The liberalization of the Indian insurance sector has been the subject of much heated debate for some years. The policy makers on one hand wanted competition, development and growth of insurance sector, which is extremely essential for channeling the investments in to the infrastructure sector. At the other end the policy makers had also the fear that the insurance premium, which are substantial, would seep out of the country; and thus in the nation's interest, they want to have a cautious approach of opening for foreign participation in this sector.
After a long discussion, confrences and fraction among some political parties, IRDA brought consensus among factions of ...view middle of the document...
Indian companies held a 60% market share even then. Yet, insufficient regulation also meant that there were a number of abuses.
LIC has just about 100 million policies. This works out to an average of 1.5 policies per individual. So, only 65 million people are policyholders in India. This translates into just six to seven per cent of the Indian population. This clearly shows the low penetration of insurance in India. Currently, it is very difficult to make changes in policies once they are bought. This has to change. Moreover, to make them attractive, insurance policies should be made more people-friendly by launching products such as equity-linked insurance. Such policies can offer higher returns to investors.
Business And Social Objectives
When LIC was formed in 1956 through the amalgamation of 225 private companies, its business objectives complemented its social objectives. The main objective is to spread life insurance to every nook and corner of the country especially rural areas, to socially and economically backward classes and provide them reasonably-priced financial cover against death.
Other objectives include encouraging people to save for the future by making insurance-linked savings more attractive and secure. The funds created are then utilized and invested for nation building. The insurance business is conducted with the full realization that LIC is only a trustee of the insured public and priority is given to meet the needs that arise due to change in the social and economic environments.
Even today after 50 years, the core value of social commitment has not changed. What have changed in recent times are customers' expectations and the environment in which the life insurance sector operates. This is due to globalization, which has opened up the insurance sector to private players.
The liberalization of the Indian insurance sector has been the subject of much debate for some years. The policy makers were in Dilemma. As some of the them wanted competition, development and growth of insurance sector which is extremely essential for channeling the investments in to the infrastructure sector. On the other end, others had the fears that the insurance premium, which are substantial, would move out of the country, and wanted to have a cautious approach of opening for foreign participation in the sector. Some have opinion that large scale of operations; public sector bureaucracies and cumbersome procedures hampers nationalized insurers. Therefore, potential private entrants are given entry in this area so the consumer will gain high customer service, speed and flexibility. They point out that their entry will mean better products and choice for the consumer. The critics counter that the benefit will be slim, because new players will concentrate on affluent, urban customers as foreign banks did until recently.
As one of the rare occurrences the entire debate was put on the back burner and the IRDA succeed in making...