Development of insurance in its modern forms began in the second half of the 19th century. The insurance market of this country developed along with trade and, undoubtedly, under the influence of the British protectorate. The first colonial insurance company Oriental Life Insurance was established in 1818 in Calcutta.
In 1914, the government of India began publishing reports of insurance companies in India. India’ Life insurance law in 1912 was the first legislative measure to regulate life. In 1928, the Law on Indian Insurance Companies was adopted so that the government could collect statistical information on insurance activities carried out in India by Indian and foreign insurers. In 1938, the Law “On Insurance” came into effect in order to protect the interests of various subjects of insurance relations, including for the purpose of supervising the activities of insurers.
On January 19, 1956, the government of India issued a Decree on the nationalization of life insurance sector, and the Life Insurance Corporation (LIC) appeared the same year. The LIC took over 154 Indian and 16 non-Indian insurers. In 1972, the Indian Parliament passed the Law on the Nationalization of General Insurance. 107 insurers were merged and grouped into four companies, namely the National Insurance Company Limited, New India Assurance Co. Ltd, Eastern Insurance Company LLC and the United India Insurance.
The period of state monopoly lasted until the end of the 90s when the insurance sector was reopened for the private sector and foreign investors.
In 1999, the Insurance Regulatory and Development Authority (IRDA) was established as an autonomous body for regulation and development of the insurance industry. The key objectives of the IRDA are to promote competition, protect the interests of insurance policy holders, regulate, encourage and ensure an orderly growth of the insurance industry, increase customer satisfaction by increasing consumer choice and reducing premiums while ensuring financial security of the insurance market.
Recently, the government of India approved a decision to increase the existing limit of foreign direct investment in the insurance sector from 26 to 49% which will help attract investment in this sector in the future.
Structure of the insurance market and its regulation
Currently, the insurance market of India consists of 53 insurance companies, of which 24 are life insurance companies, 29 are general insurance companies. Among LIC, the Life Insurance Corporation (LIC) is the only public sector company. Among the insurers of general insurance 6 of them belong to the public sector. In addition to 53 insurance companies, there is a single national reinsurer which is General Insurance Corporation of India. The other stakeholders of Indian insurance market include approved insurance agents, licensed corporate agents, brokers, general service centers, web aggregators, inspectors and third-party administrators who service health insurance claims.
In India, the supervisory body represented by the Insurance Regulatory and Development Authority (IRDA) appoints top management of insurance companies and monitors sources of funding to provide confidence that the managers are competent and that companies have sufficient financial capacity as insurance in India is of national scope.
The supervisory body also develops and approves the list of insurance products and checks them for transparency. On the other hand, pursuant to the Law on Insurance, the insurers have the freedom to choose the tools for investing their funds and reserves.
In addition, the supervisory bodies carry out licensing of the activities of insurance multi-agents who must undergo special training (listen to 100 hours of lectures and take exams).
Insurance brokers in India represents a fairly young institution. If the insured needs to receive a piece of advice regarding the insurance company, he refers specifically to the insurance broker. Brokers, according to local legislation, are not allowed to keep the risk at their own (even for one day). They also must timely transfer the insured's payments to the insurer's account.
Social protection and health insurance in India
Social security is available only to those who work in the organized sector (it accounts for less than 10% of India's workforce). The employee insurance system of the government provides medical care and other benefits (in the event of occupational injuries, temporary or permanent disability, maternity leave, support for dependents) for workers who earn less than INR 15,000 per month.
In India, there are two basic social insurance plans: Employees' Provident Fund Organisation (EPFO) and Employees' State Insurance Corporation (ESIC).
EPFO covers pensions and survivor benefits in case of death of an employee. This plan is mandatory for all employees working in companies with more than 20 employees. Employers should approach the fund on behalf of their employees. On the other hand, ESIC covers low-paid employees providing them with basic health and welfare schemes. Public employees are insured by the state.
Every state in India has its own Ministry of Health. In all the so-called blocks of community development a primary health center with 80-100 beds was established. In theory, every Indian citizen is entitled to receive the minimum amount of medical care that may be provided by state institutions of any level free of charge. However, as a rule, hospitals charge fees from patients depending on the size of their income. Free care is delivered for poor people only.
Further prospects of market development
The country is the fifteenth largest insurance market in the world in terms of premiums and has the potential for growth at an exponential rate in the coming years. The beginning of the recovery in the insurance market of India coincided with GDP growth. Since 1980, this indicator was about 3-4% per year, in 1980-1996, the GDP growth rate increased up to 5-6% per year. Over the last 8-9 years, the growth rate of the economy is about 8%.
The total volume of India’s insurance market increased from $ 23 billion in 2005 to $ 79.14 billion in 2016. The insurance premium per capita, i.е. the insurance penetration rate in India for the period 2015-2016 fiscal year was $ 54.7. Currently, India accounts for about 1.5% of all insurance premiums in the world and about 2% of life insurance premiums in the world whereas being the second most populous country.
We can say figuratively that the insurance market in India is focused largely on life insurance, but recently other types of insurance related to general insurance are rapidly developing as well such as medical insurance, vehicle insurance, health insurance.
India's insurance population is expected to reach 750 million in 2020 with the average life expectancy to reach 74 years. In addition, according to forecasts, by the end of this decade, life insurance will account for 35% of total savings versus 26% in 2009 and 2010.
India’s life insurance sector is the largest one in the world, its volume is about 360 million policies. The compound annual growth rate (CAGR) of this market is expected to be 12-15% in the next five years.
The representatives of India’s insurance market explain the rise of the popularity of life insurance with one voice by the fact that private companies that entered the market of the country during the liberalization period brought here products such as policies with a strong investment component and coverage against risks. This step eliminated the recent lag in the competition with banking products, i.e. a low profitability on long-term cash-value insurance policies. Timing of premiere turned out to be favorable because the stock market of the country was developing steadily, the profitability on life insurance policies reached 100% per annum.
Life insurance in India has turned into a form of financial planning and an instrument of wealth accumulation. Apart from provision of financial benefits to close people after death of the insured, life insurance can be viewed as a long-term investment, often with built-in savings plans and regular incomes. In addition to providing coverage for the domestic market, policies are also available to Indian citizens living overseas, people of Indian origin and foreign citizens living in India.
The future looks promising for the life insurance industry with an introduction of a number of changes in the regulatory framework that will lead to further changes in the way the industry will conduct its business and interact with its clients.
The demographic factors, such as a growing middle class, a young insurance population and a growing awareness of the need for protection and pension planning, will contribute to the growth of life insurance in India.