What is life insurance, how it is different from general insurance?
Life Insurance can be defined as a contract between an insurance policy holder and an insurance company, where the insurer promises to pay a sum of money in exchange for a premium, upon the death of an insured person or after a set period. While life insurance covers the life of a person, general insurance provides cover to other aspects and assets in a person’s life, for example, health, car, travel, home, etc.
Origin of Life Insurance in India
Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil.
Reason for establishment :All the insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies.
First insurance for Indians : Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them.
In 1870, Bombay Mutual Life Assurance Society , the first Indian life insurance company was established and covered Indian lives at normal rates.
Birth of insurance companies based on nationalism:
Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies established during the same period.
Legislations to regulate Insurance Business
Prior to 1912 India had no legislation to regulate insurance business.
In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage.
In 1928,the Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.
The Insurance Act 1938 was the first legislation governing not only life insurance but also non-life insurance to provide strict state control over insurance business.
Nationalisation of Life insurance industry:
The demand for nationalization of life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However, it was much later on the 19th of January, 1956, that life insurance in India was nationalized.
About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization.
Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill.
245 Indian and foreign insurers and provident societies are 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 with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.
Important milestones in the general insurance business in India are:
In 1907, the Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.
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.
Questions for practice
- When Life Insurance came to India?
- What is the name of the first Indian life insurance company?
- Bombay Mutual Life Assurance Society
- Life Insurance Corporation
- General Insurance Company
- Hindustan Co-operative Insurance Company
- General Awareness Quiz Series 2022: 18th January
- RBI releases Annual Report of Ombudsman Schemes, 2021-22
- Kisan Vikas Patra (KVP) Interest Rate was Hiked for January–March 2023 Quarter
- GK Questions For GK Questions