Life Insurance Corporation of India: Future Prospects


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Case Details:

Case Code : BSTR110
Case Length : 26 Pages
Period : 1992 - 2002
Organization : Life Insurance Corporation of India
Pub Date : 2002
Teaching Note :Not Available
Countries : India
Industry : Insurance

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History

LIFE INSURANCE IN INDIA

The concept of life insurance came to India when two British insurance companies were established in the country - the Oriental Life Insurance Company (in Calcutta in 1818) and Bombay Life Assurance Company (in Bombay in 1823).

Over the next few decades, the life insurance business, which grew in an unregulated environment, concentrated on urban areas and catered primarily to the higher strata of society.

In 1912, the Indian Life Assurance Companies Act was passed to regulate the life insurance business.

Later, in 1928, the Indian Insurance Companies Act was enacted to enable the government to collect statistical information on both life and non-life insurance business transacted in India by Indian and foreign insurers, including provident insurance societies.

In 1938, the earlier legislation was consolidated and amended by the Insurance Act, 1938, to protect the interests of the insuring public. The Insurance Act of 1938 was amended in 1950, and brought about far-reaching changes in the insurance sector.

These included a statutory requirement of equity capital for companies carrying on life insurance business, a ceiling on share holdings in such companies, stricter control on investments, and submission of periodical returns relating to investments and other such information to the controller.

The controller could also call for the appointment of administrators and could put a ceiling on the expenses of management and agency commission for mismanaged companies. By 1956, there were 154 life insurance companies in India.

Malpractices and mismanagement had crept into the management of several of these companies. More than 50 private insurance companies had been liquidated or swindled the policyholders. There were complaints of different types of malpractices by many insurance companies.

These included falsification and denial of claims, and inter-locking of funds. To protect the public, the government nationalized the insurance industry. On January 19, 1956, the management of the life insurance business of 245 Indian and foreign insurers and provident insurance societies then operating in India were taken over by the central government.

The main objective of the nationalization of life insurance was to channel insurance funds for the benefit of the community at large...

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