Insurance – History and Development in India
We have been seeing various forms of insurance today in India as well as across the globe. This was because of the development of society with the increased intrusion of companies as well. This article will be looking into the different phases of the development of insurance in India as part of the history of insurance. It will conclude with the recent amendments brought to the Insurance Act in 2015 and 2021.
Insurance in Ancient India:
Even before the British invasion of India, few of the Indian scriptures and writings such as Manusmirithi, Arthasasthra, and Dharmasastra had talked about the concept of insurance in essence. As mentioned, the way they followed looks similar to the modern concept of insurance. As per those writings, there was a pooling of resources made to any particular person, such as the king and the same has been re-distributed during various calamities that were caused over the course of time due to floods, fire, famine, etc. Early southern India, with the rulers such as King Pandian, followed by the Mughals, had a history of trading through sea waters and using marine trade loans. These incidents show that the early history of India had traces of insurance even before the English traders invaded.
Insurance in British Rule:
As part of British rule, different three main presidencies in India saw the development of the insurance business, especially life insurance. As per IRDAI, 1818 was marked to be the first step in British India which saw the incorporation of the Oriental life insurance Company in Calcutta. In Southern India, Madras Equitable was noted to have started life insurance in the Madras Presidency. The Oriental Life Insurance, established in 1818, saw its failure in 1834.
Following this, the British enacted legislation called the British Insurance act of 1870, and Bombay was the next presidency to see growth in the Insurance sector in the latter part of the 19th century. During this time, competition between the Indian companies and foreign insurers such as Liverpool, etc. was witnessed, leading to further development of the sector in India. This growth even continued in the first part of the 20th century, where the number of insurers in the life insurance business also saw a steep high from a mere 40 to around 180 companies, with capital increasing from 22 crores to 298 crores in the market in the 1930s. In 1912, the Indian Life assurance companies act was enacted, which was followed by the Indian Life Insurance Companies act of 1928. As the market also witnessed a few uncertainties, new legislation was felt during the reign of the Government of India act, 1935. This demand saw a structural form through the enactment of the Insurance act of 1938 – which was nothing but a consolidation of laws relating to the life insurance business in India. There are other crucial things to be noted as part of this act. It is important to note that the Insurance act of 1938 was the first legislation that dealt with the provisions not only relating to the Life insurance sector but also to the non-life insurance sectors as well. Along with this enactment and introduction, various entities also put forth proposals to nationalize life Insurance companies. However, the same did not get into a structured form on or before independence.
Insurance in the Indian Constitution:
The purpose of referring Indian Constitution is to know who has the power over the regulation, and incorporation of the Insurance sector in India as our quasi-federal constitution provided three lists under article 246, thereby enlisting the legislative powers over certain subjects between the states and the union government. Looking into the seventh schedule provides us that the subject of insurance was enlisted under entry 43 of the Union list. It gives the power of incorporation, regulation, and winding up of insurance companies to the union government, excluding the state governments from legislative power over insurance other than social insurance matters which are mentioned under entry 23 of the Concurrent list. However, what was the reason behind such a decision is not what we will be discussing, and the same may or may not be questioned anywhere.
Development post-Independence:
Let us look into the importance of the Insurance act of 1938, which is being followed even today, and the reasons for the nationalization of life insurance in India as part of this post-independence development. The first amendment post-independence came in the year 1959 when the agencies were abolished, and further, the issues of unfair trade practices popped up in the life insurance sector. In order to avoid such practices and also to initiate a socialistic approach in society, these life insurance companies were nationalized to form one unit as Life Insurance Corporation in India. Other purposes of such nationalization were to improve the service in the life insurance business, reduce expenses and increase the intensity and sense of business in India. Life Insurance Corporation Act was enacted in 1956, followed by the General Insurance Business (Business) act of 1973.
The liberalization, Globalization, and Privatization in the year 1991 also had an impact on the insurance sector, where foreign investments increased in the India Insurance sector. Post-liberalization saw the recommendations from the Malhotra Committee report in 1994 to bring reforms in the insurance industry, that are in line with the developments being made along with economic developments. It recommended the establishment of the first regulatory authority called Insurance Regulatory and Development Authority in India (IRDAI) in 1999. Foreign investments were also introduced with 26% in 2000 in the Insurance sector, and the re-insurance sector was also nationalized. Apart from these, other recommendations include allowing private entities in the insurance sector.
Recent amendments to the Insurance Act:
We shall conclude with a note on recent amendments made to the insurance act of 1938. Firstly, an amendment in 2015, which was introduced in Lok Sabha on March 3, 2015, made the following changes – foreign direct investments were tremendously increased from 26% to 49%, and companies were allowed to increase their capital through the issuance of shares, and health insurance was separated to form a new category of insurance in India. The amendments also include the increase in powers and flexibility of IRDAI in India. Foreign re-insurances were also permitted.
Lastly, recently in 2021, which was introduced in the Rajya Sabha on March 15, 2021, increased the foreign investment in the Indian Insurance company from 49% to 74%. It also made changes to the investment of assets and the holding of assets by foreign and Indian residents.
Also, read – https://www.researchgate.net/publication/334720973_Growth_and_development_of_insurance_in_india
