A

Project report

on

The Role of Insurance Industries in Economic Development of India

in partial fulfillment of the requirements of

Master of Management Studies

conducted by

University of Mumbai

through

Rizvi Institute of Management Studies & Research

under the guidance of

Prof. Osaid Koti

submitted by

Asif Shaikh

MMS

Batch: 2018 – 2020.

 CERTIFICATE

This is to certify that Mr Asif Shaikh, a student of Rizvi Institute of Management

Studies and Research, of MMS III bearing Roll No. 022 and specializing in Marketing
has successfully completed the project titled

“The Role of Insurance industries in Economic Development of India”

Under the guidance of Prof. Osaid Koti in partial fulfilment of the requirement for
Masters of Management Studies by University of Mumbai for the academic year

2018 – 2020.

Prof. Osaid Koti Prof. Umar Farooq Dr. Kalim Khan

Project Guide Academic Coordinator Director

 Acknowledgement
This project was undertaken as a Summer Internship Project for my Master in
Management Studies (M.M.S.) from the Rizvi Institute of Management Student and
Research.

I would like to take this opportunity to thank those without whom the project would
not have seen the light of the day. I would like to express my sincere gratitude to my
guide Prof. Osaid Koti For his kind help, guidance, advice, and encouragement
throughout the whole process of completion of this summer project.

I acknowledge my indebtedness to the various inputs and study materials provided for
the contents of the project. It is my proud privilege to express my deep sense of
appreciation and gratitude to my parents for their support and co-operation in the
course of the project either directly or indirectly involved in time with their valuable
contribution.

Asif Shaikh

Roll no – M2018022

M.M.S. 2018-2020
 Executive Summary
The economic reforms initiated in the early 90s paved the way for the growth and
opening up of the financial sector, which led to a sustained period of economic
growth. The insurance industry was opened up for private players in 2000, and has
seen tremendous growth over the past decade with the entry of global insurance
majors. India is fast emerging as one of the world‘s most dynamic insurance markets
with significant untapped potential. The insurance sector plays a critical role in a
country‘s economic development as well its plays an important role in providing risk
cover, investment and tax planning for individuals the non-life insurance industry
provides a risk cover for assets. India’s share of the world insurance market has
improved to 2 percent from 1.68 percent. India climbed up to secure the 10th position
in the global insurance market in terms of premium volume. In the world ranking,
India is the 10th largest life insurance market and 15th largest non-life insurance
market. In 2018 the insurance industry grew at 12 percent almost double the growth
of the Indian economy which stood at 6.7 percent. The non-life insurance industry
grew at 17.5 percent in the year 2018. The life insurance industry has recorded an
overall growth at 10 percent when compared to 14 percent in 2017. The insurance
sector in India nation has come back a full circle from being associate degree open
competitive market to nationalization and back to a liberalized market once more. The
study is divided into six chapters. The first chapter is introduction and its deals with
history of insurance in India and types of insurance. The second chapter deals with
literature review. The third chapter which includes Growth and progress of life
insurance companies in India. The fourth chapter describes how insurance industries
promote economic growth through by infrastructure, employment generation,
contribution to FDI, and development. The fifth chapters describes about How the
insurance sector encouraging the development of economic growth by providing
broader insurance coverage directly to firms and Encouraging entrepreneurial
attitudes, encouraging investment, innovation, market dynamism, and competition.
The sixth chapter is about various government schemes which contributing in
economic growth of India. The seventh chapter gives the conclusion of the study
 Table of Contents

Chapter 1 Introduction................................................................................................1

Chapter 2 Literature Review......................................................................................6

Chapter 3 Growth and progress of life Insurance Companies in India................10

Chapter 4 Insurance promote economic growth.....................................................17

Chapter 5 Insurance sector encouraging economic growth?.................................22

Chapter 6 Government Insurance scheme...............................................................25

Conclusion...................................................................................................................32

Bibliography...............................................................................................................34
 Table of Figures
Figure 1 Share of Sector in GVA.................................................................................11
Table 1 Provisional Estimate of GVA........................................................................12
Figure 2 Total Insurance premium of Insurers............................................................13
Figure 3 Premium Income in India.............................................................................14
Chapter 1
Introduction

1
History of life insurance in India
Insurance since Ancient times

In India, Insurance has well established history of more than thousand years. In
Rigveda, there is a concept called Yogakshema, which means prosperity, well-being
and security of people. Also, Insurance was mentioned in Manusmrithi,
Dharmashastra and Arthashastra. In those times insurance refers to pooling of
resources that could be re-distributed in times of natural calamities such as fire,
floods, epidemics and famine. This was probably a pre-cursor to modern day
insurance.

Modern Day Insurance

The modern form of Life Insurance came to India from England in the year 1818.
Oriental Life Insurance Company started by Europeans in Calcutta was the first life
insurance company on Indian Soil.

The insurance companies established during that period were brought up with the
purpose of looking after the needs of European community and Indian natives were
not being insured by these companies. However, later with the efforts of eminent
people like BabuMuttylal Seal, the foreign life insurance companies started insuring
Indian lives. But Indian lives were being treated as sub-standard lives and heavy extra
premiums were being charged on them.

Bombay Mutual Life Assurance Society

Heralded the birth of first Indian life insurance company in the year 1870, and
covered Indian lives at normal rates. Bharat Insurance Company (1896) was also one
of such companies inspired by nationalism. The Swadeshi movement of 1905-1907
gave rise to more insurance companies such as The United India in Madras, National
Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore.

