HISTORY Of INSURANCE

MSF 512, IBCS, 2013

Origin of Insurance Concept

• Origin can be traced back to 6000 years

ago.

• Sharing of insurance risk started from

high seas.

Past History of InsuranceFrom 3000 (B.C.) the oldest reference relates to Hammurabi and Manu’s religious discourses in Rig Veda – the words “Yogakshema” gives enough hint that social protection was prevalent even during that period. Also during the Mohanjodaro civilization and after India’s trade extended to Babylon and beyond, the merchant guilds at important trading centers devised means to insure ships and caravans.

History continued……

• Instances can be found in mutual help societies for widows protection, marriage of girls, educating children and helping uneducated in business.

• Temples, churches were pioneers in propagating these mutual help societies.

• Joint Family system has evolved from this concept.

• The early development of insurance was irregular and was confined to fields other than life.

• Modern life insurance is a heritage from England where the first life policy for a temporary cover of twelve months was issued as early as 1583 A.D.

• The first recorded evidence available is the policy issued on life of William Gibbons on June16th,1653.

• Even before this date annuities had become quite popular in England. The first registered office in England was the Hand in Hand Society established in 1669.

The development of mortality table was a landmark in the history of life assurance. With this development life assurance acquired a scientific character for the first time in 1807. It was transacted on modern lines in England.

Life Insurance in India

The earliest references are traceable to the days of East India Company when policies on the life of its officers were issued in sterling currency by some British Companies established in India.

Life Insurance in its existing form came to India from United Kingdom with the establishment of British firm Oriental Life Insurance Company in Calcutta in 1818 followed by Bombay Life Assurance Company in 1823.

Development of Insurance in India 1850 - Triton Insurance

First non life insurance company at Calcutta.

870-71 – Bombay Mutual life assurance society limited First life insurance company.

1874 - Oriental Government Security Life Assurance company limited

1896 - Bharat Insurance company limited 1897- Empire of India assurance company limited

From 1900-1920 1905 – During the Swadeshi Movement number of

companies came into being like United India, National Hindustan Cooperative etc.

1907- INDIAN MERCANTILE

First Composite (Non Life Insurer).

1912- Life Insurance Act(1912) 1914- Government started to publish returns of life

insurers.

From1930’s to 1940 1934 - S.C.Sen appointed special officer to

submit a report on Indian Insurance.

1936 - N.N.Sarakar Committee set up to examine Sen's Report.

1937 - Draft of the Insurance Act approved.

1938 - Insurance Act(1938) passed.

From 1940 to 1950 1945 - Cowasji Jehangir committee setup to

review malpractices. 1950 - Ranganathan committee’s

recommendations to amend the Insurance Act(1938) accepted and the act amended to establish the position of Controller of Insurance.

Also passed - The Life Insurance Corporation & General Insurance Council.

From 1950’s to 1960’s 1956 - LIC set up. 1957 - Reinsurance Corporation of India setup

as India’s First Reinsurance Company. 1958 - Section64(V) (B) introduced-invoking

Cash Before Cover (C.O.D.) 1968 - Ordinance passed to amend the

Insurance Act to regulate/control Non Life Insurance.

- Tariff Advisory Committee (TAC) formed.

From 1970’s to 1990

1971 - General Insurance Emergency Provision Act (1971) passed to take over the control of the non life insurance industry.

1972 - General Insurance Industry nationalized. 1973 - GIC set up.

From 1990-1999 1993 - Malhotra Committee setup to explore and

to recommend means to reintroduce an element of competition by withdrawing the exclusivity of LIC and GIC.

1994 - Malhotra Committee submits report. 1997 - Insurance Regulatory Authority (IRA

restyled as IRDA) established. Insurance Regulatory & Development

Act1999(IRDA) passed.

In the year 2000

April : IRDA made a statutory body.

July : IRDA Guidelines for licenses by way of various notifications issued.

August : Windows for filing applications for licenses opened.

• October: First insurance licenses issued on Diwali day – HDFC Standard life became the first life & Royal Sundaram Alliance (RSA) the first non life insurer to be licensed in addition to reliance (non life).

• December: First life insurance policies issued from newly licensed insurers issued by Prudential ICICI & HDFC Standard Life.

In 2001 January - First Non Life Insurance policies

issued from newly licensed insurers issued by Royal Sundaram Alliance (RSA).

