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Insurance Reforms in India

Insurance Reforms in India: FDI Cap to relax to 49 Percent 15 September, 2009, Business News – No Comment Ads by Google The Indian Government is keen on getting the current Foreign Direct Investment (FDI) cap raised from 26% so as to enable foreign investors up their stakes in insuranceorganisations in India. While the Insurance Regulatory Authority of India (IRDA) has been holding the FDI cap steady at 26%, there have been lobbying from various stake holders in the insurance industry to increase the scope of FDI to 49% for the past few years now.

Proposals to increase foreign companies’ stakes in Indian Insurance companies have been met with stiff resistance from the Left Wing parties who oppose a virtual “sell out” of Indian Insurance industry to foreign organisations. However, the move to increase FDI cap to 49% is widely expected in the industry, which has undergone major reforms over the past few years.

While Life Insurance Corporation of India (LIC), the Public Sector Undertaking (PSU), held a monopoly over insurance products in India, the opening up of the sector to private players and to foreign investors gave rise to a flurry of activity in an industry that has enormous scopes for growth in an under-insured country. Multinational behemoths in Insurance have tied up with their Indian partners – Prudential has joined hands with ICICI, AIG has teamed up with TATA, Allianz with Bajaj, Sun with Birla – as they have been trying to gain market share.

With almost 20 insurance companies in operation in India, Insurance premiums of private sectors rose from Rs 272. 6 crores in 2001 – 02 to Rs 51,561. 4 crores for the year 2007 – 08. LIC still holds the king’s share with 149,790 crores of premiums collected in 2007 – 08, almost three times the total premium charged by all private organisations put together. While rural insurance is an area that is yet to be exploited, a 10. 3 percent service tax charged is considered detrimental to growth of the rural insurance market.

Further, the Government’s Universal Health Insurance scheme exempts public sector organisations from service tax, which private players allege, rigs the playing field in favour or PSU’s. Industry leaders are also pressurising the government to waive the service tax that would facilitate growth of insurance in rural India. The current relaxation of FDI cap is expected to bring in over Rs 10,000 crores into India through increased foreign participation in the industry, with the passing of the Insurance Amendment Bill.

While insurance reforms still have a long way to go as represented by private insurance players, the increase in FDI cap to 49% would be an important milestone that private insurance players are looking forward towards Event| Insurance Sector Reforms in India: Challenges and Opportunities| | Begins| August 18, 2006| | Ends| August 19, 2006| | Papers| July 15, 2006| | Ab. | Insurance Reforms| | Country| India| | State| Andhra Pradesh| | City| Hyderabad| | | . | | Category| Business: Banking| | Category 2| Education: Higher_Education| | Category 3| Business: Insurance| Exhibits| | | Organization| | | Contact| Dr. D. Chennappa Seminar Director Department of Commerce Nizam College- Hyderabad, AP| | URL| http://osmania. ac. in| | Venue| Seminar Hall| | Description| Insurance in India started without any regulations in the nineteenth century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, the Life Insurance Company was nationalized in 1956, and then the general insurance business was nationalized in 1972.

