Insurance Companies
From Oriental Life Insurance Company (1818) to digital e-Insurance Accounts (2013) — 200 years of Indian insurance. LIC Act 1956, GIBNA 1972, Malhotra Committee 1993, IRDAI 2000, FDI caps 26→49→74%, penetration vs density, agents vs brokers, reinsurance and insurance repositories.
Banky’s customer asks about insurance — Banky is confused! 🛡️
A customer said “My LIC agent told me insurance and banking are totally different worlds.” Banky wondered — then why is this chapter in JAIIB? Because banks sell insurance too, and both sectors form the financial system together!
History and Development of Insurance in India
1818 to present — the full journey in a timeline
Key Acts, Penetration & Density, Market Structure
Insurance Act 1938 + LIC Act 1956 + GIBNA 1972 + market numbers
📗 LIC Act, 1956
LIC formed with Rs 5 crores capital from GoI. Objectives: utmost economy, trusteeship spirit, premiums not higher than actuarial consideration, max yield for policyholders consistent with safety of capital. Section 37: GoI guarantees sums assured + bonuses declared — NOT applicable to ULIP policies. Section 38: LIC cannot be wound up except by Central Government order.
📗 GIBNA, 1972
In force 1st January 1973. Gave effect to Article 39(c) of Constitution (no concentration of wealth). GIC = holding company with 4 subsidiaries: United India (Madras HQ), Oriental (New Delhi HQ), National Insurance (Calcutta HQ), New India Assurance (Bombay HQ). Ownership of all shares vested in Central Govt from 1 Jan 1973. GIC authorised capital: Rs 75 crores. GIC Re = sole national reinsurer today.
📗 Insurance Act, 1938
Key provisions: Registration (Certificate from Controller of Insurance, renewed annually); Investment limits; Management expense limits (% of gross direct business); Prohibition of Rebates (Section 41 — fine up to Rs 500); Section 101A — every insurer must reinsure with Indian reinsurers (% specified by IRDAI); Powers of investigation; Licensing of agents, surveyors; Tariff Advisory Committee (TAC).
🔢 Insurance Market Numbers
As at March 2020: 68 insurers — 24 life + 27 general + 6 standalone health + 11 reinsurers. 8 public + 60 private. India’s share in global insurance: 1.69% (2019). India ranked 10th in life insurance and 15th in non-life insurance globally. India life insurance = 74.94% of total premium (global: 46.34% life). Insurance + banking = ~7% of GDP. Min capital for life insurance company: Rs 100 crores (Q5 PYQ).
Insurance Penetration = Insurance premium as % of GDP (Q3 PYQ: answer = Penetration). India 2019: 3.76% (life: 2.82%, non-life: 0.94%). Rose from 2.71% (2001) to 5.20% (2009); fell to 3.30% (2014); rising again from 2015.
Insurance Density = Premium per capita in USD (Q4 PYQ: answer = Density). India 2019: USD 78 (life: USD 58, non-life: USD 19). Rose from USD 11.5 (2001) to USD 64.4 (2010); declined until 2016; rising from 2017. India’s total insurance premium grew 9.21% in 2019.
Insurance Intermediaries — Agents vs Brokers
| Aspect | Insurance Agent | Insurance Broker |
|---|---|---|
| Represents | ONE company (or two if composite agent — life + general; PLUS health) | MULTIPLE life, general or both companies |
| Types | Individual Agent (person) OR Corporate Agent (non-individual firm) | Only one type — licensed broker firm |
| Primary duty | Solicit and procure insurance; help continuance/renewal; assist in claims | Advise customers on choice of insurance products — WITHOUT charging them |
| Rebate | CANNOT offer any rebate or discount to induce — violation of Section 41 (fine up to Rs 500) | CANNOT offer any discount — same violation |
| Licensed by | IRDAI — under IRDA (Licensing of Individual/Corporate Insurance Agents) Regulations 2000/2002 | IRDAI — under IRDA (Insurance Brokers) Regulations 2002 |
Reinsurance = insurers transfer some portion of risk to reinsurers — acts as capacity enhancer, decreases volatility. Section 101A of Insurance Act 1938: every insurer must reinsure with Indian reinsurers a specified % of sum insured on each general insurance policy. Obligatory cession to GIC: 20% (until 2006-07) → 15% (2007-08) → 10% (2008-13) → 5% (present). A ceding company = insurance company transferring portfolio to reinsurer. Insurer remains liable for claims even if reinsurer defaults. Present reinsurance market: 1 national reinsurer (GIC Re) + 10 others (FRBs + Lloyd’s India).
Insurance Repository System launched by IRDAI on 16th September 2013. Policies converted to electronic form and held with Insurance Repository. Eliminates paper, provides convenience. Currently: only life insurance and pension plans in e-form (to be extended). Repositories CANNOT sell policies — only maintain in electronic form. 5 licensed repositories: NSDL Database Management Ltd, Central Insurance Repository Ltd, SHCIL Projects Ltd, Karvy Insurance Repository Ltd, CAMS Repository Services Ltd. All regulated by IRDAI. All services: FREE of charge. e-IA (e-Insurance Account): One person = only ONE e-IA. Account holder can appoint authorised representative (access rights only — NOT entitled to benefits unless nominated as nominee/assignee by deceased policyholder).
