SUBJECT – : INSURANCE LAW

TOPIC– THE DEVELOPMENT AND GROWTH OF INSURANCE IN INDIA- ANALYZE

Supervised By:
MISS ARPITA MITRA

NAME: SUKANYA GHOSH

ROLL NO.: (Admit card No.) - 102/BBA/LLB/16031
(Class Roll.No.) - 24
COURSE: BBA LLB(5 YEARS)

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 ACKNOWLEDGEMENT

With profound gratitude and sense of indebtedness I place on record my sincerest thanks to

MISS ARPITA MITRA, Indian Institute of Legal Studies, for his/her invaluable guidance,

sound advice and affectionate attitude during the course of my studies.

I have no hesitation in saying that he/she molded raw clay into whatever I am through his/her

incessant efforts and keen interest shown throughout my academic pursuit. It is due to his/her

patient guidance that I have been able to complete the task.

I would also thank the Indian institute of Legal Studies Library for the wealth of information

therein. I also express my regards to the Library staff for cooperating and making available the

books for this project research paper.

Finally, I thank my beloved parents for supporting me morally and guiding me throughout the

project work.

Date: SUKANYA GHOSH

NAME

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 TABLE OF CONTENTS
__________________________________________________________
Acknowledgement…………………..………….…………….…………………………………..2
Research Methodology……………………………………..…….………………………………4
A. Aims and Objectives……………………………………………………………..………....4
B. Statement of Problem………………………………………………………………………4
C. Research Questions………………………………………………...………….……...……4
D. Hypothesis……………………………………..;…………………………………………..4
E. Method of Research…………….………….………………...…………………………….4
F. Mode of Citation……………………….…………………...……………………………...4

Chapter 1: Introduction…………………………………..………..…………………….…..…5-6
Chapter 2: Insurance sector in India…………….……………………………………….7-9

Chapter 3: Contribution of insurance to growth and development…………….…..10-11

Chapter-4: Recent developments in the insurance industry ……………………..12-14

Chapter 5: Conclusion……………………………………………………..…………................15

Bibliography…………………………………………………………………………………..…………………………….…..16

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 RESEARCH METHODOLOGY

1. Aims and Objectives: the aims and objectives of this project are to understand the concept of the
development and growth of insurance in India.

2. Statement of Problem: Today insurance stands as a business growing at the rate of 15-20 per
cent annually. Together with banking services, it adds about 7 per cent to the country's GDP .In
spite of all this growth the statistics of the penetration of the insurance in the country is very poor.
Nearly 80% of Indian populations are without Life insurance cover and the Health insurance.
This is an indicator that growth potential for the insurance sector is immense in India. With
increased competition among insurers, service has become a key issue. Moreover, customers are
getting increasingly sophisticated and tech-savvy. People today don't want to accept the current
value propositions, they want personalized interactions and they look for more and more features
and add ones and better service.

3. Research Questions: My research questions are as follows:

 What role does the insurance sector play in this story of saving and investment in India?
 What is the fundamental role of insurance?

4. Hypothesis: Since the liberalization of the industry, the insurance industry has never looked back
and today stand as the one of the most competitive and exploring industry in India. The entry of
the private players and the increased use of the new distribution are in the limelight today. The
use of new distribution techniques and the IT tools has increased the scope of the industry in the
longer run. There is an evolutionary change in the technology that has revolutionized the entire
insurance sector. Insurance industry is a data-rich industry, and thus, there is a need to use the
data for trend analysis and personalization.

5. Research Methodology:“Methodology” implies more than simply the methods the researcher
used to collect data. I did a Doctrinal research in law field indicates arranging, ordering and
analysis of the legal structure, legal frame work and case laws by extensive surveying of legal
literature but without any field work relating to the topic of compensatory mechanism.