Only in 1999 private insurance companies were allowed back into the business of insurance with a maximum of 26 per cent of foreign holding (World Bank Economic Review 2000). The entry of the State Bank of India with its proposal of bank assurance brings a new dynamics in the game. On July 14, 2000 Insurance Regulatory and Development Authority bill was passed to protect the interest of the policyholders from private and foreign players. The following companies are entitled to do insurance business in India. The private insurance joint ventures have collected the premium of Rs. 1019. 9 crore with the investment of just Rs. 3,000 crore in three years of liberalization. The private insurance players have significantly improving their market share when compared to 50 years Old Corporation (i. e. LIC). As per the figures compiled by IRDA, the Life Insurance Industry recorded a total premium underwritten of Rs. 10,707. 96 crore for the period under review. Of this, private players contributed to Rs. 1, 019. 09 crore, accounting for 10 percent. Life Insurance Corporation of India (LIC), the public sector giant, continued to lead with a premium collection of Rs. ,688. 87 crore, translating into a market share of 90 per cent. In terms of number of policies and schemes sold, private sector accounted for only 3. 77per cent as compared to 96. 23 per cent share of LIC (The Economic Times, 21 March,2004). The ICICI Prudential topped among the private players in terms of premium collection. It recorded a premium of Rs. 364. 9 crore and a market share of 25 per cent, followed by Birla SunLife with a premium under- written Rs. 170 crore and a market share of 15 percent, HDFC Standard with 132. 7 crore and Max New York Life with Rs. 76. crore with a market share of approximately 15 per cent each. Unlike their counterpart in the life insurance business, private non-life insurance companies have not yet started addressing the retail market. All is set to change in the coming years. Like in the banking sector, non-life insurance companies will soon have no choice but to focus on individual buyers. In case of private non-life insurance players, that their market share rose to 14. 13 per cent, recording a growth of 70. 75 per cent on an annual basis, while the market share of public sector stood at 85. 7 per cent, registering a marginal growth of 6. 34 per cent. The overall market has recorded a growth of 12. 32 per cent by the end of January 2004. Among the private non-life insurance players, ICICI Lombard topped the list with a premium collection of Rs. 403. 62 crore in one year period with a market share of 3. 05 per cent and with an annual 131. 6 per cent, followed by Bajaj Allianz with a premium of Rs. 385. 02 crore and 2. 91 per cent market share and Tata AIG with 300. 49 crore premium and 2. 27 per cent market share with an annual growth rate of 62. 60 per cent.

Among the public sector players, New India garnered a market share of 24. 38 per cent, Rs. 3,229. 49 crore premium and an annual growth rate of 0. 38 per cent, followed by National with a market share of 21. 43 per cent, Rs. 2,839. 11 crore premium and an annual growth rate of 19. 88 per cent, United India with a market share of 19. 47 per cent (Rs. 2,578. 83 crore premium) and Oriental with a market share of 18. 25 per cent, Rs. 2,417. 17 crore premium and an annual growth rate of 1. 86 per cent. It is significant to note that HDFC Chubb and Cholamandalam have registered annual growth rates of 4030. 6 per cent and 1101. 20 per cent respectively, whereas New India has registered it as 0. 38 per cent. If this trend continues, private insurer would dominate the public sector like New India Insurance Corporation. It is obviously reflect the insurance sector has facing the challenges with foreign counter parties as well as private counter parties and lot more opportunities are prevailing to penetrate the insurance business among the uncovered people and area of India. Further, it leads to economic development of the country.

In this regard, it assumes greater significance to conduct debate among the inter- disciplinary persons. It is, therefore, an urgent need to explore the challenges and opportunities faced by the insurance sector in India. Accordingly, the proposed seminar title is INSURANCE SECTOR IN INDIA ? CHALLENGES AND OPPORTUNITIES. II. OBJECTIVES OF THE SEMINAR The following objectives have been formed, such as: 1. To discuss the challenges that the insurance sector is facing in India. 2. To focus the opportunities that the insurance sector in India is having. 3.

To assess the growth of private insurance sector in India. 4. To discuss on the cost (premium amount) and on the Rate of Return (RoR) on insurance policies. 5. To review the role of the Insurance Regulatory Authority of India (IRDA) in regulating insurance business in India. 6. To discuss the determinants (Economic, demographic, Risk factor etc. ) of the insurance policy holders. 7. To review why the rural people have remained outside the purview of the insurance sector in India. III. ACADEMIC SIGNIFICANE OF THE PROPOSED SEMINAR Insurance sector is now receiving serious attention by colleges and universities.

Many educational institutions are offering Post Graduate Diploma in insurance on part time or full time basis or in the distance mode to cater the needs of the students. Vast literature made available on Insurance in the form of books, magazines and research papers. However, the existing literature covered by principles, nature and scope of insurance, documents and marketing of insurance. Thus very few studies attempted to evaluate the risk factor. It is, therefore, the proposed seminar would concentrate to deliberate on Rate of Return (RoR), inflation rates, discount rates, mortality rates, and Net Present Values etc.