2
Life Insurance Companies Act, 1912

In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were
passed. The Life Insurance Companies Act, 1912 made it necessary that the premium
rate tables and periodical valuations of companies should be certified by an actuary.
But the Act discriminated between foreign and Indian companies on many accounts,
putting the Indian companies at a disadvantage.

Insurance Act 1938

From 44 companies with total business-in-force as Rs.22.44 Crores, it rose to 176

companies with total business-in-force as Rs.298 Crores in 1938. With a view to
protect the interests of the Indian Insurance companies, the earlier legislation was
amended with the enactment of the Insurance Act 1938, which consists
comprehensive provisions for effective control over the activities of insurers or
insurance organizations.

The Insurance Act 1938 was the first legislation governing the life insurance and non-
life insurance and to provide strict state control over insurance business.

Birth of Life Insurance Corporation of India

On 19th of January, 1956, that life insurance in India was nationalized. About 154
Indian insurance companies, 16 non-Indian companies and 75 provident were
operating in India at the time of nationalization. Nationalization was accomplished in
two stages; initially the management of the companies was taken over by means of an
Ordinance, and later, the ownership too by means of a comprehensive bill.

The Parliament of India passed the Life Insurance Corporation Act on June 1956,
and the Life Insurance Corporation of India was created on September 1956, with the
objective of spreading life insurance much more widely and in particular to the rural
areas with a view to reach all insurable persons in the country, providing them
adequate financial cover at a reasonable cost.

The LIC had monopoly till the late 90s when the Insurance sector was reopened to the
private sector.

3
History of General (non-life) Insurance

The history of general insurance dates back to the Industrial Revolution in the west
during the 17th century. General Insurance in India has its roots in the establishment
of Triton Insurance Company Ltd. at Kolkata in the year 1850 by the Britishers. In
1907, the Indian Mercantile Insurance Ltd. was established and was the first company
to transact all classes of general insurance business.

In 1957, General Insurance Council (GIC), a wing of the Insurance Association of

India was established The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices across Non-Life or General
insurance sector. In 1968, the Insurance Act was amended to regulate investments and
set minimum solvency margins. The Tariff Advisory Committee was also established
in the same year. With the passing of the General Insurance Business
(Nationalization) Act in 1972, general insurance business was nationalized. A total of
107 insurers were amalgamated and grouped into four companies namely National
Insurance Company Ltd. at Kolkata, the New India Assurance Company Ltd. at
Mumbai, and the Oriental Insurance Company Ltd at New Delhi and the United India
Insurance Company Ltd at Chennai.

Malhotra Committee

The Government set up a committee in 1993 under the chairmanship of R.N.

Malhotra, former Governor of RBI (Reserve Bank of India), to propose
recommendations for initiation and implementation of reforms in the Indian insurance
sector. The objective of setting up this committee was to complement the pace of
reforms initiated in the financial sector.

The aforesaid committee submitted its report in 1994 wherein it was recommended
that the private sector be permitted to enter the Indian insurance sector. It also
recommended the participation of foreign companies by allowing them to enter into
an MOU (Memorandum of Understanding) by floating Indian companies, preferably a
joint venture with Indian partners.

4
Birth of IRDA

Following the recommendations of the Malhotra Committee report, the Insurance

Regulatory and Development Authority (IRDA) Act, in 1999 was passed by the
Indian Parliament. The IRDA opened up the Indian insurance market in August 2000
by inviting application for registration proposals. Foreign companies were allowed
entry into Indian insurance sector with an upper ceiling on ownership of up to 26%
participation. The IRDA has been granted the powers to frame regulations under
Section 114A of the Insurance Act, 1938.

From 2000 onwards, IRDA has framed various regulations for carrying on insurance
business to protection of Indian policyholders’ interests including the registration of
Life & Non-Life (General) Insurance companies.

Insurance in India

Indian insurance sector consist of 57 companies were 24 company are of life

insurance and 33 companies of non-life insurance. Out of 24 companies of life
insurance, Life Insurance Corporation (LIC) is the only company which is public
sector and the rest are private. Out of 33 non-life insurance companies there are six
companies which comes under public sector and rest in the private sector. There is a
sole re-insurance company called General Insurance Corporation of India

Types of insurance

There are three types of insurance

1) Life insurance

2) Non-life insurance

3) Reinsurance

5
 Chapter 2
Literature Review

6
Vijay Marti Kumbhar (2013), in his article A Study of FDI in Life Insurance Sector in
India has tried to evaluate the thinking of overseas direct investment and its function
in lifestyles insurance region in India. The Insurance quarter used to be opened up for
personal region in 2000 after the enactment of the Insurance Regulatory and
Development Authority Act, 1999 (IRDA Act, 1999) ,this Act permitted overseas
shareholding in insurance corporations to the extent of 26 per cent with an intention to
provide higher insurance plan insurance and to increase the waft of long-term assets
for financing infrastructure (Yashwant Sinha, 2013).The paper exhibits that out of 24
insurance organizations inclusive of LIC ordinary FDI is 25.47 percentage in 2012
& Rs. 6324.27 of equity capital is invested by using the overseas buyers in 22
lifestyles insurance plan businesses in India out of 23 personal insurance groups
except SAHARA Insurance and Rs. 18507.65 invested by means of Indian promoters.
The paper concludes that on the bases of statistics received from the IRDA indicates
that there is higher growth fashion in FDI in lifestyles insurance region in India.

