International Journal of Law

www.lawjournals.org
ISSN: 2455-2194
Received: 16-02-2024, Accepted: 10-03-2024, Published: 02-04-2024
Volume 10, Issue 2, 2024, Page No. 98-100

History of insurance and development of insurance in India

Kumarappan M
School of Law, Sastra University, Tanjore, Tamil Nadu, India

Abstract
The history of insurance in India reflects a dynamic interplay of economic, legislative, and social factors, shaping the sector's
evolution from ancient times to the present day. This paper traces the journey of insurance in India, highlighting key
milestones such as legislative acts, nationalization, and privatization. It explores the impact of these developments on the
industry's growth, stability, and role in the economy. Through a historical lens, this study provides insights into the challenges
and opportunities that have shaped the insurance landscape in India, ultimately underscoring its significance as a tool for risk
management and financial protection.

Keywords: Insurance, India, history, legislative acts, nationalization, privatization, regulatory authority, economic
development, risk management, financial security

Introduction 1. A contract between an ‘insurer’ and the ‘insured’; -

Insurance is of primary importance both in the national Competency
economy and international trade. Insurance premium cash- 2. The contract is based on the loss due to happening or
flows generate funds for investment in the economy. not happening of a future incident;
The development of the insurance sector depends on the 3. A consideration in the form of payment of an amount
general level of economic development and prospects for by the insured and
the immediate future. 4. The insurer promises to make good the loss in so far
Hypothetically, there is a positive correlation between the money can do it, in case the loss occurs on the
economic development of a country and the amount which happening of the contingency.
people spend on insurance - contractual, financial and other
legal aspects of insurance. History
Insurance is a contractual relation between insurer and the In India insurance was mentioned in the writings of Manu
insured through which the former undertakes to indemnify (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya
the loss caused to the latter due to an uncertain risk involved (Arthashastra), which examined the pooling of resources for
or to pay a certain sum of money in the event of an incident redistribution after fire, floods, epidemics and famine.
happening or not happening, against a consideration called Trading through sea waters and marine trade loans –
as premium. Historical aspects.
The life-insurance business began in 1818 with the
Definition establishment of the Oriental Life Insurance Company in
Economist say ‘It is a process whereby the risk of financial Calcutta; the company failed in 1834. In 1829, Madras
loss arising from death or disability of a person or damage, Equitable began conducting life insurance business in the
deterioration, destruction or loss of property owing to perils Madras Presidency.
of which they are exposed, is assumed by another’. The British Insurance Act was enacted in 1870, and
Henceforth, Insurance is a tool of risk management to cover Bombay Mutual (1871), and Empire of India (1897) were
the uncertainties – the risk of loss of assets or human life. founded in the Bombay Presidency. The era was dominated
Individuals purchase such policies either in their individual by British companies.
capacity or the employee friendly organizations may extend
such covers as the perks of employment. Jurisprudential Regime
According to Maclean ‘Insurance is a method of spreading In 1914, the government of India began publishing
over a large number of persons a possible financial loss too insurance-company returns. The Indian Life Assurance
serious to be conveniently borne by an individual’ Companies Act, 1912 was the first statute regulating life
In the words of Riegel & Miller ‘It serves social purpose; it insurance. In 1928 the Indian Insurance Companies Act was
is a social device whereby uncertain risks of individuals enacted to enable the government to collect statistical
may be combined in a group and thus made more certain; information about life and non-life-insurance business
small periodic contribution by the individuals providing a conducted in India by Indian and foreign insurers, including
fund out of which those who suffer losses may be Provident Insurance Societies. In 1938 the legislation was
reimbursed’ consolidated and amended by the Insurance Act, 1938, with
comprehensive provisions to control the activities of
Valid Contract insurers.
Generally, an insurance agreement to be a valid contract The Insurance Amendment Act of 1950 abolished principal
must be agencies, but the level of competition was high and there

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were allegations of unfair trade practices. The Government