No adequate debate has been carried out on the proposed topic of the seminar to the extent that it demands. Hence, the proposed seminar assumes a greater significance in the academic field. IV. RELEVANCE TO PRESENT-DAY PROBLEMS/NEEDS OF THE SOCIETY/ COUNTRY The latest series of bomb attacks, attack on parliament, attack on Ayodya, attacks of the Maoists, nature calamities like tsunami, floods and drought, ragging are prevailed in the country and need not to say about the farmer who has been insecure about rains, seeds, crops and suitable price for his crop. In developed countries, the owners have insured even pet dogs.

Whereas in India, about 80 percent of human beings and major natural resources have not been insured in globalization era. Based on the above fact, this seminar has quite relevance to the present day problems of life insurance, non-life insurance, rural health insurance, ragging insurance, natural calamities insurance, pension insurance and terrorism insurance. V. RELAVANCE TO NEEDS OF THE SOCIETY/COUNTRY Insurance sector is a major contributor to the financial savings of the household sector in the country, which are further channelized into various investment avenues.

As per the Annual Report 2003-04 of IRDA, contribution of insurance funds to the financial savings was 14. 9 per cent in 2003-04, viz 2. 2 per cent of the GDP at current market price. The premium underwritten has grown from Rs 45,677. 57 crore in 2000-01 to Rs. 83,645. 11 crore in 2003-04. After liberalization of insurance sector, insurers have introduced innovative product and tailor made products which are absolutely sit to rural population. Efforts at increasing consumer awareness and putting the regulatory framework for protection of policyholder? interest have been made both the industry and regulatory level. Global market conditions have also resulted in driving down premium rates/charges in respect of certain products and in improving the quality of services offered by the insurer. Finally, insurance sector has been penetrating in India, thus the proposed seminar has quite relevant to the society. VI. TO WHOM THE SEMINAR IS ATTRACTED Insurance organizations (Public & Private), Policyholders, Insurance Regulatory Authorities (IRDA Officials), Development Officials,

Educational Institutes (Which are offering PG Diploma in Insurance), Bankers (who are offering Insurance business), Financial Institutes (who are offering Insurance business), and Academicians, Professors and Research Scholars. VII. TECHNICAL SESSIONS (PRPOSED) FIRST DAY Technical Session I: Insurance Business in India : Role of IRDA Technical Session II: Nature of Risk and Insurance SECOND DAY Technical Session III: Evaluation of Insurance schemes Technical Session IV: Role of private insurers particiption in insurance business : Challenges and Opportunities Panel Discussion

In the light of the above discussion, a national seminar is a platform to discuss various issues aforesaid wherein the eminent professionals, distinguished academicians, regulators, government officials, Insurance organizations, development Officials, Bankers and Research Scholars from all over the country would participate in the deliberations. | | Additional Information| List of the titles for writing paper: 1. Risk and Insurance 2. Global insurance 3. Penetration of Insurance sector at world level as well as in India. 4. Saving habits of Indian people 5. Liberalisation of Indian Insurance sector . Role of the Insurance Regulatory Authority of India (IRDA) 7. Performance of private players in Insurance sector 8. A comparative studies on private and public sector of insurance companies. 9. Performance evaluation of Non-Life insurers (public and Private) 10. Evaluation of General Insurance sector in India 11. Urban and Rural penetration of Insurance sector in India 12. Role of Insurance sector in terms of infrastructure development in India 13. Role of FDI in Insurance sector 14. Detail papers on a) Insurance – Risk analysis b) Health Insurance c) Rural Insurance ) Crop Insurance e) Reinsurance f) Student Insurance g) Terrorism Insurance h) Travel Insurance i) Devotees insurance j) Fire Insurance k) Theft insurance l) House Insurance m) Property insurance 15. De- tariff of Insurance sector and road ? map for de-tariff  16. Evaluation of Pension Scheme 17. Evaluation of Provident Funds 18. Evaluation of Postal Life Insurance (PLIC) 19. Study on Unit Link Insurance policies (ULIP) 20. Studies of Private Savings 21. Studies on Premium fixation 22. Studies on maturity of insurance policies. 23. Insurance sector: Challenges and Opportunities 4. Insurance sector : Problems and Suggestions. Any other titles relevant broad area of savings and Insurance. | | Insurance Sector in India| By Sanjeev Sasidharan III Sem. MBA (Finanace & Marketing) TKM Institute of Management Kollam, Kerela E-mail: [email protected] com | 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.

