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Report No. 190 Revision of The Insurance Act, 1938 and The Insurance Regulatory and Development Authority Act, 1999 Chapter I Introduction and Background 1.1 Introduction 1.1.1 The Law Commission of India ('Commission') undertook the exercise of examining the Insurance Act, 1938 (Act) at the instance of the Insurance Regulatory Development Authority (IRDA) which vide its letter dated 9th April, 2002 had requested the Commission to make recommendations for revision of the Act and for consequential amendments thereto. 1.1.2 The insurance sector has been growing steadily and is a major source of long-term contractual funds needed for infrastructure development. The Second Annual Report of the IRDA (2001-02) highlights this phenomenon. According to it, the size of insurance market in the country, both life and non-life, is to the extent of $ 9.94 billion. The rate of annual growth in the year 2001-2002 was 43% in life insurance and 13.6% in non-life insurance. 1.1.3 The total premium underwritten by the Life Insurance Corporation of India (LIC) was Rs.498.21 billion (Rs.49,821.91 crore) in the year 2001-2002 as against Rs.348.92 billion (Rs.34,892.02 crore) in the previous year, thus registering an overall increase of 42.79%. Correspondingly, the income of LIC increased to Rs.737.80 billion (Rs.73,780.07 crores) as against Rs.547.66 billion (Rs.54,766.60 crores) in the previous years, i.e., an increase of 34.71%. At the end of the financial year 2001-2002, while LIC continues to be the sole public sector enterprise in the life insurance business, there were as many as twelve companies in the private sector in each of whom there was a foreign company participation upto the permissible limit of 26% of equity share capital. 1.1.4 During the same period, 2001-2002, the gross direct premium income of the four public sector general insurance companies, viz., Oriental Insurance Corporation of India, United India Insurance Company Ltd., New India Assurance Company Ltd., National Insurance Company Ltd. [all these four being the subsidiaries of the General Insurance Corporation of India (GIC)] was Rs.119.17 billion (Rs.11,917.58 crores) recording an increase of 21.61% over the previous year. The general insurance business includes motor vehicle insurance, marine insurance, fire insurance, personal accident insurance, health insurance, aviation insurance, rural property insurance and others. At present, GIC is the only reinsurer and has been placed in an obligatory position to act for the reinsurance market in the country as a whole. According to the Second Annual Report of the IRDA for the year 2001-2002, the profitability of the general insurance companies continues to be under strain. In the private sector, there were at least 8 companies with participation of foreign equity to the extent of 26%. 1.1.5 The Second Annual Report of the IRDA further points out that foreign capital of Rs.6.24 billion (Rs.624.56 crores) has been so far invested in the new life and non-life insurance companies and that this "strengthens the belief that the commitment of the new joint ventures to the development of the insurance business in India as a long term strategy which will result in the growth of the economy." Insurance companies/ corporations being long-term contractual savings institutions can also play a major role in vitalizing the secondary debt market and securities as well. Expansion of insurance business, particularly in the rural areas, would lead to the growth in savings, which would significantly add to the GDP. With a view to advance a balanced growth of the economy, it is essential to have a strong legal regime to regulate the business enterprises in this field.    |
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