Harpreet Singh &Preeti Singh(2011), in their research, “An Empirical Analysis Of

Insurance Industry In India” have analysed the overall performance of Life Insurance
Industry of India between pre- and publish monetary reform generation and
additionally measure the modern status, quantity of competitions , challenges faced by
means of the Life Insurance Corporation of India and lastly to measure the
effectiveness of investment strategy of LIC over the period 1980 to 2009.They have
highlighted the function of LIC as a fundamental participant in lifestyles insurance
and how there is boom in overall performance of Indian Life Insurance industry and
LIC due to the policy of LPG. They have summarised that total funding of LIC rose
from Rs 4587.7 crores in 1979 to Rs. 762891.7 crores in 2009. Proportion of top rate
gathered with the aid of LIC out of complete top rate amassed by using existence
insurance plan enterprise is declined from 97% in 2001-02 to 74% in 2007-08. It
suggests the growing opposition from private sector. ICICI prudential is becoming a
better and enhanced participant by means of taking over a lot of enterprise of LIC due
to aggressive and flexible product range. But still there is a lot of scope of
development in the existence insurance plan enterprise the place personal quarter will
be a challenge in the front of LIC

7
Marco Arena [The World Bank] (2006), in the article – “Does Insurance Market
Activity Promote Economic Growth? A Cross-Country Study for Industrialized and
Developing Countries” has stated that at some point of the last decade, there has been
faster growth in insurance plan market activity, mainly in rising markets given the
system of liberalization and monetary integration, which raises questions about its
influence on monetary growth. So, this research tried to systematic ally determine the
effect of insurance market activity (life and non-life insurance) on financial growth.
To accomplish this assignment this research used measures of insurance premiums as
a proxy of insurance plan exercise for a set of 56 international locations over the
1976- 2004 period. Based on research the paper has concluded that there is a causal
relationship of insurance plan market exercise on monetary growth amp; each life and
non-life insurance plan premiums have a tremendous and huge effect on economic
growth. But in the case of existence insurance, it’s had an effect on economic growth
is pushed by means of high-income international locations only, On the other hand, in
the case of non-life insurance, it’s had an impact on is pushed by way of both high-
income and growing (middle and low income) nations.

Sachin Surana & Amar (2013), in the research article lapsation of policy; a threat or
curse for life insurance industry. This research has attempted to find out the cause and
effects relationship of the Lapsation of policy. This study explains that Lapsation
refers to the situation when the customer fails to pay the premium on his policy within
the timeframe plus the grace period allowed by the company& it is often termed as
persistency. The research has highlighted that wrong commitment by insurance
agents, malpractices by the insurance distribution agencies, financial burden of the
costumers & finally poor service quality are few reasons causing lapse of insurance
policies. This lapsation will not only affect the costumers in terms of lack of benefits
but also majorly effect insurance companies in terms of high initial cost, adverse
effect on liquidity position and majorly decrease of public image all this totally
hamper the overall growth of insurance company.

8
Parag Shil in his research on the subject, “Distribution Channels for Micro-Insurance
Products in India” seeks to look into the performance, practices and problems related
to distribution channels of micro-insurance in India. The paper explains that Micro-
insurance concept means it’s a concept that provides protection to individuals who
have little savings and is tailored specifically for lower valued assets and
compensation for illness, injury or death. And it also highlights that Micro-insurance
is often found in developing countries. In India according to IRDA regulation act of
2002 insurance companies were compelled to obtain insurance business on a quota
basis from pre-defined rural areas and social sectors. In addition the regulation also
creates a new intermediary called the micro-insurance agent for selling and servicing
various micro-insurance products among the rural masses. It also highlights that in
India micro insurance are sold by non-government organisation, self-help groups &
Micro-Finance Institutions. But it was observed in the study that the exclusion of
corporate MFIs, the restriction of collaborations to one life and one non-life insurer
and the limitations placed on pricing have a dampening effect on the micro-insurance
market in India.

9
 Chapter 3
Growth and progress of
life Insurance Companies
in India

10
INDIAN ECONOMIC ENVIRONMENT

As per the provisional estimates of Annual National Income 2017-18 released by

Central Statistics Office (CSO), Ministry of Statistics and Programmed
Implementation Government of India the GDP at current prices for the year is
estimated at 167.73 lakh crore showing a growth rate of 10.0 percent over the First
Revised estimates of GDP for the year 2016-17 of 152.54 lakh crore.

The sectors which registered growth rate of over 9.0 percent at current prices are
mining & quarrying (12.5 percent), trade, hotels, transport, communication and
services related to broadcasting (11.4 percent), financial, real estate and professional
services (10.8 percent) and public administration, defence and other services (14.4
percent). The growth in the agriculture, forestry & fishing, manufacturing, electricity,
gas, water supply & other utility services and construction’ are 4.5, 8.6, 6.7 and 8.8
percent respectively.

The Gross National Income (GNI) at current prices is estimated at 165.87 lakh crore
during 2017-18, as compared to 150.77 lakh crore during 2016-17, showing a rise of
10 percent. The per capita Net National Income at current prices during 2017-18 is
estimated to have attained a level of 112835 as compared to the estimates for the year
2016-17 of `103870 showing a rise of 8.6 percent.