6. Mode of Citation: A uniform Mode of citation is to be adopted throughout the project.

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 CHAPTER-1

INTRODUCTION
The insurance industry is critical for any country’s economic development. A well-developed insurance
sector boosts risk-taking in the economy, as it provides some security in the event of an unforeseen, loss-
causing incident. It also provides much-needed support to family members in the case of loss of life or
health. Since the assets under management of insurance companies represent long-term capital, they also
act as a pool in which to invest in long-term projects such as infrastructure development.

The insurance industry in India has also grown along with the country’s economy. Several insurance
companies in the country are expanding their operations, across both the public and private sector.

The history of India’s insurance industry reflects the history of India’s economy. Insurance companies in
India were nationalized during pre-liberalization. This was done to protect the interests of policyholders.
Two state-owned insurance companies were thus created: the Life Insurance Corporation in 1956 and the
General Insurance Corporation in 1972 for the non-life insurance business.

Post liberalization, the industry was opened up. The Insurance Regulatory and Development Authority of
India (IRDAI) were created in 1999 to regulate the insurance industry in India. Thus, the insurance sector
was opened to private players. This allowed foreign players to collaborate with Indian entities to enter the
sector.

The number of insurance companies in India has increased quickly and continuously, and this has led to a
vibrant insurance sector- with more variety and affordability for the consumer.

WHAT IS INSURANCE?

By definition, insurance is a contract that is generally represented by a policy, wherein an individual or an

entity gets some financial protection or compensation against losses from an insurance company.
Insurance is very important we can say that it is one way of managing risks. So, when you buy insurance,
you are transferring the cost of any potential loss to the insurance company against a premium/ fee. These
insurance companies invest these funds in a secure manner so that they grow and when there is a claim,
the payout can be made without any hassle.

Even though insurance is very tricky, it is very important. It keeps commerce moving and ensures some
stability in the business. Another highlight that can be seen is that the capital market growth is driven by
the development of the insurance sector. One of the greatest employers of the world are the insurance
companies. There is a huge capital that is formed via insurance, thereby affecting the financial flows in
the financial markets in a positive manner.

PRESENT SCENARIO

There are currently 57 insurance companies in India, of which 46 are from the private sector. There are 24
life insurance and 33 non-life insurance companies in India. The major names in the sector are:

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Life insurance:

 Life Insurance Corporation (LIC)

 HDFC Standard Life
 SBI Life Insurance
 ICICI Prudential Life Insurance

Non-life insurance:

 New India Assurance

 United India Assurance
 National Insurance Company
 ICICI Lombard
 Oriental Insurance Company
 Bajaj Allianz

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 CHAPTER-2

INSURANCE SECTOR IN INDIA

The insurance industry in India is at the crossroads of development. For any country and its economic
development, having a well-developed insurance sector that is evolving is definitely a boon. And, if you
are wondering what must be the reason for this, then the answer lies in the fact that this sector provides
some long-term funds for the development of the country’s infrastructure as well as strengthening the
risk-taking ability of the country. In India, the rapid rate at which economic growth has occurred in the
past decade is a very significant development, when you even look at it in terms of the global economic
scenario.

Insurance industry in India has seen a major growth in the last decade along with an introduction of a
huge number of advanced products. This has led to a tough competition with a positive and healthy
outcome.

Insurance sector in India plays a dynamic role in the wellbeing of its economy. It substantially increases
the opportunities for savings amongst the individuals, safeguards their future and helps the insurance
sector form a massive pool of funds.With the help of these funds, the insurance sector highly contributes
to the capital markets, thereby increasing large infrastructure developments in India.

The Indian Insurance Sector is basically divided into two categories – Life Insurance and Non-life
Insurance. The Non-life Insurance sector is also termed as General Insurance. Both the Life Insurance and
the Non-life Insurance is governed by the IRDAI (Insurance Regulatory and Development Authority of
India).The role of IRDA is to thoroughly monitor the entire insurance sector in India and also act like a
custodian of all the insurance consumer rights. This is the reason all the insurers have to abide by the
rules and regulations of the IRDAI.

