Insurance Awareness Study Material: If you are preparing for Insurance Sector exams like LIC AAO, NIACL AO, NICL Assistant and AO and other such exams, then good quality study material for Insurance Awareness is a necessity. ByScoop provides you with Good Quality Study Material for Insurance Exams along with Insurance Awareness Quiz. Study the complete Insurance Awareness Study Material from ByScoop for best result in LIC AAO. The points in red color are the most important.
Topics Covered in Chapter 1
Basics of Insurance
What is Insurance?
Definition: Insurance is an arrangement/contract by which risks or loss or damage on one person is shifted to another party called insurer on the payment of a charge known as premium. The risk is equally distributed between a pool of members who are paying the premium for the same insurance
Purpose of Insurance: The purpose of an Insurance and insurance plan is to provide protection against the risk of financial loss.
Who is an insurer: The insurance company that provides you the insurance cover and the insurance plan is the insurer.
The person/institution who buys the insurance plan is said to be insured.
What is premium: Insurance Premium is the amount of money that an individual or company must pay for an insurance policy. Suppose you buy a car insurance for a year. For that you have to pay some amount to the insurance company. The amount which you pay to the insurance company is the premium.
Types of Insurance: Two Main type
Life Insurance and Non-Life (General) Insurance
Basically, two main types of Insurance exists in India. One is the insurance plan that covers the life of a person, that is known as Life Insurance; another is that deals with the rest of the insurance and is known as non-life insurance or general insurance.
Life Insurance: Life Insurance is an insurance arrangement in which the insurer guarantees to pay a specific amount in case of the death of the beneficiary. The amount would be paid to the nominee of the beneficiary. In return, the beneficiary has to pay a specific amount to the insurer known as premium.
General Insurance: This includes all insurance other than Life Insurance like Health and property insurance.
History of Life Insurance in India
The history of Insurance in India can be understood in two parts: Part 1: Prior to the year 1912. Before 1912 India had no legislation to regulate insurance business. Part 2: After 1912 when the Life Insurance Companies Act, and the Provident Fund Act were passed.
1818: Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance Company was the first Life Insurance Company in India and was established by Europeans in Calcutta.
1870: Bombay Mutual Life Assurance Society was established. This was the first Indian life insurance company.
1912: Life Insurance Companies Act, 1912 was passed. This act of 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary (one who calculates the premium). However, this Act discriminated between foreign and Indian companies on many accounts and gave priority to the foreign companies putting the Indian companies at a disadvantage.
1938: The Insurance Act 1938 was passed. It was the first legislation governing both Life Insurance and Non-Life Insurance. It was aimed at providing strict state control over insurance business.
1944: Now a time came when demand for nationalization of life insurance industry gained momentum. A bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However, after several efforts the actual nationalization could take place in 1956.
1956: On the 19th of January, 1956, that life insurance in India was nationalized.
- 245 Indian and foreign insurers and provident societies were taken over by the central government and nationalised.
- The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956 with a capital contribution of Rs. 5 crore from the Government of India.,
- The Life Insurance Corporation of India was created on 1st September, 1956
History of General Insurance in India
1850: General Insurance came to India with the establishment of Triton Insurance Company Ltd., in the year 1850. It was established by the British in Calcutta.
1907: Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business in India.
1957: General Insurance Council was formed, it was a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.
1968: The Insurance Act was amended with an aim to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up in 1968.
1972 and 1973: Nationalisation of General Insurance in India. The general insurance business in India was nationalised by General Insurance Business (Nationalisation) Act 1972 (GIBNA). However, after this general insurance business was nationalized with effect from 1st January, 1973 with the formation of General Insurance Corporation of India.
General Insurance Corporation of India (GIC) was formed for the purpose of controlling, superintending and carrying on the business of general insurance in India.
For this 107 insurers were amalgamated and grouped into four companies, namely
- National Insurance Company Ltd.,
- The New India Assurance Company Ltd.,
- The Oriental Insurance Company Ltd and
- The United India Insurance Company Ltd.
General Insurance Corporation of India (GIC) was formed in pursuance of Section 9(1) of GIBNA.
The General Insurance Corporation of India was incorporated as a company in 1971 and it commenced business on January 1sst 1973.
Common developments in Life Insurance and General Insurance
1993: Malhotra Committee Report for the establishment of IRDA. The government had set up a committee under the Chairmanship of R.N. Malhotra, former Governor of the Reserve Bank of India, to make recommendations for reforms in the insurance sector. The Malhotra committee submitted its report in 1994. The report pitched for establishment of The Insurance Regulatory and Development Authority (IRDA) an autonomous body to regulate and develop the insurance sector. Following the recommendation of Malhotra Committee IRDA was constituted in 1999.
1999 and 2000: Insurance Regulatory and Development Authority Act, 1999 (IRDAA) was passed. The IRDA was incorporated as a statutory body in April, 2000. With IRDA Act 1999 coming into force the insurance industry was opened up to the private sector.
- This Act introduced an amendment to GIBNA and the Insurance Act, 1938.
- An amendment to GIBNA removed the exclusive privilege of GIC and its subsidiaries carrying on general insurance in India.
2000: The four Subsidiaries of GIC were converted into independent companies while GIC was converted into a national re-insurer.
What is a re-insurer– A reinsurer company is one that insures the risks of other insurance companies. Say who provides insurance to LIC?
2002: Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002. The General Insurance Business (Nationalisation) Amendment Act 2002 (40 of 2002) came into force on March 21, 2003. With this GIC ceased to be a holding company of its 04 subsidiaries. Also, the ownership of the four subsidiaries of GIC and also of the General Insurance Corporation of India was taken over by the Government of India.
Number of Insurance Companies in India
Total Number of Insurance Company in India: 58 (Life + Non-Life)
Number of Life Insurance Company: 24 [LIC is the only public sector company Life Insurance Company]
Check the names of Life Insurance Company in India from here
Number of Non-Life Insurance Company: 34 [6 Public Sector* and 27 Private Sector]
*The List of these 6 Public Sector Non-Life Insurance Company is:
- Agriculture Insurance Company of India Ltd.
- ECGC Ltd.
- National Insurance Co. Ltd.
- The New India Assurance Co. Ltd
- The Oriental Insurance Co. Ltd.
- United India Insurance Co. Ltd.
Check the names of 34 Non-Life Insurance Company from here
National Re-Insurer Company- 01 – General Insurance Corporation of India (GIC Re) is the only Re-Insurance company in India.
Points to Remember
1. Legislation to regulate insurance business came in India in which year? – 1912
2. First Life Insurance Company in India?- Oriental Life Insurance Company
3. First Indian life insurance company?- Bombay Mutual Life Assurance Society
4. Life Insurance Companies Act passed in which year? 1912
5. The Insurance Act passed in which year?- 1938
6. Nationalization of Life Insurance took place in which year?- 1956 – 19th of January, 1956
7. How many Insurance firms were taken over by GOI when Life Insurance was nationalised?- 245
8. In which year Life Insurance Corporation of India (LIC) was created?- 1956
9. First company to transact all classes of general insurance business in India?- Indian Mercantile Insurance Ltd
10. General Insurance Business (Nationalisation) Act passed in which year? 1972
11. General Insurance was nationalised in which year?- 1973
12. How many insurance company were amalgamated when General Insurance was nationalised and into how many company?- 107 and 04
13. Committee that recommended the formation of IRDA?- Malhotra Committee (Chairman- R.N. Malhotra, former Governor of RBI)
14. In which year the four Subsidiaries of GIC were converted into independent companies?- 2000
15. Which is the sole re-insurance company in India?- GIC Re
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