INTRODUCTIONInsurance means to compensate the owner against loss arising from a variety of risks, which heanticipates, to his life,

property and business. It is also referred to as Assurance. The term Assurance isbasically the earlier term and was used alike for both life and general insurance. The term insurance wasinitially used in 1635 in connection with Fire insurance and was quickly adopted as extensively asAssurance. In 1826, it was proposed that the term insurance be used for general insurance and the termassurance restricted for life insurance.References to practices similar to insurance are found in the ancient Indian texts of Rigveda. Rigvedarefers to the concept of "Yogakshema"1 - loosely meaning 'the well being, prosperity and security of people'. Archaeological excavation at the site of Aryan civilization has yielded evidence of a practicesimilar to insurance, insuring loss of profits in industry.Insurance is mainly of two types: life insurance and general insurance. General insurance means Fire,Marine and Miscellaneous insurance which includes insurance against burglary or theft, fidelityguarantee, insurance for employer's liability, and insurance of motor vehicles, livestock and crops.The insurance sector is of considerable importance to every developing economy; it inculcates thesavings habit, which in turn generates long-term funds for infrastructure building. The nature of insurance business ensures constant inflow of funds - the payout is staggered and contingency related -thereby making it readily available for investment on infrastructure building.Insurance is one sector whose contribution to GDP is quite significant. Post independence, the IndianGovernment nationalized the private life insurance companies with a view to raise funds for theinfrastructure developments, which lagged behind pathetically. The scatter of general insurancecompanies was brought under one umbrella the General Insurance Company in 1972.INSURANCE IN INDIAThe Insurance sector in India is

governed by Insurance Act, 1938, the Life Insurance Corporation Act,1956, General Insurance Business (Nationalization) Act, 1972, Insurance Regulatory and DevelopmentAuthority (IRDA) Act, 1999 and other related Acts.The insurance sector in India has come a full circle from being an open competitive market tonationalization and back to a liberalized market again. Tracing the developments in the Indian insurancesector reveals the 360-degree turn witnessed over a period of almost two centuries. Nationalizationhowever brought with it the public sector bureaucracies, cumbersome procedures and inefficiencies butstill these nationalized companies managed to have millions of policyholders.History of Insurance in IndiaThe business of life insurance in India in its existing form started in India in the year 1818 with theestablishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones inthe life insurance business in India are:1818: Oriental Life Insurance Company, the first life insurance company on Indian soil startedfunctioning.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 insurancebusiness.1928: The Indian Insurance Companies Act enacted to enable the government to collect statisticalinformation 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 & foreign insurers and provident societies taken over by the central government andnationalized. LIC formed by an Act of Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5crore from the Government of India.The General insurance business in India, on the other hand, can trace its roots to the Triton InsuranceCompany Ltd., the first general insurance company established in the year 1850 in Calcutta by theBritish.Some of the

important milestones in the general insurance business in India are:1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of generalinsurance business.1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conductfor ensuring fair conduct and sound business practices.1968: The Insurance Act amended to regulate investments and set minimum solvency margins and theTariff Advisory Committee set up.1972: The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurancebusiness in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., theOriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as acompany.OBJECTIVE OF INSURANCE COMPANIES1) Social objective- The core objective of insurance company is social commitment, to provide maximumrisk coverage to the investor.2) Spread Insurance and provide risk coverage Another objective is to spread insurance whether life ornon-life to each and every corner of the country especially rural areas, to socially and economicallybackward classes and provide them reasonably priced financial cover against risk.3) Encourage savings Other objectives include encouraging people to save for the future by makinginsurance linked savings more attractive and secure. 4) Nation building The funds created are then utilized and invested for nation building.ADVANTAGES OF INSURANCE OVER OTHER SAVINGS1) Protection: Savings through insurance guarantee full protection against risk. In case of demise, lifeinsurance assures payment of the entire amount assured (with bonus wherever applicable) whereas inother savings schemes, only the amount saved (with interest is payable).2) Aid to savings: Life insurance encourages savings. It allows long term savings since payments can

bemade effortlessly because of the easy instalment facility. Premium can be paid either monthly,quarterly, half yearly or yearly.3) Liquidity: In case of insurance, it is easy to acquire loan on the security of any policy that has acquiredloan value.4) Tax Relief: Life insurance is the best way to enjoy tax deductions on income tax. This is available foramounts paid by way of premium for life insurance.5) Money when you need it: An investor can meet its certain monetary needs, which may arise fromtime to time, by investing in a combination of different plans. Expenses like education,marriage or even periodical needs of cash over a stretch of time can be less stressful with the help of these policies.INSURANCE COMPANIESIRDA has so far granted registration to 12 private life insurance companies and 9 general insurancecompanies. If we include public sector companies then there will be 13 life insurance and 13 generalinsurance companies. These companies are:Sr.No. Name of the CompanyLIFE INSURERSPublic Sector1. Life Insurance Corporation of IndiaPrivate Sector2. Allianz Bajaj Life Insurance Co. Ltd.3. Birla Sunlife Insurance Co. Ltd.4. HDFC Standard Life Insurance Co. Ltd.5. ICICI Prudential Life Insurance Co. Ltd.6. ING Vysya Life Insurance Co. Ltd.7. Max New York Life Insurance Co. Ltd. 8. MetLife Insurance Co. Ltd.9. Om Kotak Mahindra Life Insurance Co. Ltd.10. SBI Life Insurance Co. Ltd.11. Tata AIG Life Insurance Co. Ltd.12. AMP Sanmar Assurance Co. Ltd.13. Dabur CGU Life Insurance Co. Ltd.GENERAL INSURERESPublic Sector1. National Insurance Co. Ltd.2. New India Assurance Co. Ltd.3. Oriental Insurance Co. Ltd.4. United India Insurance Co. Ltd.Private Sector5. Bajaj Allianz General Insurance Co. Ltd.6. ICICI Lombard General Insurance Co. Ltd.7. IFFCO Tokio General Insurance Co. Ltd.8. Reliance General Insurance Co. Ltd.9. Royal Sundaram Alliance Insurance Co. Ltd10. TATA AIG General Insurance Co. Ltd.11. Cholamandalam General Insurance Co.