Figure 1 Share of Sector in GVA

public,administ Agriculture;
ration; 14.43% 17.53%

Minning &
quarring; 2.06%

Financial,real
estate; 21.65%
Manufacturing;
17.53%

Construction;
Trade hostel; 7.22%
19.59%

Agri cul ture Mi nni ng & qua rri ng Ma nufa cturi ng Construction
Tra de hostel Fi na nci a l ,rea l estate publ i c,a dmi ni stration

11
 Item 2015-16 2016-17 2017-18

Gross value added (Rs core) (GVA) 12566646 13841591 15182371

Gross domestic product (GDP) 13764037 15253714 16773145

Net domestic product (NDP) 12313813 13668987 15034912

Net national income (NNI) 12154034 13492657 14849045

Gross national disposable income (GNDI) 14017341 15456822 16983715

Net National disposable income (NNDI) 1267117 13872095 1524582

Table 1 Provisional Estimate of GVA

Domestic saving declined to 29.6 percent of gross national disposable income (GNDI)
in 2016- 17 from 30.7 percent in 2015-16 .Household financial saving – the most
important source of funds for investment in the economy declined to 6.7 percent of
GNDI in 2016-17, down from 8.1 percent in 2015-16 Saving of private nonfinancial
corporations dropped marginally to 11.1 percent of GNDI in 2016-17.

At the same time, general government’s dissaving declined to 0.7 percent in 2016-17
indicating sustained efforts to bring fiscal consolidation as per RBI’s preliminary
estimates, net financial assets of the household sector increased to 7.1 percent of
GNDI in 2017-18 on account of an increase in households’ assets in the form of
currency, despite an increase in households’ liabilities.

12
India life insurance industry
life insurance is an insurance for a person’s life security were insured have to pay
some amount at specific time and at the end of this life the maturity amount will be
given to his family by insurer. LIC is the known public life insurance company in
India and has 70% of business of insurance sector.

Total insurance
premium of insurers

Figure 2 Total Insurance premium of Insurers

From the above figure we can infer that

 The market leader of life insurance is LIC as it is holding about 70% of market
share in both the year 2016-17 as well as 2017-18

 There is increase in life insurance policy by 8%-9% in both sector this can be
because of people getting health conscience day by day

India non-life insurance industry

Non-life insurance is an insurance which deals with all types of insurance except life
insurance. Eg. Wealth, two-wheeler, car insurance, Marine, Fire, etc. there are 33 non-
life insurance company in India out of which 6 companies are under public sector.

13
 PREMIUM INCOME IN INDIA FOR
GENERAL INSURANCE

Figure 3 Premium Income in India

From the above figure we can infer that

General insurance is generating income from 4 main sectors

1. Public sector

2. Private sector

3. Standalone health

4. Specialized insurer

 All the four sectors are growing in year 2017-18 as compared to last year
2016-17 which is good for the insurance business

 Public sector is holding the maximum share if the insurance business which
also make public sector as market leader

 Private sector is slowly trying to occupy the public sector share in the market

Reinsurance:

Reinsurance Company gives insurance to insurance companies. Reinsurance is insurer

for all other insurance company. General Insurance Corporation of India (GIC RE) is
the only company under Reinsurance.

14
There are total 53 Insurance and non-life insurance companies in India

The insurance companies name of them are below:

1. AEGON Life Insurance Co. Ltd.

2. Aviva Life Insurance Co. Ltd.

3. Bajaj Allianz Life Insurance Co. Ltd.

4. Bharti AXA Life Insurance Co. Ltd.

5. Birla Sun Life Insurance Co. Ltd.

6. Canara HSBC OBC Life Insurance Co. Ltd.

7. DHFL Pramerica Life Insurance Co. Ltd.

8. Edelweiss Tokio Life Insurance Co. Ltd.

9. Exide Life Insurance Co. Ltd.

10. Future generali Life Insurance Co. Ltd.

11. HDFC Standard Life Insurance Co. Ltd.

12. ICICI Prudential Life Insurance Co. Ltd.

13. IDBI Federal Life Insurance Co. Ltd.

14. India First Life Insurance Co. Ltd.

15. Kotak Mahindra Life Insurance Co. Ltd.

16. LIC of India ( public sector)

17. Max Life Insurance Co. Ltd.

18. PNB MetLife Insurance Co. Ltd.

19. Reliance Life Insurance Co. Ltd.

20. Sahara India Life Insurance Co. Ltd.

21. SBI Life Insurance Co. Ltd.

22. Shriram Life Insurance Co. Ltd.

23. Star Union Dai-ichi Life Insurance Co. Ltd.

24. TATA AIA Life Insurance Co. Ltd.

15
The Non-Insurance Companies name of them are below:

25. Acko General Insurance

26. Aditya Birla Health Insurance Co. Limited

27. AIC

28. Apollo Munich

29. Bajaj Allianz

30. Bharti Axa

31. Cholamandalam

32. Cigna TTK

33. DHFL General Insurance Limited

34. ECGC Ltd.

35. Edelweiss General Insurance Company Limited

36. Future Generali

37. GIC of India

38. Go Digit General Insurance Limited

39. HDFC ERGO

40. HDFC General Insurance Company Limited (L & T)

41. ICICI Lombard

42. IFFCO Tokio

43. ITI Reinsurance Ltd

44. Kotak Mahindra General Insurance Company Ltd.

45. Liberty

46. Magma HDI

47. Max Bupa

48. National Insurance

49. New India

16
50. Raheja QBE

51. Reliance General

52. Reliance Health Insurance Limited

53. Religare Health Insurance Company Ltd.

17
 Chapter 4
Insurance promote
economic growth

18
Promotes economic growth

Insurance generates significant impact on the economy by mobilizing domestic

savings. Insurance sector provides capital into productive investments. Insurance
enables to mitigate loss, financial stability and promotes trade and commerce
activities those results into economic growth and development. Thus, insurance plays
a crucial role in sustainable growth of an economy

