Indian insurance sector

Insurance is one of the funds based financial services which provides risk coverage facilities to human beings. Realizing the vast potential in the Indian market, foreign insurance companies started entering into India and even banking organizations (SBI, ICICI, etc.)

The insurance industry of India consists of 57 insurance companies of which 24 are in the life insurance business and 33 are non-life insurers. Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector company. Apart from that, among the non-life insurers, there are six public sector insurers. In addition to these, there is sole national re-insurer, namely, General Insurance Corporation of India (GIC Re).

Some of the Private Sector Life Insurance Corporation

SBI Life Insurance

• ICICI Prudential Life Insurance Corporation Limited.

• ING Vysya Life Insurance Corporation Limited.

• HDFC Standard Life Insurance Corporation Limited.

• Birla Sun Life Insurance Corporation Limited.

• SBI Life Insurance Corporation Limited.

• Om Kotak Life Insurance Corporation Limited.

• Met Life Insurance Corporation Limited.

• Tata AIG Life Insurance Corporation Limited.

• ICICI Lombard General Insurance Corporation.

• Bajaj Allianz General Insurance Corporation.

• AIG General Insurance Corporation.

• IFFCO Tokio General Insurance Corporation.

• Royal Sundaram General Insurance Corporation.

• Reliance General Insurance Corporation.

LIFE INSURANCE CORPORATION OF INDIA

The Life Insurance Corporation of India (LIC) was set up in the year 1956 by nationalizing 245 insurance companies. The Primary objective of nationalization was to protect the interest of policy-holders against misuses and embezzlement of funds by private insurance companies. Secondly, the object of nationalization was to direct investment of funds in government securities, leaving a meager part for the private sector. What marks and distinguishes the LIC from other long-term financial institutions is this that it discharges the two-fold function of mobilization of long-term savings and their effective channelization as well. The other agencies are suppliers of fund obtained from the government and the Reserve Bank of India.

Role of LIC

The activities of the LIC can be broadly classified into two categories. First, it mobilizes long term

contractual savings. Its policy-holders view the LIC as a trustee of their funds, a source of emergency fund to guard against any financial misfortune and a way to accumulates funds by the time of retirement from work. As an agency, it is designed to the inculcation of savings for the sake of rainy days.

During the last forty years of its operations, there has been a concentration of colossal funds in the hands of this monolithic state-owned corporation. The resources thus obtained by the LIC from policy-holders are invested in diverse ways for different purposes. Besides, it grants loans to the private corporate sector and finances projects by subscribing shares and debentures of private industries. Its contribution to the financing of industries in the private corporate sector is also indirect. The investment in the share capital and bonds of IFCI, SFCs, UTI and IDBI flow back to the private sector in the form of direct loans. The LIC is also engaged in underwriting new issues.

LIC plays an important role in the securities market in India. It purchases even when the market is dull (bearish) and prices are low in order to reap the benefit of future price appreciation. Nor does it usually sell shares from its stock when the market turns at higher prices.

Although Income Tax concessions provide an incentive to higher income groups through LIC policies, the ensuring public does not get the real value of its long-term savings because of chronic inflation. Barring risk coverage, the rate of return offered by LIC is much lower compared to other savings media. It is true LIC has grown at a fast speed yet it can grow at a faster rate if it can make the message of life insurance more attractive by its operational efficiency and innovative attitude.

GENERAL INSURANCE COMPANIES

The General Insurance Corporation of India(GIC) was formed as a government company in 1972 under the General Insurance Business (Nationalization) Act 1972. Before nationalization, a few big companies and about 100 small companies were in this business. All these units were merged together and reorganized into four subsidies of GIC. They are:

• National Insurance Company

• New India Assurance Company

• Oriental Fire and General Insurance Company

• United India Fire and General Insurance Company.

On January 1, 1973, of all the Indian insurance companies were transferred to the GIC.

The feature of the GIC is this that it sells insurance service against some forms of risk like loss of physical assets of various kinds from fire or accident and against personal sickness and accident. The insurer just purchases a service and not any financial asset. They draw vast resources in the other approved securities. As a financial intermediary, the GIC invests funds in a prudent way looking after national priorities and meeting unforeseen claims under their policies. The GIC is required by law to hold central government securities to the tune of 25 percent of new accrual and at least

10% in other approved securities. The companies can invest in the shares and debentures of the corporate sector. But shall not exceed 5%of the subscribed capital of a single company. It also participates in the underwriting of new issues and in granting term loans to industries.

UNIT TRUST OF INDIA

Unit trust was set up in 1964 by a special act passed in the parliament under the name of Unit Trust of India Act 1963, for the purpose to promote and regulate the mutual fund activities in India.

Life Insurance Corporation, State Bank of India, Schedule Commercial Banks and foreign banks. Unit Trust of India can raise further capital through the issue of bonds, accepting deposits and borrowings from Reserve Bank of India and Life Insurance Corporation.

Objectives

Unit Trust of India functioning with the following major objectives:

• To promote the saving habits of small and medium investors.

• To provide stock exchange benefits to the small and medium investors.

• To reduce the risk of investors through diversified investment.

• To invest the funds on commercial purpose.

Functions

Unit Trust of India performs the following important functions:

• The mobilisation of funds through mutual funds.

• Grant term loans.

• Rediscount Bills.

• Undertake equipment leasing and hire purchasing.

• Housing and construction finance .

• Merchant banking services.

• Portfolio management

Management

Unit Trust of India is managed with an independent board of Trustees and a full-time chairman, which is appointed by the government. The trustees are nominated by the Reserve Bank of India, Life Insurance Corporation, State Bank of India and other commercial banks.