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History of Insurance Research Team | Posted On Saturday, February 21,2009, 04:34 PM

History of Insurance



5000 years ago, in China, insurance was seen as a defensive measure against piracy on the sea.  Piracy, in fact, was so common, that as a way of scattering the risk, a number of ships would carry a portion of another ship's cargo so that if one ship was captured, the entire shipment would not be lost.  

In another part of the world, nearly 4,500 years ago, in the ancient land of Babylonia, traders used to tolerate risk of the caravan trade by giving loans that had to be repaid later with interest when the goods arrived safely.  In 2100 BC, the Code of Hammurabi granted legal status for the practice.  It officially accepted the concepts of “bottomry” referring to vessel bottoms and “respondentia” referring to cargo. These provided the foundation for marine insurance contracts. Such contracts enclosed three elements such as:
·         A loan on the vessel, cargo, or freight
·         An interest rate
·         A surcharge to cover the possibility of loss. 
In outcome, ship owners were the insured and lenders were the underwriters. Life insurance came about a little later in ancient Rome, where burial clubs were created to cover the funeral expenses of the members, as well as to help survivors financially.  With the fall of Rome, around 450 A.D., most of the concepts of insurance were discarded, but features of it did continue through the Middle Ages, particularly with merchant and artisan associations. These provided variety of member insurance covering risks like fire, flood, theft, disability, death, and even imprisonment.  
During the feudal period, early forms of insurance had gone out with the decline of travel and long-distance trade.  But during the 14th to 16th centuries, commerce, transportation, and insurance would again come back.
History of Insurance Industry in India:
Insurance has a deep-rooted history in India. It finds reveal in the writings of Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya (Arthasastra). It is stated in the Vedas also. For example, yogakshema, the name of Life Insurance Corporation of India's corporate headquarters, has been derived from the Rig Veda. The term proposes that a form of "community insurance" was prevalent around 1000 BC and was practiced by the Aryans. Burial societies of the kind found in ancient Rome were formed in the Buddhist period to help and protect widows and children.
 The writings talk in terms of collecting of resources that could be re-distributed in times of calamities such as floods, fire, epidemics and famine. This was most likely an ancestor to modern day insurance. Ancient Indian history has preserved the most basic traces of insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has developed over time heavily drawing from other countries, England in particular.
Following are the major milestones in the Indian insurance industry. 

The advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta.
Oriental Life Insurance Failure
The advent of General Insurance in India with the establishment of Triton Insurance Company Ltd in Calcutta
The enactment of the British Insurance Act
In 1907, the Indian Mercantile Insurance Ltd was set up
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business.
The Indian Insurance Companies Act was enacted.
Nationalization of Life Insurance Sector and Life Insurance Corporation came into force. The LIC wrapped up 154 Indian, 16 non-Indian insurers as also 75 provident societies.
The General Insurance Corporation of India was incorporated
General insurance business was nationalized with an effect from 1st January 1973.
107 insurers were merged and grouped into four companies namely
1).National Insurance Company Ltd.,
2).The New India Assurance Company Ltd.,
3). The Oriental Insurance Company Ltd
4).The United India Insurance Company Ltd.
The Government set up a committee under the chairmanship of RN Malhotra former Governor of RBI to propose recommendations for reforms in the insurance sector.
The IRDA was incorporated as a statutory body in April 2000.
Foreign companies were allowed ownership of up to 26%.

Insurance in India started as life insurance in 1818; it was introduced for English Widows. Even till the end of the nineteenth century, Insurance Companies in India were mainly overseas companies investing in the insurance sector in India. An interesting fact here was that higher premiums were charged from Indian citizens, as they were considered more risky for insurance cover.
The Indian Government took a number of steps for the regulation of insurance in India by passing various insurance laws and acts. These include:
  • Life Insurance Companies Act, 1912
  • Provident Fund Act 1912
  • Insurance Act of 1938
  • Life Insurance Corporation Act, 1956
  • General Insurance Business (nationalization) Act, 1972
  • Insurance Regulatory and Development Authority (IRDA) Act, 1999
In 1972, the General Insurance Company was nationalized with four main subsidiaries such as National Insurance Company, New India Insurance Company, Oriental Insurance Company and United India Insurance Company.                                             .

Today Insurance Companies in India have grown diverse. The insurance sector in India has shown huge growth potential. Even today a massive share of Indian population nearly 80% is not under life insurance coverage, let alone health and non-life insurance policies. This clearly points out the potential for insurance companies to grow their market in India.

In 1999, various reforms were recommended in the insurance industry in India. This has altered a lot of things for the insurance companies in India. These reforms were:
  • Bringing down of the government’s stake holding to 50%
  • Only the private companies with a minimum capital of Rs.100 crores must be allowed to enter the insurance sector
  • No insurance company can deal in both life and non-life insurance under the same business unit.
  • Foreign Insurance Companies can enter India only in association with domestic insurance companies
  • Interest must be paid on delays of payments by the insurance companies in case of non settlement of insurance claims.
  • And many more to bring superior freedom and a well-planned regulation to the insurance companies in India.


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