Insurance Sector

It is a kind of 'risk spreading'. and solves two purpose

• a safety/security for the individual
• acts as financial intermediary

Insurance policies are purchased at fixed premiums.

Life Insurance

Non-life general Insurance (health, micro insurance etc.)

Reinsurance

Specialized Insurance

Insurance Penetration = Premium underwritten/GDP (2.3% in 2000 to 4%)

Insurance Density = Premium underwritten/Total population

Development of Insurance Industry in India
1956 : Life insurance sector was nationalized and LIC was set up. LIC had been the biggest investor for public sector (Govt and PSUs, recently even for Railways)
1971 : General insurance sector was nationalized. GIC started operation with 4 holding companies.
1993 : Insurance Reforms Committee under ex-RBI Governor RN Malhotra
1994 : Malhotra committee recommendations

• Decontrolling of the sector -> IRDA act, 1999
• restructuring of GIC -> in 2000
• restructuring Tariff Authority Committee
• setting up a regulatory authority -> IRDA in 2000

1999 : Year of Insurance reforms
2000 : GIC was reconstituted as the sole reinsurer
2002 : GIC is no longer the holding company for the four. They are directly owned by GoI.

Challenges ahead for the sector

Major issues plaguing the sector

Govt. Policy initiatives

Bancassurance
Banks as agents to sell insurance policies
3 business models are here
2000 : this model came into existence in India after GoI and RBI permitted

The Insurance Bill

Finally passed in Mar 2015, while the initial bill was introduced in 2008

Salient Features

• FDI cap to increase from 26% to 49%
• IRDA to have more powers
• to levy higher penalty on violation of laws 
• impose a ceiling on expense management 
• fix remuneration for agents (commission)
• A policy can be called to question within 3 years on misstatement of facts
• no rejection of claims after 3 years
• ambit of health insurance got increased
• foreign insurers cannot issue policy in India without prior IRDA permission, even in SEZs

Benefits

1. more coverage / distribution points
2. simpler products
3. more transparency in features
4. less dependance on agents
5. 26% to 49%
1. more variety in products
2. more professionalism
6. flexibility in paying premiums through installments
7. faster claim settlement
8. bring credibility to the sector globally
9. simplification of norms for expansion of reinsurance sector
10. issues
1. in cases of M&A, bill proposes to curb regulator's power

http://www.livemint.com/Home-Page/thCYUdcyPVbDUPU3cDSbCJ/Theres-more-to-the-insurance-Bill-than-just-hike-in-FDI.html?utm_source=copy

http://www.business-standard.com/article/pf/7-benefits-if-insurance-bill-is-passed-114102600673_1.html

http://mrunal.org/2014/01/banking-bancassurance-compulsory-broker-model-irda-vs-banks-issue-benefits-challanges-insurance-penetration-financial-inclusion-nachiket-committee.html

Further Reading
1. Ramesh Singh

2. NIOS Material
3. Hindu Article