of India decided to nationalize the insurance industry.
An ordinance was issued on 19 January
1956, nationalizingthe life-insurance sector, and the Life
Insurance Corporation was established that year. The LIC
absorbed 154 Indian and 16 non-Indian insurers and 75
Provident Societies. The LIC had a monopoly until the late
1990s, when the insurance industry was reopened to the
private sector.
General insurance in India began during the Industrial
Revolution in the West and the growth of sea-faring
commerce during the 17th century. It arrived as a legacy of
British occupation, with its roots in the 1850 establishment
of the Triton Insurance Company in Calcutta. In 1907 the
Indian Mercantile Insurance was established, the first
company to underwrite all classes of general insurance. In
1957 the General Insurance Council (a wing of the
Insurance Association of India) was formed, framing a code
of conduct for fairness and sound business practice.
General Insurance Business (Nationalisation) Act, 1976.
Eleven years later, the Insurance Act was amended to
regulate investments and set minimum solvency margins
and the Tariff Advisory Committee was established. In
1972, with the passage of the General Insurance Business
(Nationalization) Act, the insurance industry
was nationalizedon 1 January 1973. One hundred seven
insurers were amalgamated and grouped into four
companies: National Insurance Company, New India
Assurance Company, Oriental Insurance Company and
United India Insurance Company. The General Insurance
Corporation of India was incorporated in 1971, effective
from 1 January 1973.
The re-opening of the insurance sector began during the
early 1990s. In 1993, the government set up a committee
chaired by former Reserve Bank of India governor R. N.
Malhotra to propose recommendations for insurance reform
complementing those initiated in the financial sector.
The committee submitted its report in 1994, recommending
that the private sector be permitted to enter the insurance
industry. Foreign companies should enter by floating Indian
companies, preferably as joint ventures with Indian partners.
Following the recommendations of the Malhotra
Committee, in 1999 the Insurance Regulatory and
Development Authority (IRDA) was constituted to regulate
and develop the insurance industry and was incorporated in
April 2000.
Objectives of the IRDA include promoting competition, to
enhance customer satisfaction with increased consumer
choice and lower premiums while ensuring the financial
security of the insurance market. Chart 1: Flow chart of History of insurance
The IRDA opened up the market in August 2000 with an
invitation for registration applications; foreign companies History of insurance in India
were allowed ownership up to 26 percent. Period of Mushroom growth (1900-1912)
The authority, with the power to frame regulations under Period of struggle & steady growth (1913-1938)
Section 114A of the Insurance Act, 1938, has 7 framed Period of stability & Consolidation (1938-1950)
regulations ranging from company registrations to the Period of Boom & Nationalization (1950- up to date)
protection of interests of policy-holders, since 2000. Era of Privatization (1991 onwards)

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Mushroom Growth 1972. General insurance corporation was formed with four
Period of Mushroom growth (1900-1912) – during this subsidiaries.
period there was a mushroom growth of Indian companies
and this was mainly due to the swadeshi movement which Era of Privatization
prompted the boycott of British goods, British institutions Era of Privatization (1991 onwards) – insurance sector open
and everything British. to private entities on the recommendations of Malhotra
The indiscriminate mushroom growth of insurance Committee. Both public and private companies played
companies led to the appearance of some evil which had to important roles simultaneously. Growth of more private
be checked by passing Indian Life Assurance Act, 1912. For entities has led to the passing of Insurance Regulatory and
the first time publishing of returns of life insurance began Development Authority Act, 1999 to control and regulate
from 1914. insurance sector in India

Struggle & Steady Growth Conclusion

Period of struggle & steady growth (1913-1938) – the The evolution of the insurance sector in India has been a
period between two world wars. The indigenous companies journey marked by significant milestones, from its early
had to pass through tough time. Sudden growth of roots in ancient texts to the modern era of privatization.
companies due to impetus given by swadeshi movement Through various legislative acts and regulatory bodies like
brought with it evil of accumulation of wealth and the Insurance Regulatory and Development Authority
inexperience in business. (IRDA), the industry has witnessed phases of mushroom
This has led to economic slump, business had to struggle for growth, struggle, stability, nationalization, and finally,
its growth. Many small offices had to be wound up and few privatization. The nationalization of both life and general
that survived had to face the competition of many insurance sectors in the mid-20th century paved the way for
flourishing foreign offices. a period of boom, characterized by the infusion of capital
Government was compelled to protect the interest of Indian into developmental plans. Subsequently, the era of
insurance business and hence in 1934 Sri SC Sen was privatization since the early 1990s has fostered competition,
appointed as special officer to investigate and report on innovation, and increased consumer choice, under the
reform of insurance law in India. watchful eye of regulatory authorities. Today, the insurance
In 1936 a committee under chairmanship of Sri NN Sircar sector in India stands as a vital component of the nation's
was appointed to examine the report of special officer, economic landscape offeringindividuals and businesses
which led to the passing of Insurance Act, 1938 which alike a tool for risk management and financial security.
provides for uniform control by government over all
insurers. Foreign offices discontinued their business in References
India. 1. India Kanoon (India kanoon.org)
2. Legal services India (legal services india.in)
Stability and Consolidation 3. Casemine(casemine.in)
Period of stability & Consolidation (1938-1950) – being 4. Live law (live law.in)
free from foreign competition Indian offices gained 5. SCC online (SCC online.in)
stability. After second world war swadeshi movement
gained strength and national spirit increased. Large amounts
of capital were available with them for investment in the
developing industries.
In 1945 Cowasji Jehangir committee condemned
the malinvestment by insurance companies, this led to
regulation of investment and Insurance Act 1938 had to be
amended several times. Partition of the country had made
situation worse. Sri SR Ranganathan committee reviewed
the entire insurance law and based on this report amendment
of 1950 was carried out which made far reaching changes to
make insurance institutions more useful for the country’s
economic growth.

Boom & Nationalization

Period of Boom & Nationalization (1950- up to date) – by
Five-Year Plans India has grown from agrarian society to
industrialised society. Confidence in domestic companies
increased. All this contributed to a boom in insurance
business.
Huge amount of capital was available with insurers and
government found in handy to utilise these funds for its
developmental plans and also to ensure the investing public,
a better security. Later in 1956 Life Insurance Act, 1956
was passed nationalising life insurance business in India.
Further in 1972 the General insurance was nationalised by
passing of General Insurance (Emergency Provisions) Act,

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