Ltd.12. Export Credit Guarantee Corporation13. HDFC Chubb General Insurance Co. Ltd.IRDA Rules for protection of interest of policy holders:IRDA has the responsibility of protecting the interest of insurance policyholders. IRDA has takenfollowing steps towards achieving the objective:1) IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy proposaldocuments in easily understandable language; claims procedure and setting settlement of claims. Theregulation also provides for payment of interest by insurers for the delay in settlement of claims.2) The insurers are required to maintain solvency margins so that they are in a position to meet theirobligations towards policyholders with regard to payment of claims.3) It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms andconditions under the policy. The advertisements issued by the insurers should not mislead the insuringpublic.4) All insurers are required to set up proper grievance redress machinery in their head office and at theirother offices. Indian Insurance Market in 20081) Indian Insurance sector touted to record an 18% growth: According to K.N.Bhandari, the SecretaryGeneral of General Insurance Council, general insurance sector is expected to grow at an 18%rate in 2008. The comparable figure for 2007 was 13%.2) Investment strategies from LIC, India : Life Insurance Corporation (LIC) is biggest institutionalinvestor. It is also the largest life insurance company in India. The company has outlined a newinvestment strategy. LIC plans to increase its equity investment by one third in 2008. LIC plans to buyequities worth Rs. 450 billion for the year 2008-09. The comparable figure for 2007 was Rs. 340 billion.3) Young breed of pensioners in Indian Insurance market: The Indian insurance market is beingincreasingly characterised by the presence of young pensioners as per an article in of young pensioners are under 40

individuals who are purchasing retirement plans. The growingIndian economy has created an upwardly mobile, affluent young generation, who believe in going for aplanned retirement. As per data by IRDA, 28% of the premiums collected by the Indian Insurancecompanies are from retirement plans.4) Focus on alternative distribution network: In 2008-09 LIC plans to increase its focus on alternativechannels of distribution network as way of reaching out to masses. The number of policies sold throughbancassurance and other channels should grow to 5% of total business, up from2.1% in 2007Insurance Market in 2010Indian insurance sector is likely to register exceptional growth of 200% and attain a size of Rs. 2000billion by 2009-10, in which a private sector insurance business will achieve a growth rate of 140%.These findings are made by The Associated Chambers of Commerce & Industry of India (ASSOCHAM) ce in next 2 Venugopal N. Dhoot, President, ASSOCHAM, said that on account of intense marketing strategiesadopted by private insurance players, the market share of public insurance companies have come downto 70% in last 4-5 years from over 97%.The private players has been offering rate of return (RoR) to its policy holders which is estimated atabout 35% as against 20% of domestic insurance companies. This factor is mainly responsible for hike inprivate insurance market share which will grow further which is why the ASSOCHAM estimates that itsgrowth rate could even exceed 140%.Secondly the public insurance companies have limited number of policies to offer to their subscriberswhile in case of private insurance companies, their policy numbers are many and the premium amountas well as maturity period is much competitive as against those of public insurance companies. The private sector insurance players have started exploring the rural markets in which until recently, thepublic players had the monopoly.The Chamber has projected that in rural markets, the share of private insurance players

would increasesubstantially as these have been able to generate a faith among their rural consumers.The rural market offers tremendous growth opportunities for insurance companies and insurers shoulddevelop viable and cost effective distribution channels; build consumer awareness and confidence. TheASSOCHAM found that there are total 124 million rural households. Nearly 20% of all farmers in ruralIndia own a Kissan Credit card. The 25 million credit cards used till date offer a huge data base andopportunity for insurance companies. An extensive rural agent network for sale of insurance productscould be established. The agent can play a major role in creating awareness, motivating purchase andrendering insurance services.ASSOCHAM suggests that insurance needs to be packaged in such a form that it appears as anacceptable investment to the rural people.CONCLUSIONDespite number of investment avenues, there exists a lot many opportunities for investor as well asinsurance company in the sector. The number of potential buyers of insurance is certainly attractive butmuch of the population might not be accessible for the new insurers. Indian insurance companies shouldbroaden their distribution network. Regulators must formulate strong, fair and transparent guidelinesand make sure that old and new players are subject to the same standards. This would trust in the sector and would ultimately increase the investment in the field.