A brief history of the Insurance sectorThe business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are: * 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, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd. the first general insurance company established in the year 1850 in Calcutta by the British. Some of the 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 (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. * 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd. , the New India Assurance Company Ltd. , 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 recognizing 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:1) 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. 2) Competition * Private Companies with a minimum paid up capital of Rs. 1bn should be allowed to enter the industry. * 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. 3) Regulatory Body * The Insurance Act should be changed. * An Insurance Regulatory body should be set up. * Controller of Insurance (Currently a part from the Finance Ministry) should be made independent. 4) 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). 5) 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 emphasized that in order to improve the customer services and increase the coverage of the insurance 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 d ecided 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. MAJOR POLICY CHANGES

Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations.

Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions: * Company is formed and registered under the Companies Act, 1956; * The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company; * The company’s sole purpose is to carry on life insurance business or general insurance business or reinsurance business. * The minimum paid up equity capital for life or general insurance business is Rs. 00 crores. * The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs. 200 crores. The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders’ interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers.

The Authority has its Head Quarter at Hyderabad. Insurance companies: IRDA has so far granted registration to 12 private life insurance companies and 9 general insurance companies. If the existing public sector insurance companies are included, there are currently 13 insurance companies in the life side and 13 companies operating in general insurance business. General Insurance Corporation has been approved as the “Indian reinsurer” for underwriting only reinsurance business. Particulars of the life insurance companies and general insurance companies including their web ddress is given below: LIFE INSURERS| Websites| Public Sector| Life Insurance Corporation of India| www. licindia. com| Private Sector| Allianz Bajaj Life Insurance Company Limited| www. allianzbajaj. co. in| Birla Sun-Life Insurance Company Limited| www. birlasunlife. com| HDFC Standard Life Insurance Co. Limited| www. hdfcinsurance. com| ICICI Prudential Life Insurance Co. Limited| www. iciciprulife. com| ING Vysya Life Insurance Company Limited| www. ingvysayalife. com| Max New York Life Insurance Co. Limited| www. maxnewyorklife. com| MetLife Insurance Company Limited| www. metlife. om| Om Kotak Mahindra Life Insurance Co. Ltd. | www. omkotakmahnidra. com| SBI Life Insurance Company Limited| www. sbilife. co. in| TATA AIG Life Insurance Company Limited| www. tata-aig. com| AMP Sanmar Assurance Company Limited| www. ampsanmar. com| Dabur CGU Life Insurance Co. Pvt. Limited| www. avivaindia. com| GENERAL INSURERS| Public Sector| National Insurance Company Limited| www. nationalinsuranceindia. com| New India Assurance Company Limited| www. niacl. com| Oriental Insurance Company Limited| www. orientalinsurance. nic. in| United India Insurance Company Limited| www. iic. co. in| Private Sector| Bajaj Allianz General Insurance Co. Limited| www. bajajallianz. co. in| ICICI Lombard General Insurance Co. Ltd. | www. icicilombard. com| IFFCO-Tokio General Insurance Co. Ltd. | www. itgi. co. in| Reliance General Insurance Co. Limited| www. ril. com| Royal Sundaram Alliance Insurance Co. Ltd. | www. royalsun. com| TATA AIG General Insurance Co. Limited| www. tata-aig. com| Cholamandalam General Insurance Co. Ltd. | www. cholainsurance. com| Export Credit Guarantee Corporation| www. ecgcindia. com| HDFC Chubb General Insurance Co. Ltd. |

REINSURER| General Insurance Corporation of India| www. gicindia. com| Protection of the interest of policy holders: IRDA has the responsibility of protecting the interest of insurance policyholders. Towards achieving this objective, the Authority has taken the following steps: * IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy proposal documents in easily understandable language; claims procedure in both life and non-life; setting up of grievance redressal machinery; speedy settlement of claims; and policyholders’ servicing.

