The history
and evolution of the Indian general insurance market have been
discussed in detail in Unit
1. It is generally regarded that the market evolved into a fairly modern from by the middle of the 1930s . During this period the Indian market
came out of its adolescence and started
addressing problems similar to those faced by the more markets . We have
seen that the combined offers of the market and the Government lead to the
enactment of the insurance act,
1938., In the early 1990s
the need for further changes in the insurance market was voiced by a various segment in both the national and international market. The consequent changes and the succession of events that has
formed the market the way it is today are discussed here. The insurance companies were
widely criticized for
inefficiencies arising out
overstaffing , governmental
interferences in management ,
lack of the freedom in decision making,
waning company, loyalty as well as
deficiencies in the system, which could
neither provide enough
motivation for meritorious
employees, nor effectively penalize
employees for non-performances or
lethargy. Professionalism in the
industry started declining and the industry’s growth
rate got largely limited to the
rates of inflation and the returns the companies
could earn by the investing their
surplus funds. With market
penetration becoming static,
the insurers were criticized as indifferent to the country’s needs
and the Government was criticized for it
is this a being over-protective of the
nationalized industry by not
allowing competition from private players.
THE MALHOTRA
COMMITTEE REPORT ON INSURANCE REFORMS
1994, : The central Government responded to the situation by setting up a high-power committee on re forms
in insurance sector on April 7,
1993, headed by R. N. Malhotra, former
Governor Reserve Bank of
India., To examine the reforms required in the insurance sector, This committee is popularly
referred to as the Malhotra
committee. The committee interacted
with the insurance companies their staff unions, various chambers
of commerce trade bodies and a cross sections of the country’s public, and a made a detailed
analysis of the present Indian insurance industry . It also visualized the shape of things to come in the future
.and put forward its recommendations for
the insurance industry on January 7,
1994, . The Malhotra committee’s report recommended that both life and non life insurance sectors should be a
gradually opened for the private
participation and
recommended entry to foreign companies
through joint ventures established
in India with Indian partners. The Committee prescribed
a minimum paid-up capital for new insurers as not less than Rs. 100 crores . Which would
be backed by the well-defined solvency standards., This Committee
recommended that the regulatory apparatus should be activated even in the present set up of the nationalized insurance sector and amongst others
things recommended the
established of a strong and effective
Insurance Regulatory Authority, (IRA)
in the form of a statutory autonomous
board on the lines of Securities
and Exchange Board of India
(SEBI) . By way of detail the Committee
recommended retention of all major tariff for some period
of time, and progressive, liberalization.,
The recommended of the Malhotra committee were discussed across the country at different
forums , including the management of the life insurance corporation the General insurance corporations, it's
a subsidiary companies
trade unions, chambers of
commerce and various consumer
interest groups . The Consultative committee
of the Parliament and the
ministry of finance also held discussions of the Report the committee on Reforms
in sector with the various
stakeholders in the market .
After prolonged deliberations , the
government accepted the Committee’s recommended to set up an autonomous interim insurance Regulatory Authority
(IRA). THE (INTERIM) INSURANCE
REGULATORY AUTHORITY , 1996: In his
1995, Budget speech the Finance
Minister announced the Governments views on the subject as follows an intern insurance regulatory Authority (IRA) was
formed accordingly on January 23. 1996, by a Government resolution , pending the
enactment of comprehensive legislation, which would take time. The IRA
came into the existence with Mr. N. Rangachari as its full time Chairman, two part time member and a
skeletal secretariat, The
IRA through seminars, discussions and press
releases made an attempt to
create awareness about the modern trends in insurance among various
segments of the insured,
However it did not have sufficient legislative power to brings about any significant change to the insurance industry . Though the Government had vested the powers of the Controller of insurance with the Chairman of the IRA, no serious change could be made in the working of the government owned public sector insurer’s Then the Finance Minister in his budget speech of July ,1996, announced that in keeping with the trend of liberalization the non-statutory insurance Regulatory Authority would be a made statutory and suitably empowered so that it would have been sufficient teeth to play an effective regulatory role. In the Statement of object and Reasons, necessitating the submission of the insurance Regulatory Authority Bill to the parliament in December , 1996, in the Finance Minister observed that the insurance industry required a high degree or regulations . He pointed out that the insurance Act 1938, provides for the institution of the Controller of insurance to act as a strong and powerful supervisory and regulatory authority with powers to direct advise cautions prohibit , investigation inspect, prosecute , search, seize fine, amalgamate , register and regulate insurance companies . It was also conceded that the Government was seized of the fact that after the nationalizations of the Life Insurance industry in 1956, and the General insurance Industry in 1972. The role of the controller of insurance had gradually diminished in it's a significance.
However it did not have sufficient legislative power to brings about any significant change to the insurance industry . Though the Government had vested the powers of the Controller of insurance with the Chairman of the IRA, no serious change could be made in the working of the government owned public sector insurer’s Then the Finance Minister in his budget speech of July ,1996, announced that in keeping with the trend of liberalization the non-statutory insurance Regulatory Authority would be a made statutory and suitably empowered so that it would have been sufficient teeth to play an effective regulatory role. In the Statement of object and Reasons, necessitating the submission of the insurance Regulatory Authority Bill to the parliament in December , 1996, in the Finance Minister observed that the insurance industry required a high degree or regulations . He pointed out that the insurance Act 1938, provides for the institution of the Controller of insurance to act as a strong and powerful supervisory and regulatory authority with powers to direct advise cautions prohibit , investigation inspect, prosecute , search, seize fine, amalgamate , register and regulate insurance companies . It was also conceded that the Government was seized of the fact that after the nationalizations of the Life Insurance industry in 1956, and the General insurance Industry in 1972. The role of the controller of insurance had gradually diminished in it's a significance.
The insurance regulatory
Authority Bill was a submitted to the Parliament in by the December 1996,
but had to be withdrawn to incorporate certain changes
suggested by the member of parliament In 1997, when it was shelved
once against due to opposition from some quarters . In 1997, the Bill was
presented a third time by the new Government. The house felt
that Bill needed to be studied by multi party parliament
Committee under Mr. Murli Deora., Then
M. P. This committee made fresh
changes to the bill and the same was a
subsequently cleared by the Council of Ministers . The revised bill termed as the Insurance Regulatory and Development Authority Bill was
accordingly submitted to the
parliament for it's a consideration.