Business of Life Insurance (LIC) during the Nationalized period

Prior to 1956, insurance was private with minimal government intervention. In 1956, life insurance was nationalized and a monopoly was created. In 1972, general insurance was nationalized as well. There were 107 general insurance companies operating at the time. The reason for this was that insurance is a “cooperative enterprise,” under a socialist form of government; therefore, it is more suited for government to be in insurance business on behalf of the “people”. Second, those Indian companies are excessively expensive. Third, argued that private competition has not improved services to the “public” or to the policyholders.

Indian life insurance was nationalized in 1956. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 nonIndian insurers as also 75 provident societies—245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. All life companies were merged together to form one single company: the Life Insurance Corporation. By 2000, Life Insurance Corporation had 100 divisional offices in seven zones with 2048 branches. There were over 680,000 active agents across India with a total of 117,000 employees in the Life Insurance Corporation employed directly.

After the report of the Malhotra Committee came out, changes in the insurance industry appeared imminent. On December 7, 1999, the new government passed the Insurance Regulatory and Development Authority Act. Starting in early 2000, the Insurance Regulatory and Development Authority started granting charters to private life and general insurance companies. By the end of 2003, there were thirteen life insurance companies had charters to operate, one public (the old monopoly) and twelve private companies. All of the private companies had foreign partners in life business. Almost all general insurance companies also have foreign partners.