The Regulation also provides for payment of interest by insurers for the delay in settlement of claim. * The insurers are required to maintain solvency margins so that they are in a position to meet their obligations towards policyholders with regard to payment of claims. * It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and conditions under the policy. The advertisements issued by the insurers should not mislead the insuring public. All insurers are required to set up proper grievance redress machinery in their head office and at their other offices. * The Authority takes up with the insurers any complaint received from the policyholders in connection with services provided by them under the insurance contract. | Insurance Sector in India | Insurance sector in India is one of the booming sectors of the economy and is growing at the rate of 15-20 per cent annum. Together with banking services, it contributes to about 7 per cent to the country’s GDP.

Insurance is a federal subject in India and Insurance industry in India is governed by Insurance Act, 1938, the Life Insurance Corporation Act, 1956 and General Insurance Business (Nationalisation) Act, 1972, Insurance Regulatory and Development Authority (IRDA) Act, 1999 and other related Acts. The origin of life insurance in India can be traced back to 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. It was conceived as a means to provide for English Widows. In those days a higher premium was charged for Indian lives than the non-Indian lives as Indian lives were considered riskier for coverage.

The Bombay Mutual Life Insurance Society that started its business in 1870 was the first company to charge same premium for both Indian and non-Indian lives. In 1912, insurance regulation formally began with the passing of Life Insurance Companies Act and the Provident Fund Act. By 1938, there were 176 insurance companies in India. But a number of frauds during 1920s and 1930s tainted the image of insurance industry in India. In 1938, the first comprehensive legislation regarding insurance was introduced with the passing of Insurance Act of 1938 that provided strict State Control over insurance business.

Insurance sector in India grew at a faster pace after independence. In 1956, Government of India brought together 245 Indian and foreign insurers and provident societies under one nationalised monopoly corporation and formed Life Insurance Corporation (LIC) by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore. The (non-life) insurance business/general insurance remained with the private sector till 1972. There were 107 private companies involved in the business of general operations and their operations were restricted to organised trade and industry in large cities.

The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from January 1, 1973. The 107 private insurance companies 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). In 1993, the first step towards insurance sector reforms was initiated with the formation of Malhotra Committee, headed by former Finance Secretary and RBI Governor R.

N. Malhotra. The committee was formed to evaluate the Indian insurance industry and recommend its future direction with the objective of complementing the reforms initiated in the financial sector. Key Recommendations of Malhotra Committee 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.

Competition * Private Companies with a minimum paid up capital of Rs. 1billion should be allowed to enter the industry. * 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. Regulatory Body * The Insurance Act should be changed. An Insurance Regulatory body should be set up. * Controller of Insurance 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 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.

Malhotra Committee also proposed setting up an independent regulatory body – The Insurance Regulatory and Development Authority (IRDA) to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. Insurance sector in India was liberalized 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.

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 insurance sector has led to rapid growth of the sector. Presently, there are 16 life insurance companies and 15 non-life insurance companies in the market. The potential for growth of insurance industry in India is immense as nearly 80 per cent of Indian population is without life insurance cover while health insurance and non-life insurance continues to be well below international standards.

OverviewWith 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 enturies. Historical PerspectiveThe 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 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. 956: 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. 968: 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, 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 ReformsIn 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. 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 independentiv) 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 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. Non-Life Insurance Market In December 2000, the GIC subsidiaries were restructured as independent insurance companies.

At the same time, GIC was converted into a national re-insurer. In July 2002, Parliamant passed a bill, delinking the four subsidiaries from GIC. Presently there are 12 general insurance companies with 4 public sector companies and 8 private insurers. Although the public sector companies still dominate the general insurance business, the private players are slowly gaining a foothold. According to estimates, private insurance companies have a 10 percent share of the market, up from 4 percent in 2001. In the first half of 2002, the private companies booked premiums worth Rs 6. 34 billion.

Most of the new entrants reported losses in the first year of their operation in 2001. With a large capital outlay and long gestation periods, infrastructure projects are fraught with a multitude of risks throughout the development, construction and operation stages. These include risks associated with project implementaion, including geological risks, maintenance, commercial and political risks. Without covering these risks the financial institutions are not willing to commit funds to the sector, especially because the financing of most private projects is on a limited or non- recourse basis.