Capital Formation and Insurance

Capital formation maybe defined as increase in capital stock of the country

consisting of plant, equipment, machinery, tools, building, means of transport,
communication, etc. The process of capital formation envisages three essential steps.
These are:

a. Real saving: Mobilization of saving through financial and non-financial

intermediaries to be placed at the disposal of investor.

b. The act of investment: The contribution of insurance companies in the

process of capital formation appears at all these stages. Insurance services act
as a tool to mobilize saving, function as financial intermediary and at times
also indulge in direct investment. Also govt. has made regulations under which
every insurer carrying on business of life insurance shall invest 25% of funds
in Govt. securities and not less than 15% in infrastructure and social sector.
The importance of Indian insurance industry is gauged by the fact that annual
amount of investible funds of LIC and GIC and its subsidiaries amounted to
over Rs. 20,000 crore and Rs. 10,000 crores are invested in nation building
activities, housing and other infrastructural areas.

c. Increased Employment: Prior to the liberalization of insurance sector in

India, the opportunities for employment were limited with the LIC of India as
sole employer. While some of the professionals left the country looking for
opportunities elsewhere, those who remained worked within the confines and
constraints of public sector monopoly. This has further constrained the
opportunities for exposure to the development in rest of the world.
Liberalization and the opening up of sector to private players have now
created a vast opportunity for employment.

19
20
Insurance as financial intermediary

Financial intermediaries perform the function of channelizing saving into domestic

investment. They facilitate efficient allocation of capital resources, which in turn
improve productivity and economic efficiency which result in reduced capital output
ratio. The insurance companies perform extremely useful function in economy as
financial intermediaries. These are as follows:

a. Reduction in transaction cost: Insurers help in reducing transaction cost in

economy by collecting funds from policyholders and investing the same in
different projects scattered over different regions. It is a specialized and time-
consuming job.

b. Creating liability: The policyholders, in case of loss, are not required to wait
for a long period for the amount of claim. It improves their liquidity.

c. Facilitates Economies of scale in Investment: Insurers are in the position of

financing large projects, railways power projects, etc. These large projects
create economies of scale, facilitate technological innovation and
specialization and thus promote economic efficiency and productivity.

Contribution of insurance to FDI

The importance of FDI in the development of a capital deficient country such as India
cannot be undermined. This is where the high-growth sectors of an economy play an
important role by attracting substantial foreign investments. Currently, the total FDI in
the insurance sector, which was INR50.3 billion at the end of FY09, is estimated to
increase to approximately INR51 billion in FY10. It is difficult to estimate, but an
equal amount of additional foreign investment, can roughly flow into the sector if the
government increases the FDI limit from 26% to 49%. The insurance sector, by virtue
of attracting long-term funds, is best placed to channelize long-term funds toward the
productive sectors of the economy. Therefore, the growth in their premium collections
is expected to translate into higher investments in other key sectors of the economy.
Therefore, the liberalization of FDI norms for insurance would not only benefit the
sector, but several other critical sectors of the economy.

21
Contribution of Insurance to Development
Insurance has had a very positive impact on India‘s economic development. The
sector is gradually increasing its contribution to the country‘s GDP. In addition,
insurance is driving the infrastructure sector by increasing investments each year.
Further, insurance has boosted the employment scenario in India by providing direct
as well as indirect employment opportunities. Due to the healthy performance of the
Indian economy, the share of life insurance premiums in the gross domestic savings
(GDS) of the household’s sector has increased. The increased contribution of the
insurance industry from the household GDS has been ploughed back into the
economy, generating higher growth.

Contribution of insurance to infrastructure

Generally, countries with strong insurance industries have a robust infrastructure and
strong capital formation. Insurance generates long-term capital, which is required to
build infrastructure projects that have a long gestation period. Concurrently, insurance
protects individuals and businesses from sudden unfavourable events. A well
developed and evolved insurance sector is needed for economic development as it
provides long-term funds for infrastructure development and simultaneously
strengthens the risk-taking ability.

Generates financial resources

Insurance generate funds by collecting premium. These funds are invested in government
securities and stock. These funds are gainfully employed in industrial development of a
country for generating more funds and utilized for the economic development of the
country. Insurance helps in providing Employment opportunities leading to capital formation.

22
Employment generation

Insurance industry provides employment opportunities. The number of individual

agents has increased. As on 31st March, 2015, there were 503 Corporate Agents
working for Life insurance industry. Life Insurance Industry recorded a premium
income of Rs 3, 28,101crores during 2014- 15 including renewal premium as well as
new premium.

The number of new individual policies issued in 2014-15 stood at 2.59 Crore.
Brokers, corporate agents, training establishments provide extra employment
opportunities

Facilitates efficient capital allocation

Insurance provides cover to large number of firms, enterprises and businesses and also
deploy their funds in number of investment projects. The vast pool of knowledge and
expertise so gained enable them to distinguish between productive and high return
projects. Therefore, they promote efficient and productive allocation of capital
resources, which in turn lead to increased productivity and efficiency in the system.

