In economic terms, anything that reduces risk is referred to as insurance. In common parlance, insurance is provided by a company that covers a person’s life (called the life segment) or covers the loss of assets, property, or both (called non-life or general segment). The insurance policies are acquired for a set premium.
India has a lengthy history of insurance. It is mentioned in Manu (Manusmrithi), Yagnavalkya (Dharmasastra), and Kautilya’s writings (Arthasastra). The writings discuss the pooling of resources that could be redistributed during disasters such as fire, flood, epidemic, and famine. This was likely an ancestor of modern insurance. In ancient Indian history, marine trade loans and carriers’ contracts represent the earliest traces of insurance. Over time, India’s insurance industry has evolved by drawing heavily from other nations (England in particular).
In 1956, the government of India nationalized the country’s life insurance industry, and the Life Insurance Corporation of India (LIC) was established as a government-owned corporation (at that time 245 Indian and foreign companies were playing in the life segment of insurance). Private life insurance company formation was prohibited at the time. The government called the LIC an investment institution.
First, to promote life insurance for greater social security, and second, to mobilize people’s savings (collected through premiums) for nation-building. The LIC had been the largest investor in the government’s planned development process, purchasing government securities (G-Secs) and shares of the large asset Public Sector Undertakings (PSUs).
In 1971, the government nationalized the private sector companies (107 Indian and foreign companies) operating in the general insurance segment, and in 1972, the General Insurance Corporation of India (GIC) was established as a government-owned insurance company. The GIC began operations with its four holding companies on January 1, 1973:
- National Insurance Company Ltd.
- New India Assurance Company Ltd.
- Oriental Fire and Insurance Company Ltd.
- United India Insurance Company Ltd.
In the era of economic reforms, two major changes took place in this area-
- In November 2000, the GIC was notified to the Indian Reinsurers (to be known as GIC Re).
- In March 2002 the GIC was withdrawn from the holding company status of the four public sector general insurance companies. Now, these four companies are directly owned by the Government of India.
The Government of India established Agriculture Insurance Company of India Limited (AICIL) in December 2002 as a public sector insurance company (commenced its business in April 2003). The mission of this specialized agri-insurance company is “to better serve the needs of farmers and move toward a sustainable actuarial regime.”
The 1999-established National Agriculture Insurance Scheme (NAIS) was administered by this company. Since January 2016, the organization has been responsible for the newly launched PMFBY (Prime Minister Fasal Bima Yojana), which subsumed the existing agri-insurance schemes, the NAIS, and the Modified NAIS (of 2010). Before the AICIL was established, the General Insurance Corporation was in charge of the government’s agri-insurance obligations (GIC).
AICIL is jointly promoted by public sector insurance companies and development financial institutions, with the GIC (35%) and NABARD (30%) holding the majority shares and the four public sector general insurance companies holding 8.75% each.
Public Sector Insurance Companies
There are currently six public insurance companies in India. One is involved in the life segment (LIC), four in the non-life segment (general insurance), and one is a specialized agri-insurer. Other than these firms, there is only one reinsurance company, GIC Re (wholly owned by the GoI).
Practice Questions for UPSC Prelims
Ques 1: How many companies were merged to form the United India Insurance Company (UIIC)?
Answer: Option C
Explanation: Twelve Indian insurance companies, four co-operative insurance societies, five foreign insurers with
Indian operations and the general insurance operations of the southern region of Life Insurance Corporation of
India were merged with United India Insurance Company Limited to form the company.
Ques 2: What should be the minimum paid-up capital of an entity to start a re-insurance business in India?
[A] Rs 200 crore
[B] Rs 100 crore
[C] Rs 500 crore
[D] Rs 300 crore
Answer: Option A
Explanation: The minimum equity capital requirement is Rs 100 crore for life insurance or general insurance and Rs
200 crore for a person exclusively in the business of re-insurance.
Ques 3: Regarding ‘Atal Pension Yojana, which of the following statements is/are correct? [UPSC 2016]
1. It is a minimum guaranteed pension scheme mainly targeted at unorganized sector workers.
2. Only one member of a family can join the scheme.
3. The same amount of pension is guaranteed for the spouse for life after the subscriber’s death.
Select the correct answer using the code given below.
[A] 1 only
[B] 2 and 3 only
[C] 1 and 3 only
[D] 1, 2 and 3
Answer: Option C
- Atal Pension Yojana is a pension scheme introduced by the Government of India in 2015–16.
- The objective of the scheme is to provide pension benefits to individuals in the unorganized sector. Hence statement 1 is correct.
- Atal Pension Yojana (APY) is open to all bank account holders who are not members of any statutory social security scheme. Hence statement 2 is incorrect.
- Atal Pension Yojana scheme is regulated and controlled by the Pension Funds Regulatory Authority of India (PFRDA).
- Beneficiaries of the scheme can choose to receive a periodic pension of Rs. 1000, Rs. 2000, Rs. 3000, Rs. 4000, or Rs. 5000, depending on their monthly contributions.
- Individuals who are above 18 years and below 40 years of age are eligible to invest in the Atal Pension Yojana.
- In the case of a beneficiary’s death, before he/she reaches 60 years of age, his/her spouse shall be entitled to receive a pension. As such, the spouse has an option to either exit the scheme with the corpus or continue to receive pension benefits.
- The spouse of the subscriber shall be entitled to receive the same pension amount even after the subscriber’s death. Hence statement 3 is correct.
Quick Questions on Insurance In India for UPSC Preparation
There is a total of 58 insurance companies in India approved by IRDAI. IRDAI has approved 24 insurance companies for Life insurance. There are 34 non-life insurance companies available in India approved by IRDA.
The LIC i.e. Life Insurance Corporation of India is the largest insurance company in India. LIC is government sector company having the largest share of insurance in India. HDFC Standard Life Insurance Co. Ltd is trailing behind LIC.
The Insurance Regulatory and Development Authority (IRDA) was established in 2000 (the Act was passed in 1999) with a government-appointed chairman and five members (two full-time and three part-time members). The authority is in charge of the regulation, growth, and oversight of the Indian insurance industry.