Page 108 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 8: Insurance Sector

In 2001, as a result of the IRDA's initiatives for insurance market liberalization, as much as 16 Notes
private sector companies including joint ventures with leading foreign insurance companies
entered the Indian insurance sector. Of this, 10 were under the life insurance category and six
under general insurance. Thus in all there are 28 players (15-life insurance of which, 14 are
private insurers and 13-general insurance of which 9 are private) in the Indian insurance industry
till date. The same year, Royal Sundaram Alliance became the first non life insurer to sell a
policy.

In the year 2002, IRDA allowed Banks to sell the insurance plans. As TPAs enter the scene,
insurers started setting non-life claims in the cashless mode.
Insurance premium per capita in India has increased to $16.90 and overall penetration in India
stood at 3.28 per cent of the gross domestic product in 2003. India's overall world rankings in
terms of total premium volumes improved from 23rd in 2000 to 19th in 2003 and its share in the
world market increased from 0.41 per cent to 0.59 per cent during the same period.
In the 2004 budget, the Government proposed for increasing the foreign equity stake to 49%, this
is yet to be effected. Under the current guidelines, there is a 26 percent equity cap for foreign
partners in direct insurance and reinsurance Company.
For the year ending 31st March, 2005, the first year premium of the life insurance industry grew
by 260 per cent to 25,350 crores, as compared to 9,709 crores in the year 2000-01. Similarly, the
non-life insurance industry also witnessed a 180-per cent growth, writing a gross premium of
18,095.25 crores in 2004-05 - up from 10,087.03 crores in 2000-01.
As insurance companies are trustees of public money, IRDA adopted a rigorous system of
scrutiny of applications based on financial strength, track record and reputation of the promoters,
with regard to compliance with regulations and the strength of internal control systems, product
innovations, technical and managerial skills, commitment to contribute to India's development
as a regional insurance hub and an international financial centre for setting up insurance
companies.
In addition, it laid down stringent norms relating to solvency and has reinforced with appropriate
regulations the investment of funds by insurance companies to ensure that they are financially
strong. One example of IRDA's effective way of working was demonstrated when the sudden
exit of both the promoters of AMP Sanmar Life Insurance Company Limited did not create any
panic amongst the company's policyholders. Similarly, the issue of Life Insurance Corporation
of India's (LIC) solvency margin was handled carefully. The country's premier life insurer today
meets the stipulated solvency norms. The IRDA also issued micro-insurance regulations to
increase the spread of insurance in the country, particularly among the neediest segments
Along with the liberalisation programme, measures to raise standards of corporate governance
and market conduct, strengthening protection of policyholders' interests have also been
introduced. This has helped the transition from the state monopoly to free market with
remarkable ease.

In addition, IRDA has continuously worked to develop the market through new ideas and
initiatives with inputs from various stakeholders. The focus on aggressive marketing has made
insurance a sunrise industry in the country attracting young talent. The industry has successfully
experimented with new distribution channels and bringing down the transactions costs. The
Unit Linked Policies (ULIPs) brought a new dimension in the sale of insurance products forcing
the IRDA to come out with its own set of guidelines to successfully regulate these products.
While the improvements may not look dramatic, the direction and speed is an indicator of
India's emergence on the global scene.
Today, IRDA has many applications from prospective insurers and it is expected of the industry
to improve the insurance penetration to at least 5 per cent in the next five years.

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