Encouraging Financial Stability and Reducing Anxiety

Insurer promotes financial stability in economy by insuring the risks and losses of
individuals, firm and organizations. Because of uninsured large losses, firm may not
be able to compensate for it leading to its insolvency which may cause loss of
employment, revenue to supplier & Govt., loss of products to customer, etc.
Moreover, it relieves the tensions and anxiety of individuals by securing the loss of
their lives and assets.

Reducing Burden on Government

Insurance companies, particularly life insurers provide a variety of insurance products

covering needs of children, women and aged etc. under social security network and
thereby reduce the burden on Govt. exchequer in providing these services. This Govt.,
saves expenditure on these items and amount can be utilized for more productive
projects. To conclude, we can say that insurance companies play an important role in
economic development of country

23
 Chapter 5
Is insurance sector
encouraging economic
growth?

24
Providing broader insurance coverage directly to firms by improving their
financial

Protection enables firms to grow and go out on a limb without the need to put aside
capital in fluid possibility reserves. The nonattendance of sufficient business
protection spread will in general be especially destructive for little firms. Restricted
capital and trouble in getting to money related markets make them helpless against
unfriendly occasions. Without protection, enormous possibility assets would be
expected to ensure firms against hazard. For some little firms this would speak to
more capital than they buy and utilize altogether. Accordingly, without protection, the
number of inhabitants in firms would diminish quickly. It is hard to evaluate the
accurate degree of the constructive outcome of business protection on monetary
action. Though examination of protection premiums to GDP passes on data on the
exhibition of the protection business, it disregards the more extensive commitment to
the economy

Encouraging entrepreneurial attitudes, encouraging investment, innovation,

market dynamism, and competition

Being creative assumes the readiness to go for broke. Since business visionaries,
much like customary individuals, are described by hazard avoidance, the ability to go
out on a limb can be considered as a rare asset. The more ability to go out on a limb is
accessible, the more will be created. Regardless of whether the protection business
can't change the general ability of entertainers in an economy to go for broke (hazard
avoidance does not change with protection), It plays a key job in liberating innovative
soul. Protection diminishes the hazard upheld by business visionaries through
moderating and pooling methodology and enables them to go for broke. Very much
created protection markets contribute by upgrading the assignment of the rare asset of
risk taking by moving it from traditionalist to inventive and high-benefit exercise.
Underinsured firms, conversely, more often than not don't abuse new business
openings; they put less in development and their degree in support in worldwide
markets is low. The connection among back up plans and their business clients ought
to be considered in any event as significant as the connection among banks and their
business clients.

25
Offering social insurance close by the state, discharging weight on public sector
finance

In every single industrialized nation, the discussion about the need to amend the social
security offered by the state is expanding. The populace structure is changing on a
very basic level with a more drawn out future, an expansion in old individuals and a
falling birth-rate. Simultaneously individuals hope to get an abnormal state of human
services, annuities, joblessness stipend and other social advantages. It is conceivable
to accomplish an increasingly proficient harmony between the state and the market.
This would energize the development of firms and work in the division, offer
progressively broadened reactions to buyer inclinations and make conceivable a
maintainable and enduring decrease in the taxation rate.

Promoting sensible risk management by firms and household’s contributing to

sustainable and responsible development

Insurers risk assessment is reflected in price and policy conditions. In this way they
offer firms and households an indicator of their risk level. The policyholder can take
action to reduce the risk profile, or to reduce the potential damage, or both. Therefore,
by means of risk pricing, insurance acts as a precaution improver and encourages
responsible and sustainable use of resources; for example: prevention of accidents at
work, less polluting technology. The client will clearly see the advantages of action
taken to reduce risk. In some cases, this will happen because there will be no
insurance if things are left unchanged, at other times this will happen because of a
high premium level. This process influences investment decisions and thus
contributes to the sustainable development of the economy and society.

26
 Chapter 6
Government Insurance
scheme

27
The Government of India has taken a number of initiatives to boost the insurance
industry. Some of them are as follows:
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

The PMJJBY is available to people in the age group of 18 to 50 years having a bank
account who give their consent to join / enable auto-debit. Aadhar would be the
primary KYC for the bank account. The life cover of Rs. 2 laths shall be for the one-
year period stretching from 1st June to 31st May and will be renewable. Risk
coverage under this scheme is for Rs. 2 Lakh in case of death of the insured, due to
any reason. The premium is Rs. 330 per annum which is to be auto-debited in one
instalment from the subscriber’s bank account as per the option given by him on or
before 31st May of each annual coverage period under the scheme. The scheme is
being offered by Life Insurance Corporation and all other life insurers who are willing
to offer the product on similar terms with necessary approvals and tie up with banks
for this purpose.

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

The Scheme is available to people in the age group 18 to 70 years with a bank account
who give their consent to join / enable auto-debit on or before 31st May for the
coverage period 1st June to 31st May on an annual renewal basis. Aadhar would be
the primary KYC for the bank account. The risk coverage under the scheme isRs.2
lakh for accidental death and full disability and Rs. 1 lakh for partial disability. The
premium of Rs. 12 per annum is to be deducted from the account holder’s bank
account through ‘auto-debit’ facility in one instalment. The scheme is being offered
by Public Sector General Insurance Companies or any other General Insurance
Company who are willing to offer the product on similar terms with necessary
approvals and tie up with banks for this purpose.

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Pradhan Mantri Jan Dhan Yojana (PMJDY)

The Hon’ble Prime Minister in his Independence Day Speech announced a

comprehensive program of Financial Inclusion targeting a large number of people
who are currently deprived of even rudimentary financial services. In this direction,
the Pradhan Mantri Jan DhanYojana (PMJDY) sets out to provide a basic Bank
account to every family who till now had no account.

