History of Life Insurance

History of Life Insurance in India

Dear Aspirants,

For the upcoming LIC AAO exam, we are providing an article on history of Life insurance in India. We hope that will help you.

Life Insurance Corporation (India) (LIC) is an Indian state-owned insurance group and investment company headquartered in Mumbai.

The Life Insurance Corporation of India was founded in 1956 when the Parliament of India passed the Life Insurance of India Act that nationalized the private insurance industry in India. Over 245 insurance companies and provident societies were merged to create the state owned Life Insurance Corporation.

The Oriental Life Insurance Company, the first company in India offering life insurance coverage, was established in Calcutta in 1818. Its primary target market was the Europeans based in India, and it charged Indians heftier premiums. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives.

The Bombay Mutual Life Assurance Society, formed in 1870, was the first native insurance provider.

Prior to 1912 India had no legislation to regulate insurance business. 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.

The Insurance Act 1938 was the first legislation governing not only life insurance but also non-life insurance to provide strict state control over insurance business. Other insurance companies established in the pre-independence era included

• Bharat Insurance Company (1896)
• United India (1906)
• National Indian (1906)
• National Insurance (1906)
• Co-operative Assurance (1906)
• Hindustan Co-operatives (1907)
• Indian Mercantile
• General Assurance
• Swadeshi Life (later Bombay Life)

Nationalization:

The demand for nationalization of life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly.

Eventually, the Parliament of India passed the Life Insurance of India Act on June 19, 1956 creating the Life Insurance Corporation of India, which started operating in September of that year. It consolidated the life insurance business of 245 private life insurers and other entities offering life insurance services, this consisted of 154 life insurance companies, 16 foreign companies and 75 provident companies.

The nationalization of the life insurance business in India was a result of the Industrial Policy Resolution of 1956, which had created a policy framework for extending state control over at least seventeen sectors of the economy, including life insurance.

Nationalization was accomplished in two stages;

• Initially the management of the companies was taken over by means of an Ordinance, and
• Later, the ownership of the companies was taken by means of a comprehensive bill.

Liberalization:

In August 2000, the Indian Government embarked on a program to liberalize the Insurance Sector and opened it up for the private sector. Ironically, LIC emerged as a beneficiary from this process with robust performance, albeit on a base substantially higher than the private sector.

Some of the important milestones in the life insurance business in India are:

1818: Oriental Life Insurance Company, the first life insurance company on Indian soil started functioning.

1870: Bombay Mutual Life Assurance Society, the first Indian life insurance company started its business.

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers and provident societies are taken over by the central government and nationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.

Thanks!