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Personal Financial Planning

Notes Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the
enactment of the British Insurance Act and in the last three decades of the nineteenth century, the
Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay
Residency. This era, however, was dominated by foreign insurance offices which did good
business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe
Insurance and the Indian offices were up for hard competition from the foreign companies. In
1914, the Government of India started publishing returns of Insurance Companies in India. The
Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life
business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to
collect statistical information about both life and non-life business transacted in India by Indian
and foreign insurers including provident insurance societies. In 1938, with a view to protecting
the interest of the Insurance public, the earlier legislation was consolidated and amended by the
Insurance Act, 1938 with comprehensive provisions for effective control over the activities of
insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high. There were
also allegations of unfair trade practices. The Government of India, therefore, decided to
nationalize insurance business. An Ordinance was issued on 19 January, 1956 nationalising the
th
Life Insurance sector and Life Insurance Corporation came into existence in the same year. The
LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian and
foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was
reopened to the private sector. The history of general insurance dates back to the Industrial
Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17 th
century. It came to India as a legacy of British occupation. General Insurance in India has its roots
in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the
British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to
transact all classes of general insurance business. 1957 saw the formation of the General Insurance
Council, a wing of the Insurance Association of India. The General Insurance Council framed a
code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act
was amended to regulate investments and set minimum solvency margins. The Tariff Advisory
Committee was also set up then. In 1972 with the passing of the General Insurance Business
st
(Nationalisation) Act, general insurance business was nationalized with effect from 1 January,
1973. 107 insurers were amalgamated and grouped into four companies, namely National
Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance
Company Ltd. and the United India Insurance Company Ltd. The General Insurance Corporation
of India was incorporated as a company in 1971 and it commence business on January 1st 1973.
This millennium has seen insurance come a full circle in a journey extending to nearly 200 years.
The process of re-opening of the sector had begun in the early 1990s and the last decade and
more has seen it been opened up substantially. In 1993, the Government set up a committee
under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations
for reforms in the insurance sector. The objective was to complement the reforms initiated in the
financial sector. The committee submitted its report in 1994 wherein , among other things, it
recommended that the private sector be permitted to enter the insurance industry. They stated
that foreign companies be allowed to enter by floating Indian companies, preferably a joint
venture with Indian partners. Following the recommendations of the Malhotra Committee
report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as
an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated
as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition
so as to enhance customer satisfaction through increased consumer choice and lower premiums,
while ensuring the financial security of the insurance market. The IRDA opened up the market
in August 2000 with the invitation for application for registrations. Foreign companies were
allowed ownership of up to 26%. The Authority has the power to frame regulations under

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