The bank account comes with a RuPay debit card with a built-in accidental insurance
cover of Rs. 1 lakh. During the launch on 28.08.14 in New Delhi, Hon’ble Prime
Minister also announced a life cover of Rs. 30,000/- for those subscribing to a bank
account with a RuPay debit card before 26th January, 2015 to complement the Rs. 1
lakh accident insurance cover. This life insurance cover of Rs. 30,000/- under Pradhan
Mantri Jan DhanYojana, gives life insurance cover on death of the life assured, due to
any reason, to the deceased’s family. The scheme aims to provide security to families
from economically weaker sections who cannot afford direct purchase of such
insurance. The premium subscription for the life cover under PMJDY is borne by the
Government of India.

Varishtha Pension Bima Yojana

The NDA Government during its last term in office had introduced the Varishtha
Pension BimaYojana (VPBY) as a pension scheme for senior citizens. Under the
scheme a total no. of 3.16 lakh annuitants are being benefited and the corpus amounts
to Rs. 6,095 crores. For the benefit of citizens aged 60 years and above, the Hon'ble
Finance Minister in his Budget Speech for the year 2014-15 proposed to revive the
scheme for a limited period from 15 August, 2014 to 14 August, 2015. Accordingly,
the revived Varishtha Pension BimaYojana (VPBY) was formally launched by the
Finance Minister on 14.08.2014 and has been opened during the window stretching
from 15th August, 2014 to 14th August, 2015. Thus, all those who subscribe to the
VPBY during this period will receive an assured guaranteed return of 9% under the
policy. The scheme is administered through Life Insurance Corporation of India
(LIC). Under the Scheme the subscribers on payment of a lump sum amount get
pension at a guaranteed rate of 9% per annum (payable monthly). Any gap in the
guaranteed return over the return generated by the LIC on the fund is compensated by
Government of India by way of subsidy payment in the scheme.

29
Pradhan Mantri FasalBima Yojana (PMFBY)

The Pradhan Mantri FasalBimaYojna was launched on 18th February 2016 by Prime
Minister Narendra Modi. 21 states implemented the scheme in Kharif 2016 whereas
23 states and 2 UTs have implemented the scheme in Rabi 2016-17.Approximately
3.7 Crores farmers have been insured in the Kharif 2016 for 3.7 crore ha of land at
premium of Rs 16212 crore for a sum insured of Rs 128568.94 crore as per figures
available on 31.03.2017.PMFBY provides a comprehensive insurance cover against
failure of the crop thus helping in stabilizing the income of the farmers. The Scheme
covers all Food & Oilseeds crops and Annual Commercial/Horticultural Crops for
which past yield data is available and for which requisite number of Crop Cutting
Experiments (CCEs) are conducted being under General Crop Estimation Survey
(GCES). The scheme is implemented by empaneled general insurance companies.
Selection of Implementing Agency (IA) is done by the concerned State Government
through bidding. The scheme is compulsory for loaned farmers availing Crop Loan
/KCC account for notified crops and voluntary for other others. The scheme is being
administered by Ministry of Agriculture.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

As per the scheme, on payment of an initial lump sum amount ranging from a
minimum purchase price of Rs. 1, 50,000/- for a minimum pension of Rs 1000/- per
month to a maximum purchase price of Rs. 7, 50,000/- for maximum pension of Rs.
5,000/- per month, subscribers will get an assured pension based on a guaranteed rate
of return of 8% per annum, payable monthly.

Restructured Weather Based Crop Insurance Scheme (RWBCIS)

The RWBCIS was launched on 18th February 2016 by Hon’ble Prime Minister 12
states implemented the scheme in Kharif 2016 whereas 9 states have implemented the
scheme in Rabi 2016-17. Approximately 15 laths farmers have been insured in the
Kharif 2016 for 16.95 lakh ha of land at premium of Rs983.96 crore for a sum insured
of Rs8536.53 crore as per figures available on 31.03.2017.

30
Weather Based Crop Insurance Scheme (WBCIS)

Aims to mitigate the hardship of the insured farmers against the likelihood of
financial loss on account of anticipated crop loss resulting from adverse weather
conditions relating to rainfall, temperature, wind, humidity etc. WBCIS uses weather
parameters as “proxy‟ for crop yields in compensating the cultivators for deemed crop
losses.

Pay-out structures are developed to the extent of losses deemed to have been suffered
using the weather triggers. Weather Station (RWS) or Backup Weather Station (BWS)
as the case may be, and the claims process shall commence once the weather data is
received. Claims processing are strictly as per the insurance term sheets, pay-out
structure and the Scheme provisions. All standard Claims are processed and paid
within 45 days from the end of the risk period. The scheme is being administered by
Ministry of Agriculture.

Rashtriya Swasthiya Bima Yojana (RSBY)

RSBY (Rashtriya Swasthiya Bima Yojana) has been launched by Ministry of Labour
and Employment, Government of India to provide health insurance coverage for
Below Poverty Line (BPL) families. The objective of RSBY is to provide protection
to BPL households from financial liabilities arising out of health shocks that involve
hospitalization. Beneficiaries under RSBY are entitled to hospitalization coverage up
to Rs. 30,000/- for most of the diseases that require hospitalization. Government has
even fixed the package rates for the hospitals for a large number of interventions. Pre-
existing conditions are covered from day one and there is no age limit. Coverage
extends to five members of the family which includes the head of household, spouse
and up to three dependents. Beneficiaries need to pay only Rs. 30/- as registration fee
while Central and State Government pays the premium to the insurer selected by the
State Government on the basis of a competitive bidding.

