The Insurance sector in India has 57 Insurance companies currently that hold a significant amount to the country’s economy and business sectors. India has seen numerous reforms till now in the Insurance Industry, and it has developed the Insurance Sector to a whole another level. From 1818 when the first Insurance company was established in Calcutta, namely Oriental Life Insurance Company, to these recent developments, the Insurance sector in India has come a long way. Let’s dive deep into the details and advantages of these reforms received by the Insurance Sector in India.

Insurance Sector

The insurance sector of India comprises 57 insurance companies, out of which 24 companies provide Life insurance while 34 are non-life insurance companies. The overall market size of the insurance sector in India is estimated to be around 280 billion dollars by 2020. Talking about the life insurance industry, it is expected to meet an increment of 5.3% between 2019 and 2020, whereas India’s insurance penetration counted at 4.2 % in the financial year 2021. Life insurance penetration stands at 3.2 percent, whereas life insurance accounts for 1.0 percent. 

Reforms in Insurance Sector in India

IRDAI, India’s insurance regulatory and development authority, has been involved in bringing several reforms in the Insurance Sector to set its volume with the Insurance laws Act passed by the Indian Parliament recently. It brought significant reforms to the Insurance sector that impacted the customers. 

Here is a detailed guide to the reforms in the Insurance sector in India and their respective impacts and benefits on the policyholders:

Bank Assurance 

  • Indian banks acted as corporate agents for one standalone, one non-life, and one life health insurer
  • They are now bound to tie up with more than one insurer per segment 
  • This would have a direct impact on customers as banks will no longer push and focus on one insurer products
  • This provides the customer with many policies to select from, and banks will have to stand liable for each product they sell

Mutual Service Centres 

  • For rural areas, many small micro-offices opened by insurers were the only source of insurance apart from banks’ branches
  • Common Service Centres are now started to sell insurance to buyers
  • Easy to understand insurance products are being sold at more than 10,00,000 common service centres in India 
  • Easy renewals and claims to be handled in these common service centres 

Agent Remuneration

  • A significant and crucial amount from the first year premium is used to pay agents for their commissions
  • India’s Insurance Regulatory and development authority brought significant regulations to ensure the commissions should not be concentrated for the first year
  • First year premiums may hold down for policyholders as there is a wide commission structure

E- Insurance 

  • The new and updated insurance act discussed and enlightened the electronic insurance offering
  • Digitised policies are being implemented, resulting in less cost to the end customers
  • Customers have been relieved from the fear of claim rejection due to the loss of documents related to the policy with this new digitised policy reform
  • It has relived the customers from the additional KYC requirements with this new e-insurance 

Rejection of claims 

  • With this reform in the Insurance sector, companies are bound to accept the claim with no rejection policy after three years of completion of the policy
  • At the time of policy, Insurers will be more stringent 
  • Companies are bound not to question the policy holder’s claim on any ground 
  • As numerous fraudulent materials try to get fake claims, this may help as such instances may increase the risk of a premium rise in specific segments 

Insurance sector reforms in India after 1991

The insurance sector reforms in India after 1991 came from the Malhotra committee, which was headed by former finance secretary R N Malhotra who was also a former RBI governor. The objective of this reform was to create a competitive and better financial system with the motive of having a government stake of 50% in insurance companies. This reform also stated that private companies have to pay 1 billion to enter the insurance sector, and no company can deal in both life and general insurance. It also suggested that the insurance act needs to be changed, and an insurance regulatory body must be set up to summation the insurance sector in India. It suggested that mandatory investments of LIC life fund should be reduced to 50% in government securities. It also suggested that GIC and its subsidiaries cannot hold more than 5% in insurance companies. 

Conclusion 

The insurance sector used to be a weak sector with many flaws and loopholes that led to several fraudulent activities, which directly affected the policyholders as they were the ones to suffer if someone tried to claim their premium fraudulently. There were many such issues like less competition as the existing players used to outrun every other competitor. This resulted in expensive policies as there were no choices to choose. The agents and other commissions made this insurance process an expensive one. This article has discussed the reforms and how they have benefited people.