Indian Insurance Market: Principles, History and Regulatory Framework

Foundations of the Indian Insurance Market #

• Insurance is listed in the Union list in the Seventh Schedule.
• It is a form of hedging and risk management system against uncertain losses.
• Insurance refers to a legal contract by which an individual/firm/entity receives protection from financial loss/any other kind of damage.

Evolution of the Indian Insurance Market: A Historical Overview  #

Evolution and Modernization of the Indian Insurance Market: Recommendations of the R N Malhotra Committee (1993): #

• The LIC functioning should be decentralized.
• The private sector companies should be allowed to enter the insurance sector.
• No company should be allowed to deal both in the life insurance business and the general insurance business through a single entity.
• Setting up an independent regulatory body for the Insurance sector on the lines of SEBI.
• Insurance penetration: Refers to premiums as a percentage of GDP, whereas insurance density (measured in $) refers to per capita premium or premium per person.
• DPIIT has allowed 100% FDI for insurance intermediaries, which includes insurance broking, insurance companies, third party administrators, surveyors and loss assessors. FDI for insurance companies is still capped at 49%.

Comparative Analysis of Banking and Insurance Sectors in the Indian Market  #

Insurance Varieties in the Indian Insurance Market  #

Insurance Providers in the Indian Market #

• LIC was founded in 1956. Motto – “Yogakshemam Vahamyaham” (From Gita “I carry what you require”).

General Insurance Corporation of India (GIC): Key Player in the Indian Insurance Market #

• GIC is the ONLY reinsurer in India. It is state owned. A reinsurer is a company that provides financial protection to insurance companies.

Agriculture Insurance Company of India Limited (AICIL): Leading Crop Insurer in the Indian Insurance Market #

• Established on 2002 under the Companies Act 1956
• It is a government owned Crop Insurance Company. It is the largest crop insurer in the world in terms of the number of farmers.
• Different Crop Insurance schemes provided by AICIL are-Pradhan Mantri Fasal Bima Yojana, restructured weather-based Crop Insurance Scheme etc.

How does Deposit Insurance and Credit Guarantee Corporation (DICGC) contribute to financial security within the Indian Insurance Market? #

• Deposit insurance means providing insurance protection to the depositor’s money by receiving a premium. The premium paid by the insured banks to the DICGC is not to be passed on to depositors.
• DICGC was established under RBI for deposit insurance.
• DICGC cover is now ₹5 lakh, earlier it was ₹1 lakh
• It does not deal directly with depositors but through an official liquidator.

Role of Export Credit Guarantee Corporation in the Indian Insurance Market #

• The ECGC Limited is a company wholly owned by the Government and is controlled by the Ministry of Commerce.
• It provides export credit insurance support to Indian exporters to facilitate exports from the country.
• To protect exporters against losses due to non-payment of export dues by overseas buyers due to political and / or commercial risks.

NIRVIK Scheme and its Impact on the Indian Insurance Market #

• To give a boost to export lending and insurance cover for export credit.
• Insurance will cover up to 90% of the principal and interest.
• Will include both pre and post-shipment credit.
• The banks shall pay a premium to ECGC monthly on the principal and interest as the cover is offered for both.

National Export Insurance Account in the Indian Insurance Market

• NEIA is a fund set up with an approved corpus of Rs. 2000 Crore.
• to facilitate medium and long-term exports, which are not covered by ECGC.
• It is maintained and operated by a Public Trust set up jointly by the Department of Commerce and ECGC.

Domestic Systemically Important Insurers in the Indian Insurance Market (D-SII) #

• D-SIIs are perceived as insurers that are ‘too big or too important to fail’ (TBTF).
• They refer to insurers of such size, market importance and domestic and global interconnectedness whose distress or failure would cause a significant dislocation in the domestic financial system.
• Requirements for D-SIIs:
• The three public sector insurers have been asked to raise the level of corporate governance.
• Identify all relevant risks and promote a sound risk management culture.
• The D-SIIs will also be subjected to enhanced regulatory supervision of the IRDAI.
• The Life Insurance Corporation of India (LIC), General Insurance Corporation of India and the New India Assurance have been identified as Domestic Systemically Important Insurers (D-SIIs) for 2020-21 by insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI).
• The IRDAI would identify D-SIIs on an annual basis.

