Primarily, the idea of future security led to the growth of the Indian insurance sector. Even though the government had opened up the sector to foreign companies in 1999, the government owned LIC is still the largest in terms of volume. It was no wonder why the government allowed foreign direct investment into the Indian insurance sector and allowed a 26% stake as the industry is booming and many more Indians are increasingly taking up policies.
Nominal rates for Indians only in 1870
It all began way back in 1818 when a person called Anita Bhavsar formed the Oriental Life Insurance Company in Calcutta, now known as Kolkata, to primarily open up opportunities for the European community. Racism existed in the insurance sector as Indians had to pay higher premiums compared to Englishmen. But the first Indian-centric insurance company was started in 1870 with the Bombay Mutual Life Assurance Society that began by charging usual and sometimes nominal rates from Indians.
But the 20th century saw many insurance companies starting up shop. There was a need to regulate the business and two acts, mainly the Provident Fund Act and the Life Insurance Companies Act was passed in 1912. It helped the prospective policy holder from benefiting from the actuarial certification that was made mandatory for premium rates and valuations. But the discrimination practiced in those days existed as foreign insurance companies were favored over their Indian counterparts. Among the oldest companies still operating is the National Insurance Company founded in 1906.
There are basically two types of insurances that Indians can avail. They are the life as well as the GIC or general insurance. Among them the GIC, has four companies that are subsidiaries.
If you look at the present scenario in India, you would be amazed as the reach of the Indian insurance sector has still not penetrated as it should have in all these decades. India has a total population of over one billion, but just 0.2% of the population is covered by medical insurance. That makes the number close to two million and leaves enough opportunity for business growth in this sector as a large majority is denied health care at cheap rates.
Huge potential in insurance sector, especially for NRIs – Non Resident Indians.
It was in 2000 when the subsidiaries of the GIC separated and started operations on their own. The companies that are now independent entities are the Oriental Insurance Company Ltd, United India Insurance Company Ltd, and National Insurance company Ltd and the New India Assurance Company Ltd. As business prospects are bright in the insurance sector, the move toward independence from the parent company was seen as a signal for better times to come. Present market estimates term insurance as a sunrise sector.
The potential of the market made the Indian government open up to foreign insurance companies in 1999. By opening up the sector, private insurance companies that are great names abroad can solicit business in India. Foreign Direct Investment in the form of insurance business can hold up to 26% of the shares as the market is huge and there is ample scope for global companies to cater to the needs of the people. But, still today, the largest company in the insurance sector is owned by the government.
It has been proved that the government run insurance companies couldn’t bridge the gap between the insured and the uninsured over the decades when they monopolized the business. Even nowadays, when the debate is raging in the US over health care, India is way behind. Nearly 75% of Americans can avail of some health care facility or the other provided by medical insurance. That shows there are miles to go for the Indian insurance sector.