Capital Markets

Insurance Industry In India

The insurance industry in India is at the crossroads of development. For any country and its economic development, having a well-developed insurance sector that is evolving is definitely a boon. And, if you are wondering what must be the reason for this, then the answer lies in the fact that this sector provides some long-term funds for the development of the country’s infrastructure as well as strengthening the risk-taking ability of the country. In India, the rapid rate at which economic growth has occurred in the past decade is a very significant development, when you even look at it in terms of the global economic scenario. Know more about the insurance industry in India in this article. These topics are important for many competitive and bank exams. Apart from the exam criteria, knowledge of these topics increases your general awareness too.

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Insurance, Capital Markets And Related Terms

Before going into other details, let us understand more about insurance, financial markets etc. The financial market in India is mainly divided into the money market and the capital market. It is the capital market that deals with long-term credit. These activities of the capital market gather funds from some entities and then make them available to other entities that need funds. In this way, the capital markets improve the efficiency of transactions. The insurance companies have a significant role to play in the financial markets. Insurance forms huge capital and its importance is enormous for any country’s economy. It is a known fact that there is a very significant influence that insurance companies have on the business of financial markets.

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What is Insurance?

By definition, insurance is a contract that is generally represented by a policy, wherein an individual or an entity gets some financial protection or compensation against losses from an insurance company. Insurance is very important we can say that it is one way of managing risks. So, when you buy insurance, you are transferring the cost of any potential loss to the insurance company against a premium/ fee. These insurance companies invest these funds in a secure manner so that they grow and when there is a claim, the payout can be made without any hassle.

Even though insurance is very tricky, it is very important. It keeps commerce moving and ensures some stability in the business. Another highlight that can be seen is that the capital market growth is driven by the development of the insurance sector. One of the greatest employers of the world are the insurance companies. There is a huge capital that is formed via insurance, thereby affecting the financial flows in the financial markets in a positive manner.

Indian Insurance Industry

In India, the insurance industry is as longstanding as the banking industry. But over the past fifteen years, there has been a sea change in the business expansion of the insurance sector. The IRDAI (Insurance Regulatory and Development Authority of India) was established in the year 2000, which opened this sector to private enterprises and allowing Indian companies to partner with foreign establishments. This act has redefined the insurance sector in India making insurance available at reasonable costs.

Insurance industry

Source – Wikipedia

The insurance industry in India has around 57 insurance companies. Among these, 24 are in the life insurance business and the rest are non-life insurers. The Life Insurance Corporation (LIC) is a sole public sector company in the life insurance business sector. The non-life insurance companies have policies exclusively in personal accident, health, travel insurance segments etc. A few of these companies include Apollo Munich Health Insurance Company Ltd, Star Health, and Allied Insurance Company Ltd, Cigna TTK Health Insurance Company Ltd. etc. The Export Credit Guarantee Corporation of India for Credit Insurance and Agriculture Insurance Company Ltd for crop insurance belong to the public sector.

A Rapidly developing sector with a great future potential

This insurance sector is most developing one in India which fosters a positive market sentiment. There are some major investments and other strong government initiatives that are pushing this sector towards a robust future. An example for this is one of the programs of the government of India, the Pradhan Mantri Vaya Vandana Yojana. It is a pension scheme that provides guaranteed 8 percent annual return to all the senior citizens above the age of 60 years for a policy period of 10 years. The IRDAI is also planning to issue out IPO guidelines for insurance companies that would want to divest through IPOs. The road ahead is certainly quite promising. Currently, India has a 3.42 percent penetration rate in the insurance sector. It is expected to quadruple in size over a period of next ten years.

Solved Questions For You

  1. The Largest Life Insurance Company in India is:
  1. Life Insurance Corporation of India (LIC)
  2. United India Insurance Company Limited
  3. The New India Assurance Company Limited
  4. National Insurance Company Limited

Ans. Option A

  1. Which of the following legislates insurance?
  1. State Government
  2. Central Government
  3. Insurance Company
  4. None Of these

Ans. Option B

  1. Which committee’s recommendations were followed to constitute the IRDA?
  1. Singh Committee
  2. Sahota Committee
  3. Kumarmangalam Committee
  4. Malhotra Committee

Ans Option D

  1. What is the correct full form of IGMS in terms of the insurance sector?
  1. Integrated Grievance Management System
  2. Internal Grievance Management System
  3. Important Grievance Management System
  4. Integral Grievance Management System

Ans. Option A

Some more practice questions

  1. The Insurance policy that gives the holder the benefits of both Insurance and Investment is —–?

Ans. Unit-linked Investment Policy.

  1. The only public sector company in the field of life insurance is —-?

Ans. Life Insurance Corporation of India (LIC)

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