Insurance Sector Reforms in India

Insurance is useful in protecting the people from sudden loss and uncertainty. It also contributes to the growth of the economy of the country by providing stability to the running of the economy as a whole.

Life Insurance Corporation (LIC) was established by an Act of Parliament, called LIC Act, 1956. It was started with an initial investment of Rs. 5 crore from the Government of India. There was establishment of an autonomous body named Insurance Regulatory and Development Authority (IRDA) in Hyderabad through an Act called IRDA Act, 1999.

It gives licenses to the insurers and the insurance intermediaries, deals with the concerns of the policy holders, supervises the financial and regulatory activities and at the same time controls the premium rates.

Uses of Insurance

• Insurance has great impact on the economy by mobilizing savings and then converting that capital so formed into productive investments. It encourages people of the country to develop a habit of saving money.
  
  
• It generates employment in the sector itself as well as in other sectors by providing big investments which are helpful in growth of the industries. At the same time, when there are accidents in the industries, insurance comes to the rescue of the organization to cover up losses.
  
  
• A medical insurance is helpful in managing health risks and vehicle insurance is helpful when the vehicle is got involved in an accident.

Malhotra Committee on Insurance Sector Reforms

A committee headed by R.N. Malhotra, the former governor of Reserve Bank of India, suggested the most important reforms in insurance sector. The recommendations are

• Monopoly status of LIC and General Insurance Corporation (GIC) is to be ended. Private sector is to be allowed to enter into the Insurance sector.
  
  
• Government shareholding in LIC and GIC is to be reduced to 50%.
  
  
• All the insurance companies are to be treated on equal terms with each other with regards to regulation.
  
  
• LIC is to be converted into a company from its current statutory corporation position.
  
  
• LIC needs to review its product pricing to improve returns to the policyholders and to rationalize the premium.
  
  
• GIC needs to be ceased as a holding company for its four subsidiary companies.
  
  
• There should be commencement of Postal life insurance to transact the life insurance business in rural areas.