The Insurance sector in India consists of total 57 insurance companies. Out of which 24 companies are
the life insurance providers and the remaining 33 are non-life insurers. Out which there are seven public
sector companies.

Life insurance companies offer coverage to the life of the individuals, whereas the non-life insurance
companies offer coverage with our day-to-day living like travel, health, our car and bikes, and home
insurance. Not only this, but the non-life insurance companies provide coverage for our industrial
equipment’s as well. Crop insurance for our farmers, gadget insurance for mobiles, pet insurance etc. are
some more insurance products being made available by the general insurance companies in India.

The life insurance companies have gained an investment prospectus in the recent times with an idea of
providing insurance along with a growth of your savings. But, the general insurance companies remain
reluctant to offer pure risk cover to the individuals.

THE PAST OF INSURANCE SECTOR IN INDIA

In the history of the Indian insurance sector, a decade back LIC was the only life insurance provider.
Other public sector companies like the National Insurance, United India Insurance, Oriental Insurance and
New India Assurance provided non-life insurance or say general insurance in India.

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However, with the introduction of new private sector companies, the insurance sector in India gained a
momentum in the year 2000. Currently, 24 life insurance companies and 30 non-life insurance companies
have been aggressive enough to rule the insurance sector in India. But, there are yet many more insurers
who are awaiting for IRDAI approvals to start both life insurance and non-life insurance sectors in India.

THE PRESENT OF INSURANCE SECTOR IN INDIA

So far as the industry goes, LIC, New India, National Insurance, United insurance and Oriental are the
only government ruled entity that stands high both in the market share as well as their contribution to the
Insurance sector in India. There are two specialized insurers – Agriculture Insurance Company Ltd
catering to Crop Insurance and Export Credit Guarantee of India catering to Credit Insurance. Whereas,
others are the private insurers (both life and general) who have done a joint venture with foreign
insurance companies to start their insurance businesses in India.

THE FUTURE OF INSURANCE SECTOR IN INDIA

Though LIC continues to dominate the Insurance sector in India, the introduction of the new private
insurers will see a vibrant expansion and growth of both life and non-life sectors in 2017. The demands
for new insurance policies with pocket-friendly premiums are sky high. Since the domestic economy
cannot grow drastically, the insurance sector in India is controlled for a strong growth.

With the increase in income and exponential growth of purchasing power as well as household savings,
the insurance sector in India would introduce emerging trends like product innovation, multi-distribution,
better claims management and regulatory trends in the Indian market.

The government also strives hard to provide insurance to individuals in a below poverty line by
introducing schemes like the

 Pradhan Mantri Suraksha Bima Yojana (PMSBY),

 Rashtriya Swasthya Bima Yojana (RSBY) and
 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).

Introduction of these schemes would help the lower and lower-middle income categories to utilize the
new policies with lower premiums in India.

With several regulatory changes in the insurance sector in India, the future looks pretty awesome and
promising for the life insurance industry. This would further lead to a change in the way insurers take care
of the business and engage proactively with its genuine buyers.

Some demographic factors like the growing insurance awareness of the insurance, retirement planning,
growing middle class and young insurable crowd will substantially increase the growth of the Insurance
sector in India.

In India, the insurance industry is as longstanding as the banking industry. But over the past fifteen years,
there has been a sea change in the business expansion of the insurance sector. The IRDAI (Insurance
Regulatory and Development Authority of India) was established in the year 2000, which opened this

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sector to private enterprises and allowing Indian companies to partner with foreign establishments. This
act has redefined the insurance sector in India making insurance available at reasonable costs.

The insurance industry in India has around 57 insurance companies. Among these, 24 are in the life
insurance business and the rest are non-life insurers. The Life Insurance Corporation (LIC) is a sole
public sector company in the life insurance business sector. The non-life insurance companies have
policies exclusively in personal accident, health, travel insurance segments etc. A few of these companies
include Apollo Munich Health Insurance Company Ltd, Star Health, and Allied Insurance Company Ltd,
Cigna TTK Health Insurance Company Ltd. etc. The Export Credit Guarantee Corporation of India for
Credit Insurance and Agriculture Insurance Company Ltd for crop insurance belong to the public sector.

