The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British.

Some of the important milestones in the general insurance business in India are:

• 1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all classes of general insurance business.
• 1957: General Insurance Council, a wing of the Insurance Association of India, frames a code of conduct for ensuring fair conduct and sound business practices.
• 1968: The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up.
• 1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973.
• 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

Insurance sector reforms:

In 1993, Malhotra Committee headed by former Finance Secretary and RBI Governor R.N. Malhotra was formed to evaluate the Indian insurance industry and recommend its future direction.

The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognizing that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms…"

In 1994, the committee submitted the report and some of the key recommendations included:

1) Structure

• Government stake in the insurance Companies to be brought down to 50%.
• Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.
• All the insurance companies should be given greater freedom to operate.

2) Competition

• Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry.
• No Company should deal in both Life and General Insurance through a single entity.
• Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
• Postal Life Insurance should be allowed to operate in the rural market.
• Only One State Level Life Insurance Company should be allowed to operate in each state.

3) Regulatory Body

• The Insurance Act should be changed.
• An Insurance Regulatory body should be set up.
• Controller of Insurance (Currently a part from the Finance Ministry) should be made independent.

4) Investments

• Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%.
• GIC and its subsidiaries are not to hold more than 5% in any company (There current holdings to be brought down to this level over a period of time).

5) Customer Service

• LIC should pay interest on delays in payments beyond 30 days.
• Insurance companies must be encouraged to set up unit linked pension plans.
• Computerisation of operations and updating of technology to be carried out in the insurance industry The committee emphasized that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition.

But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry. Hence, it was decided to allow competition in a limited way by stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to provide greater autonomy to insurance companies in order to improve their performance and enable them to act as independent companies with economic motives. For this purpose, it had proposed setting up an independent regulatory body.

MAJOR POLICY CHANGES

Insurance sector has been opened up for competition from Indian private insurance companies with the enactment of Insurance Regulatory and Development Authority Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory and Development Authority (IRDA) was established on 19th April 2000 to protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry. IRDA Act 1999 paved the way for the entry of private players into the insurance market which was hitherto the exclusive privilege of public sector insurance companies/ corporations. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with the following conditions:

• Company is formed and registered under the Companies Act, 1956;
• The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company;
• The company's sole purpose is to carry on life insurance business or general insurance business or reinsurance business.
• The minimum paid up equity capital for life or general insurance business is Rs.100 crores.
• The minimum paid up equity capital for carrying on reinsurance business has been prescribed as Rs.200 crores.

The Authority has notified 27 Regulations on various issues which include Registration of Insurers, Regulation on insurance agents, Solvency Margin, Re-insurance, Obligation of Insurers to Rural and Social sector, Investment and Accounting Procedure, Protection of policy holders' interest etc. Applications were invited by the Authority with effect from 15th August, 2000 for issue of the Certificate of Registration to both life and non-life insurers. The Authority has its Head Quarter at Hyderabad.