rules
An Act to amend and consolidate the laws pertaining to the insurance industry was passed in 1939 and is known as the Insurance Rules. This law’s foundation is its regulation of committees’ efficient and moral operation, intermediaries’ licensing, and the operations of insurance companies.
The 1998 Rules for Redressing Public Grievances
As the name implies, the purpose of this Act is to specifically address the grievances and complaints that current policyholders have against their insurance providers. Both general insurance companies and life insurance companies are affected by this. In light of this behaviour, the companies have dedicated teams to deal with customer relations and grievances in order to resolve conflicts between parties and ensure future operations run smoothly.
Modification to the 2015 Insurance Act
The Act was first proposed in 2008, and on March 23, 2015, it became law. The primary goal of this Act was to raise the future foreign investment cap from 26% to 49%. This came about and was made possible by the enactment.
The following were the few other noteworthy changes:
Raising the cap on foreign investments from 26% to 49%
Indian insurers’ mandatory control over joint ventures
Supplying different kinds of capital instruments
For Indian partners, there is no longer a requirement to disinvest a stake exceeding 26% after ten years.
The establishment of health insurance as a distinct insurance product
Permission to operate out of the self-owned branch offices for foreign reinsurers
These merely constituted the insurance laws and regulations.
Khatema Fibres Ltd. V. New India Assurance Company Ltd. And Ors. 2021
In the current case, the Supreme Court noted that the special forum established under the Consumer Protection Act, 1986 has limited jurisdiction in situations where the insurance company has accepted the insured’s claim, up to the extent of the loss as determined by the surveyor. In order to prove a deficiency, the insured must be able to demonstrate that the surveyor violated the code of conduct with regard to his obligations, responsibilities, and other professional standards as outlined in the regulations issued under the 1938 Insurance Act. The Court ultimately decided that the surveyor’s report could not be subjected to a forensic analysis of its structure in a Consumer Forum that is primarily focused on an allegation of a deficiency in service. The Consumer Forum’s authority would end if it is determined that the surveyor fulfilled their duties and responsibilities in a manner that complied with their code of conduct and that their performance was not inadequate. It would also end if it is determined that the report was not based on arbitrary or ad hoc.
Haris Marine Products v. Export Credit Guarantee Corporation (ECGC) Limited
The Supreme Court examined how to interpret a credit risk insurance policy’s terms by applying business common sense. The Court observed that the business common sense was a decisive method suggested to construe the ambiguity of a term used in a commercial contract, drawing on the UK Supreme Court’s ruling in Arnold v. Britton [2015] UKSC 36. Contra preference, the Court noted, an insurance contract’s ambiguous term is to be harmoniously construed by reading the contract from beginning to end. If, following that, there is still a lack of clarity, the term shall be construed against the policy drafter and in favour of the insured. Thus, the insured is shielded from the whims of an unfavourable interpretation of an ambiguous term to which it did not consent by the Rule of contra preference. The Court’s emphasis on the function of contra preference in standard form insurance policies—also referred to as boilerplate contracts or contracts d’ adhesion—where the insured has little to no countervailing bargaining power, is noteworthy. Consequently, because the parties had already transacted on multiple occasions, it was determined that ECGC had misinterpreted an ambiguous term and was ordered to reimburse the insured for the claim amount.
Buying insurance is a big financial commitment, and you’ll probably buy several policies in your lifetime. To ensure you make the best choice regarding what to purchase, it is imperative that you understand the coverage and operation of each type of insurance. Consider the benefits instead of just choosing the cheapest option when making your choice.
Spend some time comparing insurance quotes to determine which one is best for your needs. Although it is a common misconception that people cannot afford insurance, the truth is that they cannot afford not to have it. When unanticipated circumstances occur, it can spare them from unplanned expenses worth thousands or even millions of dollars. Spending money on policies that don’t suit your needs is something you want to avoid doing.