Insurance companies not only provide risk cover to infrastructure projects, they also contribute long-term funds. In fact, insurance companies are an ideal source of long term debt and equity for infrastructure projects. With long term liability, they get a good asset- liability match by investing their funds in such projects. IRDA regulations require insurance companies to invest not less than 15 percent of their funds in infrastructure and social sectors. International Insurance companies also invest their funds in such projects. Insurance costs constitute roughly around 1. – 2 percent of the total project costs. Under the existing norms, insurance premium payments are treated as part of the fixed costs. Consequently they are treated as pass-through costs for tariff calculations. Premium rates of most general insurance policies come under the purview of the government appointed Tariff Advisory Commitee. For Projects costing up to Rs 1 Billion, the Tariff Advisory Committee sets the premium rates, for Projects between Rs 1 billion and Rs 15 billion, the rates are set in keeping with the committee’s guidelines; and projects above Rs 15 billion are subjected to re-insurance pricing.

It is the last segment that has a number of additional products and competitive pricing. Insurance, like project finance, is extended by a consortium. Normally one insurer takes the lead, shouldering about 40-50 per cent of the risk and receiving a proportionate percentage of the premium. The other companies share the remaining risk and premium. The policies are renewed usually on an annual basis through the invitation of bids. Of late, with IPP projects fizzling out, the insurance companies are turning once again to old hands such as NTPC, NHPC and BSES for business.

Re-insurance business Insurance companies retain only a part of the risk (less than 10 per cent) assumed by them, which can be safely borne from their own funds. The balance risk is re-insured with other insurers. In effect, therefore, re-insurance is insurer’s insurance. It forms the backbone of the insurance business. It helps to provide a better spread of risk in the international market, allows primary insurers to accept risks beyond their capacity, settle accumulated losses arising from catastrophic events and still maintain their financial stability.

While GIC’s subsidiaries look after general insurance, GIC itself has been the major reinsurer. Currently, all insurance companies have to give 20 per cent of their reinsurance business to GIC. The aim is to ensure that GIC’s role as the national reinsurer remains unhindered. However, GIC reinsures the amount further with international companies such as Swissre (Switzerland), Munichre (Germany), and Royale (UK). Reinsurance premiums have seen an exorbitant increase in recent years, following the rise in threat perceptions globally. Life Insurance Market

The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers. The penetration of life insurance products was 19 percent of the total 400 million of the insurable population. The state owned LIC sold insurance as a tax instrument, not as a product giving protection. Most customers were under- insured with no flexibility or transparency in the products. With the entry of the private insurers the rules of the game have changed. The 12 private insurers in the life insurance market have already grabbed nearly 9 percent of the market in terms of premium income.

The new business premiums of the 12 private players has tripled to Rs 1000 crore in 2002- 03 over last year. Meanwhile, state owned LIC’s new premium business has fallen. Innovative products, smart marketing and aggressive distribution. That’s the triple whammy combination that has enabled fledgling private insurance companies to sign up Indian customers faster than anyone ever expected. Indians, who have always seen life insurance as a tax saving device, are now suddenly turning to the private sector and snapping up the new innovative products on offer.

The growing popularity of the private insurers shows in other ways. They are coining money in new niches that they have introduced. The state owned companies still dominate segments like endowments and money back policies. But in the annuity or pension products business, the private insurers have already wrested over 33 percent of the market. And in the popular unit-linked insurance schemes they have a virtual monopoly, with over 90 percent of the customers. The private insurers also seem to be scoring big in other ways- they are persuading people to take out bigger policies.

For instance, the average size of a life insurance policy before privatisation was around Rs 50,000. That has risen to about Rs 80,000. But the private insurers are ahead in this game and the average size of their policies is around Rs 1. 1 lakh to Rs 1. 2 lakh- way bigger than the industry average. Buoyed by their quicker than expected success, nearly all private insurers are fast- forwarding the second phase of their expansion plans. No doubt the aggressive stance of private insurers is already paying rich dividends. But a rejuvenated LIC is also trying to fight back to woo new customers.

Also see: Allianz Bajaj Life Insurance Company posts phenomenal growth in its First Complete Fiscal 2002- 2003 (Source- Company Press Release) FINANCIAL SECTOR REFORMS IN INDIA| The period immediately after independence posed a major challenge to the country. Due to centuries of exploitation at the hands of foreign powers, there were very high levels of deprivation in the economy—both social as well as economic. To take up the Herculean task of rapid growth with socio-economic justice, the country adopted the system of planned economic development after independence.

