Liberalisation of Insurance in India

For 43 long years the government-owned Life Insurance Corporation of India (LIC) held a monopoly. It is only at the dawn of the twenty-first century that the sector was finally deregulated. Reforms were initiated with the passage of the Insurance Regulatory and Development Authority Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has regulated the opening up of the insurance sector, which has seen in total 23 life and 24 non-life private companies are operating in India. In India, the decision to liberalize was not easily implemented since there was resistance to privatization. After all, this would mean: 1. Ending the government monopoly on mobilizing large-scale funds; 2. LIC, a successful life insurance company, would face the heat; 3. The foreign insurance companies would come marching in.

That was not all. There were other concerns too. Would new market entrants hire away all the best employees of LIC? Would the world-renowned foreign insurers that would enter the market lure current and future Indian policyholders? How would the citizens of India benefit from liberalization? What would be the impact on India’s capital markets? These and many other questions were debated for several years until 1999. The first private insurance companies began operations in 2001.

The outcome of Liberalization Opening up the sector has transformed the landscape. The Indian regulator has done a commendable job in liberalizing the market and putting in place rules of the game to effectively monitor the entry and progress of the new entrants. Domestic liberalization and introducing the monopoly providers to competition has been a part of this story. The positive change brought by deregulation is inestimable. Even so, some benefits are immediately apparent: 1. Real life insurance: Historically, life insurance has been sold in India as an investment tool. Attracted by the prospect of reasonable