Liberalisation of Insurance in India

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For 43 long years the government-owned Life Insurance Corporation of India (LIC) held a monopoly. It is only at the dawn of the twenty-first century that the sector was finally deregulated. Reforms were initiated with the passage of the Insurance Regulatory and Development Authority Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has regulated the opening up of the insurance sector, which has seen in total 23 life and 24 non-life private companies are operating in India.   In India, the decision to liberalize was not easily implemented since there was resistance to privatization. After all, this would mean:   1. Ending the government monopoly on mobilizing large-scale funds;   2. LIC, a successful life insurance company, would face the heat;   3. The foreign insurance companies would come marching in.

That was not all. There were other concerns too. Would new market entrants hire away all the best employees of LIC? Would the world-renowned foreign insurers that would enter the market lure current and future Indian policyholders? How would the citizens of India benefit from liberalization? What would be the impact on India’s capital markets?   These and many other questions were debated for several years until 1999. The first private insurance companies began operations in 2001.

The outcome of Liberalization
  Opening up the sector has transformed the landscape. The Indian regulator has done a commendable job in liberalizing the market and putting in place rules of the game to effectively monitor the entry and progress of the new entrants.   Domestic liberalization and introducing the monopoly providers to competition has been a part of this story. The positive change brought by deregulation is inestimable. Even so, some benefits are immediately apparent:   1. Real life insurance: Historically, life insurance has been sold in India as an investment tool. Attracted by the prospect of reasonable returns and tax savings, people put away some money into life insurance. Protection against risk – which represents the true value of life insurance – did not quite enter the frame. Until the entry of private life insurance companies. For instance, Max New York Life introduced the Whole Life product in the Indian marketplace in the belief that a good life insurance product offers the right balance between protection and savings.   2. Product range: The basket of products available to the customer has grown in the deregulated environment that permits the introduction of the product.   3. Comprehensive risk coverage: Deregulation has enabled people in India to cover a larger variety of risks. Earlier people had no option but to buy prepackaged life insurance products, which lacked flexibility. Customization, however, has been one of the key advantages of privatization. Riders have added value to the customer’s life insurance needs. Max New York Life was the first company to offer base products and riders.   4. Customization: In earlier days, customers could only buy limited prepackaged products pushed by agents chasing quick sales. Today customers have access to more and better products that suit their specific needs and a new breed of insurance advisors has taken birth. These agent advisors build enduring relationships with their clients and help them better understand the value of life insurance and sell customized solutions in a needs-based manner. This higher quality of sales interaction has been among the key benefits of privatization.   5. Market awareness: The money that private life insurance companies have spent on establishing their brands has helped create awareness about life insurance. Today life insurance brands compete with other financial services and manufacturing brands for marketing space.

  Rapid progress

  In most other markets that opened their economies, new entrants in life insurance have taken 10 to 12 years to secure a market share of 10 per...
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