This insurance sector is most developing one in India which fosters a positive market sentiment. There are
some major investments and other strong government initiatives that are pushing this sector towards a
robust future. An example for this is one of the programs of the government of India, the Pradhan Mantri
Vaya Vandana Yojana. It is a pension scheme that provides guaranteed 8 percent annual return to all the
senior citizens above the age of 60 years for a policy period of 10 years. The IRDAI is also planning to
issue out IPO guidelines for insurance companies that would want to divest through IPOs. The road ahead
is certainly quite promising. Currently, India has a 3.42 percent penetration rate in the insurance sector. It
is expected to quadruple in size over a period of next ten years.

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 CHAPTER-3

CONTRIBUTION OF INSURANCE TO GROWTH AND 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
households sector has increased.

The increased contribution of the insurance industry from the household GDS has been ploughed back
into the economy, generating higher growth.

1. 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 unfavorable 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.

2. 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. 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.

3. Contribution of insurance to employment Insurance helps create both direct and indirect
employment in the economy. Alongside regular jobs in insurance, there is always demand for a
range of associated professionals such as brokers, insurance advisors, agents, underwriters, claims
managers and actuaries. The increasing insurance business has increased the demand for highly
skilled professionals as well as semiskilled and unskilled people.

4. Insurance Contributes Positively to Economic Growth the deepening of insurance markets makes
a positive contribution to economic growth. While life insurance is causally linked to growth only
in higher income economies, nonlife insurance makes a positive contribution in both developing
and higher income economies. Some research suggests that the positive contribution of life
insurance to growth is primarily through the channel of financial intermediation and long term

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 investments. However, it is important to note that these studies do not address the important
contributions to individual and social welfare from risk management.

5. Strong Complementarities between Insurance and Banking Insurance and banking system
deepening appear to play complementary roles in the growth process. Although insurance and
banking separately each make positive contributions to growth, their individual contributions are
greater when both are present. There is also some evidence that the development of insurance
markets contributes to the health of securities markets.

SAVING, INVESTMENT AND ECONOMIC GROWTH

A positive element for India is the direction of saving and investment. Economic growth comes from
higher saving rate leading to higher investment (capital formation) leading to economic growth. The
causality of higher saving leading to higher GDP cannot be theoretically settled but in case of India,
however, preliminary analysis have shown that indeed higher saving leads to higher economic growth.

THE ROLE OF INSURANCE AND RISK MANAGEMENT

Insurance has the fundamental role of smoothing out fluctuation of cash flows. For households, life
insurance can reduce the drastic fall in income of the family if the insured person dies. Through pension
plans, a fall in retirement income can also be mitigated. Similarly, companies may be able to avoid
bankruptcy through the use of risk management in general and insurance in particular.

In general, saving is channeled into several specific financial institutions. For most countries, a
substantial proportion is invested in banks. Some of it is invested in longer term markets for capital such
as stocks and bonds. In many cases, a significant portion goes to the insurance sector. It could take the
form of life insurance, pension plans, health insurance and others.

In general, when various components of the insurance market develop, insurance sector takes on a bigger
share of the GDP. A tentative conclusion is that a rise of one percent of real GDP leads to a rise of two
percent of rise insurance demand in the context of India. Thus, rough estimates would suggest that
quadrupling of GDP in India by 2020 will lead to an eight-fold rise in insurance demand. Of course, this
rise in demand will not be spread equally across different segments of the market. For example, there will
be bigger impact on the life and pension markets. This effect will be tempered by a smaller rise in fire,
auto, marine and fire insurance sub-sectors

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 CHAPTER-4

RECENT DEVELOPMENTS IN THE INSURANCE INDUSTRY

The insurance sector in India has completed all the facets of competition - from being an open
competitive market to being nationalized and then getting back to the form of a liberalized market once
again. The history of the insurance sector in India reveals that it has witnessed complete dynamism for the
past two centuries approximately.