Exam Angle Points and PYQs
All 5 PYQ answers + critical facts
✅ Must-Know Insurance Facts
- First insurance company in India: Oriental Life Insurance Company, Calcutta, 1818 (Q1 PYQ: answer = b)
- FDI in insurance (current): 74% — Budget 2021-22 (Q2 PYQ: answer = c) | Journey: 26% (2000) → 49% (2015) → 74% (2021)
- Insurance Penetration: % of insurance premium to GDP (Q3 PYQ: answer = a) | India 2019: 3.76%
- Insurance Density: Per capita premium in USD (Q4 PYQ: answer = c) | India 2019: USD 78
- Min capital for life insurance company: Rs 100 crores (Q5 PYQ: answer = c) — per Malhotra Committee recommendation
- LIC formed: 1st September 1956 | Absorbed 245 insurers | Capital Rs 5 crores | Section 37: GoI guarantees (not ULIP) | Section 38: Cannot wind up
- GIBNA: In force 1 January 1973 | 107 insurers → 4 PSU companies | GIC capital Rs 75 crores
- 4 public sector general insurers: National Insurance, New India Assurance, Oriental Insurance, United India Insurance
- Malhotra Committee: 1993 set up | 1994 report | R N Malhotra (former RBI Governor) | Recommended: private sector, foreign JVs, min capital Rs 100 crores, regulatory body
- IRDAI: IRDA Act 1999 | Statutory body April 2000 | Market opened August 2000 | IRDAI structure: 1 Chairman + 5 whole-time Members + 4 part-time Members
- Triton Insurance Company, 1850, Calcutta = first general insurance company in India (by British)
- Indian Mercantile Insurance Ltd, 1907 = first company to transact ALL classes of general insurance
- As of March 2020: 68 insurers (24 life + 27 general + 6 standalone health + 11 reinsurers) | 8 public + 60 private
- India ranked: 10th in life insurance globally | 15th in non-life insurance globally | India’s global share: 1.69% (2019)
- Agent vs Broker: Agent = 1 company | Broker = multiple companies | Both licensed by IRDAI | Cannot offer rebate (Section 41 — fine Rs 500)
- GIC Re obligatory cession: Currently 5% | Was 20% until 2006-07 | Section 101A Insurance Act
- Insurance Repository launched: 16 September 2013 | 5 repositories | e-IA: 1 per person | All services free
- FDI in insurance intermediaries: 100% FDI allowed from 2 September 2019
📝 All 5 PYQ Answers from PDF
Memory Tricks
Trick 1 — First Insurance Co. (Q1 PYQ)
Trick 2 — FDI Cap Journey (Q2 PYQ)
Trick 3 — Penetration vs Density (Q3 & Q4)
Trick 4 — LIC 1956 vs GIBNA 1972
Flash Cards and Summary
⚡ Chapter 26 Complete — Insurance Companies
- Insurance = contract where insurer indemnifies insured for financial loss in consideration of premium | Policy = insurance contract
- First life insurance: Oriental Life Insurance Company, Calcutta, 1818 (Q1) | First general: Triton 1850 | First all classes: Indian Mercantile 1907
- Insurance Act 1912 = first statutory regulation | Insurance Act 1938 = landmark legislation (registration, investments, expense limits, prohibition of rebates, Section 101A reinsurance)
- LIC Act 1956: formed 1 September 1956 | 245 insurers | Rs 5 crores capital | Sec 37: GoI guarantee | Sec 38: Cannot wind up
- GIBNA 1972: in force 1 January 1973 | 107 insurers → 4 companies | GIC holding company | Authorised capital Rs 75 crores
- Malhotra Committee 1993-94 (R N Malhotra) → IRDA Act 1999 → IRDAI statutory body April 2000 → Market opened August 2000
- FDI caps: 26% (2000) → 49% (2015) → 74% (2021) | 100% FDI in intermediaries from 2 Sep 2019
- 68 insurers as at March 2020 | 8 public + 60 private | India ranked 10th life insurance, 15th non-life globally
- Insurance penetration (% of GDP): India 2019 = 3.76% (Q3) | Density (per capita USD): India 2019 = USD 78 (Q4)
- Agent = 1 company, Broker = multiple companies | Both licensed by IRDAI | Cannot offer rebate (Sec 41)
- Reinsurance: obligatory cession to GIC Re = 5% currently | 1 national reinsurer + 10 others total | Ceding company remains liable
- Insurance Repository launched 16 Sep 2013 | 5 licensed repositories | e-IA: 1 per person only | All services free
Banky says: “Now I can explain 200 years of insurance history to any customer AND explain what reinsurance is!” 🛡️
All 5 PYQs answered | LIC + GIBNA + IRDAI mastered | Penetration vs Density clear | FDI caps memorised! 💪