Due to paucity of economic resources and limitations of availability of capital for investment, the government also came up with the policy of setting up public enterprises in almost every field. The fiscal activism adopted by the government resulted in large doses of public expenditures for which not only the revenues of the government were utilized but the government also resorted to borrowing at concessional rates, which kept the financial markets underdeveloped. The growth of fiscal deficit also continued unabated year after year.

Complex structure of interest rates was a resultant outcome of this system. Nationalisation of major commercial banks in the late sixties and early seventies provided the government with virtually the complete control over the direction of the bank credit. The emphasis was mainly on control and regulation and the market forces had very limited role to play. The economic system was working to the satisfaction of the government. The social indicators were gradually improving and the number of people below poverty line also declined steadily.

The only problem area had been that the growth rate of the economy had been very low, and till late seventies, the growth rate of the GDP was hovering around 3. 5 per cent per annum. It was only during mid-eighties that the growth rate touched 5 percentage points. The situation became difficult by the eighties. Financial system was considerably stretched and artificially directed and concessional availability of credit with respect to certain sectors resulted in distorting the interest rate mechanism.

Lack of professionalism and transparency in the functioning of the public sector banks led to increasing burden of non-performance of their assets. Late eighties and early nineties were characterised by fluid economic situation in the country. War in the Middle East had put tremendous pressure on the dwindling foreign exchange reserves of the country. The country witnessed the worst shortages of the petroleum products. High rate of inflation was another area of serious concern. Most of the economic ailments had resulted due to over regulation of the economy.

The international lending and assisting agencies were ready to extend assistance but with the condition that the country went in for structural reforms, decontrols and deregulation, allowing increased role for the market forces of demand and supply. The precarious economic conditions left the country with no alternative other than acceptance of the conditions for introducing the reforms. Post Reforms Rationalisation of the taxes has already taken place on the basis of the recommendations of Raja Challiah Committee Report during mid-nineties.

The government has been able to tighten its fiscal management through the FRBMA and the continuing increase in the fiscal deficit has been contained significantly. Reforms in the external sector management have yielded results in the form of increased foreign capital inflows in terms of Foreign Direct Investment (FDI), Foreign Institutional Investment (FII) and the exchange rate has also represent true international value of Indian rupee vis-a-vis hard global currencies. The primitive foreign exchange regulation regime controlled by FERA has been replaced by a liberalized foreign exchange rate management system introduced by FEMA.

Introduction of such a modern management law was perhaps a pre-condition for allowing FDI and FII. In  1993, the RBI issued guidelines to allow the private sector banks to enter the banking sector in the country, a virtual reversal of the policy of bank nationalisation. Foreign banks were also given more liberal entry. The thrust of the monetary policy after the introduction of the process of reforms has been able to develop several instruments of efficient financial management. A Liquidity Adjustment Facility (LAF) was introduced in June 2000 to precisely modulate short-term liquidity and signal short-term interest rates.

A lot of reliance is being placed on indirect instruments of monetary policy. Strengthening and upgradation of the institutional, technological and physical infrastructure in the financial markets has also improved the financial framework in the country. Economy and Reforms The introduction of financial sector reforms has provided the economy with a lot of resilience and stability. The average annual growth rate of the economy during the post-reform period has been more than 6 per cent, which was unimaginable a decade before that. The economy withstood boldly the Asian economic crisis of 1997-98.

Even the economic sanctions by the US and other developed countries after the nuclear testing did not affect the economy to the extent apprehended. The current global slowdown and sub-prime crisis affecting the banking system all over the world has not impacted the Indian economy to that extent. Banking and insurance sectors are booming. While the private and foreign banks are giving stiff but healthy competition to the public sector banks, resulting in overall improvements in the banking services in the country, the insurance sector has also witnessed transformation.