With the establishment of the Oriental Life Insurance Company in Kolkata, the business of Indian life
insurance started in the year 1818.

GROWTH OF LIFE INSURANCE BUSINESS IN INDIA: In life insurance business, India ranked 9th
among the 156 countries, for which data are published by Swiss Re. During 2011-12, the estimated life
insurance premium in India grew by 4.2 per cent (inflation adjusted). However, during the same period,
the global life insurance premium expanded by 3.2 per cent. The share of Indian life insurance sector in
global market was 2.69 per cent during 2012, as against 2.45 per cent in 2011.

IMPORTANCE OF AGENT’S TRAINING: The future success of the life insurance profession depends,
above all, upon the knowledge and integrity of the people who advise customers – and are their first and
most important point of contact. At the IRDA, the regulator’s goal is to see that life insurers are
increasingly able to attract, motivate and retain outstanding people, committed to adopting a ‘needs-
based’ approach to financial advice.

AGENT’S QUALIFICATION: Keeping the present market needs, the IRDA conducted a thorough
review of the existing life insurance agent licensing qualification. It was decided to utilize the expertise of
Chartered Insurance Institute (CII), London in enhancing the existing syllabus of IC-33 “Pre-recruitment
qualification for life insurance agents” of the Insurance Institute of India (III). All the key stakeholders
worked together to realize this goal. The IC-33 syllabus has been revised. The training in the revised
syllabus has commenced from 1st October, 2011. The new course book and the revised qualification that
agents will now use is a vital part of the Authority’s strategy. IRDA has developed a syllabus that is
challenging in its scope and depth. It does not simply encourage agents to memorise facts and figures; but
also tests their understanding of learning, and ability to apply it in a wide range of practical real-life
situations.

NEED ANALYSIS : This is another initiative identified by IRDA as a step in curbing wrong advice and
misspelling. The idea is to require insurers to have Prospect Product Matrix that will match a product with
the requirement, based on the Needs Analysis carried out. The feedback of the stakeholders on the
initiative has been received and draft guidelines are under preparation. Guidelines relating to distance
marketing have been issued by IRDA which address challenges relating to mis-selling using distance
marketing mode, fallout of the advancement in technology. While the benefits of having new and faster
channels need to be reaped, the loopholes created by them need plugging and this is precisely what the
guidelines are aimed at.

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PERSISTENCY OF LIFE INSURANCE POLICIES : IRDA has issued guidelines to agents for
persistency of life insurance policies to ensure that servicing of policies by agents is sustained and is with
a long term of objective of servicing the policyholder and not driven by an objective of just pushing sales.

GROWING IMPORTANCE OF IT : All insurance companies now use information technology (IT) to
benefit their business and to improve convenience for their customers. Today, customers can pay their
premiums and check the status and other details of their policy using the company’s website. Updates
relating to the receipt of premiums or changes to their policy are sent to the customer through mobile
SMS.

BANCASSURANCE: Many banks have joined with insurance companies to cross-sell insurance products
to their customers. Insurance companies benefit from the wide network and loyal customer base of banks,
and the contribution that bancassurance makes to insurance sales has steadily grown over the last few
years. The banks benefit through being able to provide value-added products to their customers and from
the fee income they receive in return from the insurance companies. Many banks have started their own
life insurance subsidiaries.

ONLINE SALES: Most of the insurance companies have now started selling insurance products online.
This eliminates the need for an intermediary and reduces costs. This saving can be passed to customers in
the form of reduced premiums.

