History of Life Insurance

 

C  S  C         T   R  A   I  N   I   N G

 

History of Life Insurance

 

Insurance was practiced in India even in the Vedic times and the Sanskrit term “Yogakshema” in the Rigveda is in reference to a form of Insurance practiced by the Aryans 3000 years ago.

The first Indian Life assurance Society was called “Bombay Mutual Assurance Society Ltd.”

 “Oriental Life Assurance Society Ltd” in 1874,

 “Bharat Insurance” in 1896 and

 “Empire of India” in 1897 followed it.

 

 Government started exercising control on Insurance business by passing “Insurance Act” in 1912.

 This Act was comprehensively amended and passed as New Act in 1938 for controlling Investment of funds, expenditure and Management.

 The Office of Controller was established. Again, this Act was amended in 1950.

By 1955, 170 Insurance offices and 80 P.F. Societies registered companies were doing Life Insurance business in India.

In view of surge in malpractices in Life Insurance business, due to the illiteracy level being high and lack in will for penetration/ spread of Life Insurance business, it was nationalised by Government of India and LIC Act was passed in June’1956, and this Act came into force from  1.9.1956.

2

CSC_TRAINING    HISTORY OF LIFE INSURANCE

 

General insurance (which deals with non-life business i.e insurance of property) also nationalized in 1972 after merging of 55 Indian and 52 Non-Indian companies were nationalized by forming four general insurance companies.

The Govt. Of India, while liberalizing the Indian economy, also felt the liberalization of insurance sector because of lower penetration of insurance as compared to Indian population and its size and other developing countries.

Initially the Govt. formed a Malhotra committee in 1993 to study whether the insurance sector should be opened for private players.

The committee recommended to Liberalized, Privatized And Globalize (LPG) the insurance sector. In 1999, the Authority known as Insurance Regulatory & Development Authority through IRDA Act 1999 was formed.

Liberalisation of Insurance industry will undoubtedly benefit Indian economy, the Government, Industry, Employee, and Consumer & Society in the following manner:

3

CSC_TRAINING   HISTORY OF LIFE INSURANCE

Benefits to Economy

 

o          Rapid investment

o          Improve Quality to Life (New risk covers)

o          Competition will bring Consumer Friendly Products

o          Large Scale Mobilisation of Funds

o          Insurance & Reinsurance Facilities to Major Projects

o          Export Projects covered at Home

Benefits to Government

 

® Long Term Funds for Infrastructure

® Long Term Debt Market Instruments Available

® Increased Employment Opportunities & Compensation

® Reduced Financial Burden of

® Rural, Social & Backward Classes

® Contributions in Calamities (Sharing of Social Responsibilities)

Benefits to Industry

 

® Transfer of Technical Expertise

® Innovative Products and Pricing Options

® Improved Prospects for National Cos.

® Market Driven Economy will Benefit Customer the most.

 

Benefits to Consumer

 

® Superior Quality at Lower Prices

® Wider Choice of Products

® World Class Service to the Consumer

® Increased Penetration of Insurance

 

Benefits to Employee

 

® Human Resource Development

® Exposure to ‘State of the Art Practices”

® Greater Job Opportunities

® Higher Remuneration

® Professional Management Practices

 

Benefits to Society Insurance Companies Act as Guardians in number of Ways: -

 Risk cover for Large Industry, Trade & Property

 Environmental Risks get Reduced

 Hit – and – Run Compensations

 Crop Insurance for Covering Risk of Nature – Poor Rainfall etc.

 Socio Responsibilities Burden shared

 Education □ Medical □ Health □Accident

 

4

Government has prescribed the norms as to how Insurance companies can invest their funds. The norms are as follows:

Every insurer carrying on the business of life-­‐insurance shall invest and at all times keep invested in the following manner:

        25% in Govt. securities

        Not less than 50% in Govt. security or approved securities (including (1) above)

        Not less than 15% in Infrastructure and Social Sector b) Not exceeding 35% in others capital market Investment in “other than approved Investments” can in no case exceed 15% of the fund

        From the above, it will be observed that the Govt. has asked the Insurance to channel the funds to State and Central Govt.

Infrastructure sectors social sector and rural sector and capital market. (For details refer the Investments regulations issued by the Insurance Regulatory Development Authority)

 

 

            Long term funds and debt instruments are available to develop the economy.

b)         Infrastructure funds are available to create roads, bridges, communication housing etc. It reduces the burden of the Govt.

c)         Investment in Rural and Social sector supports Govt. efforts

d)         Capital market: If the insurer is investing the fund in the capital market then industry can  enhance  their  production  capacity, which will have the multiplier effect on the growth of the economy.

 

 Insurance has become the necessity tool for our life.

 It not only provides security but also saving for future.

 At younger age the necessity may not be felt but as the man grows old it starts feeling the responsibility towards his family.

 Insurance also helps the economic development of the country

 Moreover, if the people are taking care for themselves about their present and future needs then Government will spend their funds in more productive manner.

1.         Choose the correct Option

a)         Old age is only certain in life.

b)         Old age and death are certain in life.

c)         An accident is certain in life.

d)         An Illness is certain in life.

 

2.         Life Insurance business was nationalized in India in a) 1956

b) 1947

c)  1972

d) 1938

 

2.         General Insurance business was nationalized in India in a) 1956

b) 1947

c)  1972

d) 1938

 

3.         Life insurance companies are investing funds as per norms prescribed by the

a)         IRDA

b)         Government

c)         Insurance Company

d)         Parliament

4.         Insurance is a social security tool. (True/False)

5.         Insurance works on law of probability (True/False)

6.         Select the correct statement

 Statement A: Insurance is relevant only if there is possible economic loss

 Statement B: An event, which will certainly happen cannot be insured.

Answer.

a)         Only A is true.

b)         Only B is true.

c)         Both are true.

d)         Neither of two

  

 

7.         Select the correct statement

 Statement A: Insurance provides sense of security.

 Statement B: Insurance ensures that no loss will take place.

Answer.

a)         Only A is true.

b)         Only B is true.

c)         Both  are true.

d)         Neither of two

 

8.         Select the correct statement

 Statement A: Insurance reduces social costs.

 Statement B: Insurance is an instrument of social security.

Answer.

a)         Only A is true.

b)         Only B is true.

c)         Both  are true.

d)         Neither of two

 

9.         Insurance Regulatory & Development Authority was formed through the IRDA Act in

a) 1999

b) 2001

c) 1977

d) 1956