The consumer is a gainer with the availability of much better and diversified insurance products. The stock exchanges in the country are in the process of adopting the best practices all over the world. The RBI has also been able to control and regulate effectively the operations and growth of the Non-Banking Financial Companies (NBFCs) in the country. A few changes which are on the anvil pertain to the legal provisions relating to fiscal and budget management, public debt, deposits, insurance etc.

As per the Finance Minister, future reforms by making legal changes also pertain to banking regulations, Companies Act, Income Tax, Bankruptcy, negotiable instruments etc. But there are certain issues that call for more cautious approach towards the financial sector reforms in the future. The social sector indicators—like availability of doctor per 1000 population, availability of health institutions, quality of elementary education, literacy rate, particularly among the females—are some of the areas of serious concern.

Countries like China, Indonesia and even Sri Lanka are much better than India in most of the social sector indicators. Despite being among the most rapidly developing economies of the world, the literacy rate and poverty percentage are two biggest embarrassments and the country still languishes at 128th position in the Human Development Index of the UNDP, where it is virtually stagnating for the last about five years. Further, the systems should also be able to check any unusual rise in prices to protect the common man from inflation.

One of the major criticisms of the government policy has been that the reforms have lacked the human face, as the government has been over-obsessed with the idea of achieving higher growth rate and fiscal and monetary management, rather than addressing the needs for equitable and inclusive growth. The reforms process has ignored the common man and the trickle down theory has actually failed to deliver. The Planning Commission, while finalising the Eleventh Five-Year Plan has now sought to achieve the overall objective of achieving the ‘inclusive growth’, i. . , to include all those in the process of economic growth, who has remained excluded from the process of economic growth experienced by the country during the past decades. | Overview of Insurance Sector in India| By Dr. Vijay Pithadia PhD, Electronics Technocrat Assistant Professor & Chair: Kidevices AG R. K. College of Business Management Kasturbadham, Bhavnagar Road, Rajkot-360020 GJ | 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 it 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. In India, insurance is generally considered as a tax-saving device instead of its other implied long term financial benefits. Indian people are prone to investing in properties and gold followed by bank deposits. They selectively invest in shares also but the percentage is very small. Even to this day, Life Insurance Corporation of India dominates Indian insurance sector. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant.

Historical PerspectiveThe 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 nationalized monopoly corporation and Life Insurance Corporation (LIC) was born.

Nationalization 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 organized trade and industry in large cities. The general insurance industry was nationalized 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). Indian federal government considers insurance as one of major sources of funds for infrastructure development. The government has identified the following as major thrust areas:* Timely and reliable statistical data and information about policies and markets to instill a degree of credibility;  * A code of good practices based on international best practices to raise the standard of Indian insurance sector;  * Strengthening of supervision and regulation; * Market participation in decision-making; High solvency standard’ and Developing alternative channels. Till end of 1999-2000 fiscal years, two state-run insurance companies, namely, Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) were the monopoly insurance (both life and non-life) providers in India. Under GIC there were four subsidiaries– National Insurance Company Ltd, Oriental Insurance Company Ltd, New India Assurance Company Ltd, and United India Assurance Company Ltd. In fiscal 2000-01, the Indian federal government lifted all entry restrictions for private sector investors.

Foreign investment insurance market was also allowed with 26 percent cap. GIC was converted into India’s national reinsure from December, 2000 and all the subsidiaries working under the GIC umbrella were restructured as independent insurance companies. Indian Parliament has cleared a Bill on July 30, 2002 de-linking the four subsidiaries from GIC. A separate Bill has been approved by Parliament to allow brokers, cooperatives and intermediaries in the sector. Currently insurance companies- both private and public– have to cede 20 percent of its reinsurance with GIC.

GIC is planning to increase re-insurance premium by 20 percent which works out at Rs 3000 cr. GIC is actively considering entry into overseas markets including West Asia, South-east Asia and SAARC region. Insurance Sector ReformsIn 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 recognizing 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) StructureGovernment 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) CompetitionPrivate 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. ii) Regulatory BodyThe 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 independentiv) InvestmentsMandatory 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 ServiceLIC should pay interest on delays in payments beyond 30 days.

Insurance companies must be encouraged to set up unit linked pension plans. Computerization of operations and updating of technology to be carried out in the insurance industryThe committee emphasized 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.

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 R

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