Liberalization of the Insurance Sector in India

By the government of India the rules or laws that are relaxed and liberalized, refer to liberalization. Liberalization means removing all unnecessary government restrictions and control for industries and any business firms. Removal of subsidies, tariffs, and restrictions that are on the flow of commodities and services between different countries are included in liberalization.

Liberalization of the insurance sector in India

After observing the weaknesses of the insurance sector, the Indian Government thought of the Liberalization of the insurance sector in India. There were several economic reforms performed by the Government of India in the year 1991 because of the economic crisis that was facing India. Among the economic reforms, the main reforms were done in banking sectors, along with public banks; private banks were also started performing in India similarly there were capital market reforms. As these sectors perform well, the government wanted the same growth and success for the insurance companies. Keeping in view the prevailing short-comings of the insurance sectors Government of India set up a high powered committee under R.N. Malhotra, who was a former RBI governor at that time in 1994, was interested in the duty to examine the structure of the insurance industry and recommended changes for making it more efficient. Privatization of the insurance sector was recommended by the committee made i.e. the insurance company LIC was also said to be privatized by the Government of India but there were several strikes and protests against the privatization and was not accepted by the people, so the government decided for liberalization of insurance sectors in India. By setting up IRDA (Insurance Regulatory and Development Authority of India) Liberalization of the insurance sector in India occurred. In India IRDA is the regulator of the reinsurance and insurance industries, it is a statutory body. The main recommendation of the IRDA Act was the entrance of the private sector. For the economic growth of a country’s banking sector or insurance, the sector is the backbone of the country because to make a business survive the banking sector as well as for providing a risk-free environment the insurance sector is also very much necessary. In the case of the insurance sector, setting up of IRDA was done by the Malhotra Committee to keep the trust of the people in private insurance sectors; the IRDA act was passed in the year 1999 and came into effect in the year 2000. A maximum of 26% of foreign holding private players are allowed to do insurance business in India. After the Liberalization of the insurance sector in India, the insurance sector grew massively by exploring new markets and targeting unexploited segments of the population. So the liberalization of insurance sectors provided ample opportunities to both existing insurance companies like LIC, etc. as well as for the new companies. In the year 2000, the Indian government liberalized the insurance sector, but beyond the urban domains, it was not much expanded during that time. The insurance sectors today are the most developing sector of India. The capping of FDI increased to 49% in the year 2015 and later on in the year 2017 the reinsurance sector was also liberalized. The word reinsurance means when an insurance company insures its business – they cannot do insurance from a normal insurance company rather they go for a reinsurer. During fiscal 2018, gross premiums grew 11.5% to 6.1 lakh crore rupees bringing the 5-year CAGR to 11%. The Indian government liberalized the insurance sector because the government aims to make the insurance sector more active which enables the overall economic growth of a country in the post-liberalization period.

Features of Liberalization

• Except for five industries, the licensing of other industries has been abolished.
• The liberalization also occurred in export-import industries. 
• In insurance sectors, other financial sectors, and banking the measures based on liberalization have been adopted.
• Under monetary reforms by the Central banks, the policy that has been adopted is liberal monetary policy.
• Restrictions on the movement of goods from one country to the other have been abolished.

Conclusion

It is to conclude that the Indian government liberalized the insurance sector in the year 2000; this step for liberalization was performed by the Indian government aiming that the insurance industry could be more vibrant that should spread largely all over India and through this huge economic growth will occur in the country.