Insurance Industry - LIC, GIC, AICIL

Insurance Industry

Insurance refers to a contract or policy by which an individual or any firm or entity receives protection from financial loss or from any other kind of damage. This insurance is provided either by an insurance company or by the state. It is basically a form of hedging and risk management system against uncertain loss.

The concept of insurance is not new to India and the idea of insurance can be found in the ancient texts of Manusmriti, Dharmashastra and Kautilya's Arthashastra. However, the beginning of the modern insurance industry in India can be traced back to 1818, when Oriental Life Insurance Company was established for providing life insurance services to the European community.

The first Indian insurer company was the Bombay Mutual Life Assurance Society, established in 1870. The Triton Insurance Company Limited established in 1850 was the first general insurance company in India. The National Insurance Company, established in 1906 is the oldest existing insurance company which is still in business in India. In 1912, the life insurance companies act, and the provident fund Act was enacted for the regulation and control of the insurance sector in India.

At present, the only public sector company which provides life insurance cover in India is the Life Insurance Corporation of India (LIC). At present, there are around 52 insurance companies in India out of which 24 are in the life insurance business and other are doing business in the non life Insurance sector.

Life Insurance Corporation of India (LIC)

  • LIC was established in 1956 by an act of Parliament of India which nationalised the private insurance industry in India.
  • LIC was created by merging around 245 insurance companies and other provident societies.
  • The Life Insurance Corporation of India (LIC) handles the largest number of insurance policies in the world.

Reasons for the establishment of Life Insurance Corporation of India (LIC)

  • In 1955, a matter regarding the fraud by private insurance agencies was raised in the Parliament by Amol Barate. After the investigation on this issue, Ramkrishna Dalmia was imprisoned for 2 years. In 1956, Life Insurance Corporation of India came into existence.
  • The nationalization of life insurance Corporation of India was influenced by the industrial policy resolution of 1956, which emphasized on nationalization of important sectors of the economy.
  • The other important reason was to expand the social security services to all the sections of the society.
  • It also aimed to mobilize the savings of common people for investing it in the planned development of the nation.

Objectives of Life Insurance Corporation of India LIC

  • To spread the life insurance cover throughout the country especially in the rural areas with particular emphasis on socially and economically backward sections of the society. It aims to provide sufficient financial cover against death at appropriate costs.
  • To make insurance linked savings attractive for the people and to increase the mobilization of people s savings.
  • To fulfill the primary obligation towards policyholders at the same time keeping in mind the interest of the community as a whole along with fulfilling the responsibilities towards national priorities.
  • To meet the different life Insurance needs of people and community as a whole keeping in line with the changing social and economic environment of the country.
  • To act as the trustee of funds of the insured public at individual and collective capacities.
  • To promote a sense of participation, job satisfaction and pride among the employees of LIC through dedicated discharge of their duties for achieving the corporate objective.

Salient features of the Life Insurance Corporation of India (LIC)

  • The central office of LIC is at Mumbai and the seven other zonal offices are at Mumbai, Delhi, Chennai, Kolkata, Kanpur, Hyderabad and Bhopal. It has 100 divisional offices in the important cities and around 2048 branches all over the country.
  • LIC also operates in the international market with its offices at England, Mauritius, and Fiji etc.
  • The slogan of LIC in Sanskrit is Yogakshemam Vahamyaham which means your welfare is our responsibility .
  • LIC has greatly contributed through its investments in the five year plans. In the second five year plan (1956-1961) its contribution was rupees 184 crores which increased to 7,52,633 crores for (2012- 2015).
  • LIC commanded monopoly in the Indian Life Insurance sector and by 2006, it contributed around 7% of India's GDP. However, the Indian government started liberalization of Insurance sector after August 2000, and the monopoly of LIC in the life Insurance sector ended.
  • LIC subscribes to the shares, bonds, and debentures of several companies and corporations and provides them term loans. It acts as a downward stabilizer of the share market as due to the continuous flow of fresh funds it has the capability to buy shares even when the share market is comparatively weak.

General Insurance Corporation of India (GIC)

General Insurance refers to those insurance policies which do not come under the ambit of the life insurance sector. It includes the non life insurance sector such as fire, automobile and homeowners policies, accidents or loss from a financial event etc.

The General Insurance Corporation of India (GIC) is a state owned reinsurance company in India. The GIC had the monopoly in the reinsurance sector until the insurance market was opened for foreign direct investment in 2016 and foreign reinsurance players entered Indian market which included the companies from Germany, France, and Switzerland.

The evolution of general insurance can be traced back to the establishment of Triton insurance company limited in 1850 in Calcutta during the British Raj. In 1907, Indian Mercantile Insurance Limited was established as the first company to transact all the different classes of general insurance business in India. In 1957 the general insurance Council was formed to frame the code of conduct to ensure sound business practices and fair conduct in the general insurance sector in India. Later on, in 1968 the Insurance Act was amended for regulating the financial investments and for setting the minimum solvency margin. In 1972, the General Insurance Business (Nationalisation) Act was passed which nationalised the general insurance business in India.

