Effect of Liberalisation in Insurance Industry

The journey of insurance liberalization process in The indian subcontinent is now over seven yoa. The first major milestone in this journey has been the passing of Insurance Regulatory and Development Authority Act, 1999. This along with changes to the Insurance Act 1983, LIC and GIC Acts paves the way for the entry of private players and possibly the privatization of the hitherto public monopolies LIC and GIC. Checking of insurance to private sector including foreign involvement has lead into various opportunities and challenges.

Reasoning behind Insurance

In our daily life, whenever there is uncertainly there citrus county is an involvement of risk. The thought of security against such risk is one of the basic motivating forces for determining human thought patterns. As a sequel to this search for security, the concept of insurance must have been born. The urge to provide insurance or protection against losing life and property must have promoted individuals to make some sort of compromise willingly to experience security through collective co-operation. In this sense, the story of insurance is probably as old as the story of mankind.

Life insurance in particular provides protection to household contrary to the risk of premature death of its income earning member. Life insurance in our contemporary world also provides protection against other life related risks such as that of longevity (i. e. risk of outliving of source of income) and risk of impaired and sickness (health insurance). The products contribute towards longevity are pensions and annuities (insurance against old age). Non-life insurance provides protection against accidents, property damage, theft and other debts. Non-life insurance contracts are typically shorter in duration as compared to life insurance contracts. The bundling together of risk coverage and saving is unusual of life insurance. Life insurance provides both protection and investment.

Insurance is a advantage to business concerns. Insurance provides short range and long range relief. The short-term relief is aimed at protecting the insured from loss of property and life by distributing the loss amongst large number of persons through the medium of professional risk bearers such as insurers. It enables a entrepreneur to handle an unanticipated loss and, therefore, he need not worry about the possible loss. The long-range object being the economic and industrial growth of the country by making an investment of huge funds available with insurers in the organized industry and commerce.

General Insurance

Prior to nationalizations of General insurance industry in 1973 the GIC Act was passed in the Parliament in 1971, but it came into effect in 1973. There was 107 General insurance companies including twigs of foreign companies operating in the country upon nationalization, these companies were amalgamated and grouped into the following four subsidiaries of GIC such as National Insurance Company. Ltd., Calcutta; The new The indian subcontinent Assurance Company. Ltd., Mumbai; The Oriental Insurance Company. Ltd., New Delhi and U . s . The indian subcontinent Insurance Company. Ltd., Chennai and now delinked.

General insurance business in The indian subcontinent is broadly divided into fire, underwater and miscellaneous GIC apart from directly handling Aviation and Reinsurance business administers the Comprehensive Harvest Insurance Scheme, Personal Accident Insurance, Social Security Scheme etc. The GIC and its subsidiaries commensurate with the reason for nationalization to spread the message of insurance far and wide and to provide insurance protection to lagging section of the society are making efforts to develop new covers and also to popularize other non-traditional business.

Liberalization of Insurance

The comprehensive regulation of insurance business in The indian subcontinent was brought into effect with the enactment of the Insurance Act, 1983. It tried to manufacture a strong and powerful direction and regulatory authority in the Controller of Insurance with powers to direct, advise, investigate, register and liquidate insurance companies etc. However, accompanying upon the nationalization of insurance business, most of the regulatory functions were removed from the Controller of Insurance and vested in the insurers themselves. The costa rica government of The indian subcontinent in 1993 had set up a high powered committee by Ur. In. Malhotra, former Governor, Reserve Bank of The indian subcontinent, to examine the structure of the insurance industry and recommend changes to make it extremely effective and competitive keeping in view the structural changes in other regions of the financial system on the country.

competition to government sector:

Government companies have at the moment to handle competition to private sector insurance companies not only in giving various choice of insurance products but also in several aspects in terms of customer service, channels of distribution, effective techniques of selling the products etc. privatization of the insurance sector has opened the doors to innovations in how business can be transacted.

Modern insurance companies are beginning new concepts and cheaper way of transacting business. The idea is clear to cater to the most business at the lest cost. And slowly with time, the age-old convention prevalent with government companies to expand by setting up twigs seems getting lost. Among the techniques that appear to catching up fast as an alternative to cater to the countryside and social sector insurance is center and mention arrangement. These along with the participants of NGOs and Self Help Group (SHGs) have inked with most of the selling of the countryside and social sector policies.

The main challenges is from the commercial banks that have vast network of twigs. In this regard, it is important to mention here that LIC has entered into an arrangement with Mangalore based Firms Bank to leverage their structure for mutual benefit with the insurance monolith acquiring a strategic pole 27 percent, Corporation Bank has decided to abandon its plans of promoting a life insurance company. The bank will act as a corporate agent for LIC in future and receive commission on policies sold through its twigs. LIC with its side network of close to 2100 offices will allow Corporation Bank to set up off shoot centers. ATMs or twigs with in its driveway. Corporation Bank would in turn implement an effective Cash flow Management System for LIC.