Introduction to regulations Contract of insurance a special contract

between two parties called insured and insurer

The insurer for a premium undertakes to pay the insured a fixed sum of money on the happening of a certain event.

The contract of insurance is regulated by the Insurance Act 1938.

Insurance Act 1938Important provisions Eligibility

A public limited company A company registered under the cooperative societies

act. Registration

Should obtain a certificate of registration A person or organisation who has been carrying on

any class of insurance business before the IRDA Act 1999, shall make an application for such registration within 3 months from the date of commencement of such Act.

Documents to be filed A certified copy of Memorandum and Articles

of association Name and address of the directors & their

occupation A statement of the class of insurance done or

to be done A certified copy of the published prospectus &

standard policy forms of the insurer. The receipt showing payment of fee of

Rs.50000.

Grant of Certificate After satisfying the soundness of the

management of the applicant, volume of business and other requirements, the authority may register the applicant and grant a certificate of registration

The authority may cancel the registration of an insurer if he fails to comply with requirements of deposits with RBI, transfer his business, do not pay any claims within three months of final court judgment etc.

Requirements Fee

1/4th percent of total gross premium or Rs. 5 cr whichever is less and a minimum of Rs.50000 for each class of business.

Capital requirement The capital of insurance companies should

consist of ordinary shares each of which has single face value, paid amount of all should be same and maintain the register of shareholders with name and address.

Requirements Financial statement

Every insurer is required to prepare a balance sheet, a profit & loss a/c, a receipt & payment a/c, a revenue a/c at the end of each financial year. Separate fund accounts of shareholders and policy holders should be maintained

Investigation by actuary Every insurer who is carrying on life insurance

business should get the investigation, done by an actuary, into financial conditions including a valuation of the liabilities.

IRDA ACT, 1999 Insurance Act 1938 created the a supervisory

authority called the controller of insurance to direct, advise, investigate, inspect, search, seize, register & liquidate insurance cos.

In 1993, Govt of India appointed the RN Malhotra committee to advise changes to this authority.

Based on the Malhotra committees recommendations the IRDA Act of 1999 was passed.

Features of IRDA Act Act to establish the regulatory authority

Protect the interests of the policyholders Regulate, promote & ensure orderly growth of the

insurance industry Sec 3 provides that the authority shall be a body

corporate with perpetual succession and common seal.

Sec 25 provides that an insurance advisory committee will be formed with not more than 25 members.

Features of IRDA Act The members will represent the interest of

commerce, industry, transport, agriculture, agents etc. The chairperson & the members of the authority shall be ex officer members of the committee.

Sec 30 & 31 is intended to end the exclusive privilege of LIC, GIC and its subsidiaries to carry on life and general insurance business respectively

Regulations The Indian Insurance company has been

defined in sec 2 as an insurer being a company: Formed and registered under the companies act

1956 Aggregate holdings of foreign company do not

exceed 26% of paid up equity capital Capital Adequacy requirements

Paid up equity capital of Rs.100crs in case of person carrying of life and general insurance business.

Regulations Paid up equity capital of Rs.200crs in case of

company carrying of reinsurance business. Deposits

Life insurance business – not exceeding Rs.10 crs

General insurance business - not exceeding Rs.10 crs

Reinsurance business – A sum of Rs.20 crs All deposits needs to be kept with the RBI in the

form of cash or approved securities.

Regulations Investment of Assets

Sec 27 – Atleast 50% to be with Gsecs, 20% in corporate debts, 15% in market investments, remaining 15% in infrastructure/social sectors.

Power of investigation & Inspection The authority may direct any person to conduct

an investigation or inspection of the records of insurance companies at any time.

TAC Formed to regulate the rates, advantages, terms

and conditions offered by general insurance cos.

Regulations Surveyors/loss assessors – All such person

can act on behalf of the insurance company only if they possess a valid license from the authority

Sufficiency of assets The solvency margin shall the highest of the

following: Rs.50 crores Sum equivalent to 20% of net premium income Sum equivalent to 30% of net incurred claims.

Regulations Premium in advance

An insurance company cannot assume risk without receiving payment of premium in advance and in the prescribed manner.

Reinsurance Insurance companies shall have the authority to

decide their reinsurance requirements and place it with appropriate reinsurers.