MICRO-INSURANCE: Micro-Insurance guidelines were issued by the IRDA in 2005. Micro-insurance

products provide insurance protection to people in lower income groups, such as self-help group (SHG)
members, farmers, rickshaw pullers and others against the risks that they and their assets are exposed to.
The premiums for these products may be as low as 15 and are collected on a weekly basis. The minimum
life insurance cover specified by the Regulator for this category is 5,000 and the maximum cover that can
be provided is 50,000. People who work in agriculture and allied activities are exposed to the hazards of
nature so they need protection against risks like monsoon failure, floods etc. This is where micro-
insurance can come to their rescue.

GRIEVANCE REDRESSAL: Whenever any industry is experiencing fast growth there are bound to be
concerns, and the insurance industry is no different. There has been an increase in complaints from
customers about the settlement of their claims and customer service in general. The IRDA has taken
several steps to protect the interest of the policyholders. It has asked 31 insurance companies to set up
internal customer grievance redressed cells/departments, and an Insurance Ombudsman has also been
established. The latest initiative from the IRDA is the setting up of a call centre which an insured can
contact to seek the resolution of a grievance they have against their insurer. The unhappy customer can
either call a toll-free number (155255) or email [email protected] to register their complaints.

PROTECTION OF THE INTEREST OF POLICY HOLDERS:

IRDA has the responsibility of protecting the interest of insurance policyholders. Towards achieving this
objective, the Authority has taken the following steps:

 IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy
proposal documents in easily understandable language; claims procedure in both life and non-life;
setting up of grievance redressal machinery; speedy settlement of claims; and policyholders'

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 servicing. The Regulation also provides for payment of interest by insurers for the delay in
settlement of claim.
 The insurers are required to maintain solvency margins so that they are in a position to meet their
obligations towards policyholders with regard to payment of claims.
 It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and
conditions under the policy. The advertisements issued by the insurers should not mislead the
insuring public.
 All insurers are required to set up proper grievance redress machinery in their head office and at
their other offices.
 The Authority takes up with the insurers any complaint received from the policyholders in
connection with services provided by them under the insurance contract.

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 CHAPTER-5

CONCLUSION
The growth of the Indian economy has been diminishing due to various reasons, but the Indian growth
story is still alive as Indians has a habit of moving slowly but steadily and in the end we win the race.
Currently the situations are not in our favour but as soon the above problems settles down, we may back
on track. At the same time many sectors are supporting to the growth of the Indian economy, among that
insurance sector‘s contribution is very high. The growth performance of the insurance industry has
increased tremendously since the establishment of IRDA in India, which supervise and controlled the
entire insurance industry. The increase in number of insurer both in life and non-life, growth in insurance
penetration and density, increase in number of policies issued and increase in the speed of claims
settlement and the in many more aspects the IRDA is playing a prominent role in the Indian insurance
sector.

The IRDA in insurance industry in India has taken impressive measures in recent years and has recorded
phenomenal growth complemented by country‘s improving economic growth. The Indian insurance is
gaining in size and is in par with the Asian markets. The business of insurance is related to the protection
of the economic values of assets of the policy holders. The number of new policies issued by the life
insurer in accordance with IRDA is an index of growth of life insurer. The IRDA is looking at making
insurance policies more investor-friendly by introducing tax exemption on insurance policies. Whole
IRDA is still considering a proposal by LIC to link tax relief to the term of the life insurance policy,
reports suggest IRDA has backed a move to introduce separate tax exemption limit on life insurance
policies.

The insurance business is at a critical stage in India. Over the next two decades we are likely to witness
high growth in the insurance sector for three reasons.

 Financial deregulation which always speeds up the development of the insurance sector.
 Growth in income also helps the insurance business to grow.
 In addition, increased longevity and aging population will also spur growth in health and pension
segments.

THE 2020 VISION

Government of India has set out a goal where it would be in 2020 in different dimensions. India has
professed to commit itself to a long term goal: quadrupling real Gross Domestic Product (real GDP) by
the year 2020 (Planning Commission, 2003). To make this vision a reality, simple arithmetic shows that it
requires a 7%-8% growth in real GDP. The ask rate is critically dependent on how the economy is able to
absorb macroeconomic shocks.

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