Life Insurance Marketing in India (C) The Changing Product & Pricing Norms

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BACKGROUND NOTE

The life insurance industry in India dates back to 1818, when a British firm Oriental Life Insurance Company opened its office in Kolkata, followed by the ‘Bombay Life Assurance Company'in 1823. During the British rule in India, the Indian Life Assurance Companies Act was passed in 1912, which was followed by the Indian Insurance Companies Act, 1928, enabling the government to collect the data regarding life and non-life business conducted by both Indian and foreign insurance companies. The 1928 Act was amended and a new act, ‘Insurance Act'was formed in 1938.

In 1972, the government of India took over the management of 106 private general insurance companies and set up the General Insurance Corporation (GIC). Over the next few years, LIC expanded its network to all parts of the country and emerged as one of the largest corporations in India.

The growth of the Indian insurance industry was minimal in the 1960s and 1970s due to factors like low savings, low investment, inadequate infrastructure, and low literacy level. However, changes in the country's economy in 1980s, such as growth of industrialization, infrastructure, the capital markets, savings rate and capital formation resulted in tremendous growth in the life insurance industry, which meant the growth of LIC. Eventually, LIC launched several schemes aimed at reaching out to the rural areas. The company launched many group insurance and social security schemes. LIC had seven zonal offices, 100 divisional offices, 2,048 branch offices and about 6,28,031 agents.

In the early 1990s, it was felt that the insurance industry needs to be reformed in order to provide better coverage to the customers and to increase the inflow of long-term financial resources to finance the enhancement of infrastructure. In 1993, the Indian government set up the Malhotra Committee to suggest reforms in the industry. The Committee submitted its report in 1994, with suggestions like opening the insurance sector to private players, improving service standards and extending insurance coverage to larger sections of the population.

The Committee's suggestions were strongly opposed by various labor unions and political parties in the country. They opined that the entry of private players would lead to job cuts by the nationalized players in order to compete with them. There were a host of other arguments against the Malhotra Committee's suggestions. The government tried to deal them by restricting foreign stake in insurance companies to only 26%, which was well below the 51% that was needed for managing the company in the Insurance Bill.

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