31
Employment State Insurance Scheme (ESIS)

Employees’ State Insurance Scheme of India is a multidimensional social security

system tailored to provide socio-economic protection to worker population and their
dependents covered under the scheme. Besides full medical care for self and
dependents, that is admissible from day one of insurable employment, the insured
persons are also entitled to a variety of cash benefits in times of physical distress due
to sickness, temporary or permanent disablement etc. resulting in loss of earning
capacity, the confinement in respect of insured women, dependents of insured persons
who die in industrial accidents or because of employment injury or occupational
hazard are entitled to a monthly pension called the dependents benefit.

Central Government Health Scheme (CGHS)

The “Central Government Health Scheme” (CGHS) provides comprehensive health

care facilities for the Central Govt. employees and pensioners and their dependents
residing in CGHS covered cities. Started in New Delhi in 1954, Central Govt. Health
Scheme is now in operation in Allahabad, Ahmedabad, Bangalore, Bhubaneshwar,
Bhopal, Chandigarh, Chennai, Delhi, Dehradun, Guwahati, Hyderabad, Jaipur,
Jabalpur, Kanpur, Kolkata, Lucknow, Merut, Mumbai, Nagpur, Patna, Pune, Ranchi,
Shillong, Trivandrum and Jammu. The Central Govt. Health Scheme provides
comprehensive healthcare to the CGHS Beneficiaries in India. The medical facilities
are provided through Wellness Centers (previously referred to as CGHS Dispensaries)
/polyclinics under Allopathic, Ayurveda, Yoga, Unani, Sidha and Homeopathic
systems of medicines.

Aam Aadmi Bima Yojana (AABY)

Aam Aadmi Bima Yojana, a Social Security Scheme for rural landless household was
launched on 2nd October, 2007. The head of the family or one earning member in the
family of such a household is covered under the scheme. The premium of Rs.200/- per
person per annum is shared equally by the Central Government and the State
Government. The member to be covered should be aged between 18 and 59 years.

32
Janashree Bima Yojana
Janashree Bima Yojana (JBY) was launched on 10th August 2000. The Scheme
replaced Social Security Group Insurance Scheme (SSGIS) and Rural Group Life
Insurance Scheme (RGLIS). 45 occupational groups have been covered under this
scheme

Universal Health Insurance Scheme (UHIS)

The four public sector general insurance companies have been implementing
Universal Health Insurance Scheme for improving the access of health care to poor
families. The scheme provides for reimbursement of medical expenses up to
Rs.30,000/- towards hospitalization floated amongst the entire family, death cover due
to an accident @ Rs.25,000/- to the earning head of the family and compensation due
to loss of earning of the earning member @ Rs.50/- per day up to maximum of 15
days. The Universal Health Insurance Scheme (UHIS) has been redesigned targeting
only the BPL families. The premium subsidy has been enhanced from Rs.100 to
Rs.200 for an individual, Rs.300 for a family of five and Rs.400 for a family of seven,
without any reduction in benefit.

33
Conclusion

34
India has witnessed presence of life insurance even before independence in the year
1818 oriental life insurance company in Calcutta which was followed by many Indian
and foreign insurance companies. But post-independence insurance concept was
monopolise as a public sector and contributed to the growth of concept through life
insurance Corporation of India. The year 1991 launching of LPG and establishment of
IRDA in 1999 made the ice break by letting privatisation of insurance concept which
bought a robust growth in terms of product development, market penetration and
majorly contributes around 7 % of GDP of the nation. The Insurance Industry has
grown up from 5.2 per cent in 2011 to 12 per cent in 2019 and it is expected to reach
$280 billion by 2020.In the past 18 years from 2001 to 2018 the insurance sector has
risen at a compounded annual growth rate of 16.5 percent. The total insurance
premium of the industry has jumped from Rs 45,397 crore in 2001 to Rs 6.10 lakh in
2018. The life insurance penetration was 2.15 percent in the year 2001 when the
private sector was opened up and it increased to 4.6 percent. India has reported both
increase in growth rate and penetration but as compared to other countries like UK,
France and Japan India is way behind. India’s insurance industry needs capital, and a
major source of capital would be from foreign investors in which India has raise the
Foreign Direct Investment (FDI) from 26 percent to 49 percent which bring more
capital to Insurance industry There is much scope for the life insurance sector to
develop in India. For over the decade US has been the largest economy in the world
but major development has taken place in the world economy and lead focus shift
from US to India. India is now the third largest economy in terms of purchasing
power parity and the life insurance industry will grow very rapidly in next few years.
The major driver includes element economy, rising middle- income class. Well-
developed insurance zone is wanted for economic improvement as it affords lengthy
term cash for infrastructure development and at the identical time strengthens the risk
taking ability. It is estimated that over the subsequent ten years India would require
investments of the order of one trillion US dollar. The Insurance sector, to some
extent, can enable investments in infrastructure development to maintain financial
increase of the country.

35
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Prashant. (2019). Times of India.

Shill, p. (2007). Distribution channel for micro insurance in India.

Singh, H. (2011). An EmpericaL Analysis of Insurance Industry in India.

singh, s. (2013). A threat and curse for life insurance industry.

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