Role of the International Financial Services Centres Authority in the Indian Insurance Market #

• The first IFSC in India has been set up at the Gujarat International Finance Tec-City (GIFT City) in Gandhinagar.
• It was established to regulate financial services such as securities, deposits or contracts of insurance, financial services, and financial institutions .
• It will consist of nine members, appointed by the central government.
• Members–
• Chairperson ,
• A member each from the RBI, SEBI, the Insurance Regulatory and Development Authority of India (IRDAI), and the Pension Fund Regulatory and Development Authority (PFRDA),
• Two members from the Ministry of Finance,
• In addition, two other members will be appointed on the recommendation of a Selection Committee.
• Term: All members of the IFSC Authority will have a term of three years, subject to reappointment.

Micro-Insurance in the Indian Market #

IRDA Micro-insurance Regulations, 2005 defines micro-insurance as-

• A general or life insurance policy with a sum assured of Rs 50,000 or less.
• It is targeted towards low-income households or to individuals who have little savings
• Micro- insurance business is done through the intermediaries: Non-Government Organisations, Micro-Finance Institution, Self-Help Groups etc.

Government-Sponsored Insurance Schemes in the Indian Insurance Market  #

Ayushman Bharat’s Impact on the Indian Insurance Market: PM Jan Arogya Yojana (PMJAY) – 2018 #

• It is a component of Ayushmann Bharat announced in Budget 2018.
• It has subsumed Rashtriya Swasthya Bima Yojana and Senior Citizen Health Insurance Scheme.

Pradhan Mantri Fasal Bima Yojana (PMFBY) and its Impact on the Indian Insurance Market #

• It provides comprehensive crop insurance cover against non-preventable natural risks at an affordable rate to farmers.
• Uniform maximum premium of only 2%, 1.5% and 5% of the sum insured to be paid by farmers for all Kharif crops, Rabi crops and commercial/horticultural crops.

PMFBY 2.0: Voluntary Enrollment and Enhanced Central Support in the Indian Insurance Market #

• Enrolment under the Scheme to be made voluntary for all farmers.
• Central Subsidy is to be limited for premium rates upto 30% for un-irrigated areas/crops and 25% for irrigated areas/crops.
• Central Share in Premium Subsidy to be increased to 90% for North Eastern States from the existing sharing pattern of 50:50
• Single event coverage insurance can be taken. E.g., fire only.
• Government allotted a district/area to an Insurance company for Minimum 3 years. In case of extraordinary performance by the company, then more years may be granted.
• Flexibility to States/UTs to implement the Scheme.

What are the requirements for Motor Vehicle third party insurance in the Indian Insurance Market? #

Under the provisions of The Motor Vehicles Act, 1988, any motorized vehicle operated on public roads should be insured against third party liability. 

Under the law, this liability is unlimited in the case of death of injury, and hence, it is mandatory to purchase a Motor Third Party Liability Policy (TP Policy). 

What does the Public Liability Insurance Act, 1991 cover in the Indian Insurance Market? #

• Public liability insurance policy covers a policyholder from claims from third parties for death or injury or property damage caused by hazardous substances handled in a factory.
• The compensation payable is irrespective of the company’s neglect.
• The victims who are exposed to hazardous substances used by an industry may file a claim with the Collector within 5 years of the accident.
• Maximum compensation of Rs 25,000, in addition to a maximum of Rs. 12,500, as reimbursement for medical expenses.

Pension System and Employee Benefits Management in the Indian Insurance Market #

It is a regular payment made by the state to people of or above the official retirement age and to some widows and disabled people. 

Pension Scheme for Senior Citizens in the Indian Insurance Market  #

Regulatory Authorities in the Indian Insurance Sector: IRDAI and PFRDA  #