Important features of the General Insurance Corporation (GIC)

  • The general insurance business (nationalisation) act GIBNA, 1972 nationalised 55 Indian insurance companies along with 52 other general insurance operations of other companies.
  • The General Insurance Corporation GIC was established as per section 9(1) of GIBNA act. The main objective of GIC was to control and operate the general insurance business in India.
  • The Government of India transferred the assets and operations of the nationalised general insurance companies to the General Insurance Corporation of India (GIC) and other state owned insurance companies. This was followed by a process of mergers and consolidations. The general insurance Corporation of India was reorganized and four operating companies which were fully owned subsidiaries of GIC came into existence namely,
    • National Insurance Company Limited (NICL)
    • New India Assurance Company Limited
    • Oriental Insurance Company Limited
    • United Insurance Company Limited
  • The GIC and its four subsidiaries enjoyed the monopoly in the general insurance business in India till the Insurance Regulatory and Development Authority (IRDA) Act, 1999 came into existence. The IRDA act came into effect on April 2000, which amended the insurance act, and GIBNA act and liberalized the insurance business in India. It ended the monopoly of GIC and its subsidiaries in the general insurance business in India.
  • In November 2000, the General Insurance Corporation of India (GIC) was declared as India's reinsurers, and it's supervisory role over its four subsidiaries came to an end.
  • The general insurance business (nationalisation) Amendment Act, 2002 which came into effect from March 2003 ended GIC s role as a holding company over its four subsidiaries and the ownership was transferred to the Government of India.
  • At present, GIC is the sole reinsurer in India and it is now known as GIC Re . The Indian insurance companies have to feed 5 % of their policy value to the GIC Re after 1st April 2013.
  • The vision of GIC Re is to be a leading Global reinsurer and risk solution provider .

Activities and performance of GIC

  • GIC has emerged as the leading reinsurer in SAARC countries, Middle East, Southeast Asia, Europe, America, and Africa. It is operating in 16 countries through its agencies and another 14 countries with the help of subsidiary and associate banks.
  • Some schemes of GIC such as personal account insurance, social security scheme, Crop Insurance Scheme etc are in operation for the benefit of poorer sections of the society.
  • A.M Best has given the financial strength rating of A- (excellent) and long-term issuer credit rating of a- to the GIC Re (India). Care has given the rating of AAA on 29th March 2018 to GIC.

Agriculture insurance company of India Limited (AICIL)

Agriculture insurance company of India Limited AICIL established on 20th December 2002 under the Companies Act 1956 is a government owned Crop Insurance Company which serves the needs of farmers. It is the largest crop insurer in the world in terms of the number of farmers served and provides crop Insurance schemes around 20 million farmers. It started its operation from first April 2003 and provides its services in around 500 districts of India. The company is headquartered out of New Delhi.

Objectives and vision of the AICIL

  • To provide financial stability to the farmers in rural India to accelerate the economic growth of the country.
  • To developed farmer friendly and rural oriented insurance schemes and products for all the agricultural and allied risks.
  • To provide a protective net over agricultural and allied activities from natural threats and risks.
  • To design and develop agricultural insurance products in a scientific manner with sound insurance principles for dealing with the diverse requirements of farmers.
  • To improve the delivery and service of agricultural insurance schemes for bringing the remotest and poorest farmers under the agricultural insurance cover in a cost effective manner.
  • To promote awareness about agricultural insurance schemes as the principal a risk mitigation tool.
  • To encourage the farmers for adopting scientific and progressive farming techniques, inputs, and higher technology.
  • One of its goals to stabilize farm income especially in the disaster years.

Salient features of the AICIL

  • AICIL started business operations from 1st April 2003 and it took over the responsibility to implement the National Insurance Scheme (NAIS) from the General Insurance Corporation of India (GIC).
  • AICIL was designated as the implementing agency of the country wide crop insurance program NAIS by the government.
  • AICIL as 17 regional offices across India in the state capitals.
  • AICIL is a public sector company in which the GIC holds 35% stake and the National bank for Agriculture and Rural Development (NABARD) the holds 30 % shares. The National Insurance Company Limited, Oriental Insurance Company Limited, United Insurance Company Limited and the New India Assurance Company Limited hold 8.75 % stake each.

Schemes offered by the AICIL

AICIL provides area based Crop Insurance schemes across the country. It provides insurance services to farmers based on the place where he/ she cultivates crops and what crop is cultivated. Different Crop Insurance schemes provided by AICIL are as follows:

  • Pradhan Mantri fasal Bima Yojana
  • Restructured weather based Crop Insurance Scheme
  • Unified package Insurance Scheme
  • National agriculture insurance
  • Biofuel tree/ plant insurance
  • Cardamom plant and yield insurance
  • Pulpwood tree insurance policy
  • Rainfall Insurance Scheme for coffee (RISC) 2011
  • Rubber plantation insurance
  • Varsha Bima / Rainfall insurance
  • Weather insurance (RABI)
  • Coconut farm Insurance Scheme

Future products to be provided by the AICIL

  • Sugarcane insurance
  • Tea insurance
  • Basmati rice insurance
  • Aromatic and medicinal plants insurance
  • Contract farming insurance

Shortcomings of the AICIL

  • The CAG report has mentioned that the central government and the state governments did not maintain the database of insured farmers. AICIL also did not maintain any comprehensive data of insured farmers under its schemes.
  • The CAG report mentions that two out of three farmers are not aware of the availability of Crop Insurance schemes.
  • The fund houses and banks have been responsible for delayed disbursements of the loan and insurance amount which has resulted in denying or delaying the insurance coverage to the farmers.
  • There was a lack of an effective mechanism for monitoring the implementation of the Crop insurance schemes.
  • AICIL failed to verify the claims of private insurance companies before releasing the funds.

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