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Report No. 190

1.3 Background to recent legislative changes

1.3.1 The announcement of the new industrial policy in 1991, envisaged the transition of the economy from a regulated to a liberalised and deregulated regime leading to the privatization of insurance sector to provide a better coverage to citizens and to augment the flow of long-term financial resources. This transition also meant that competition was bound to intensify in future with the entry of several private players in the field, particularly the foreign companies in joint venture with Indian partners.

In order to prevent misuse by insurers of policyholders' and shareholders' funds and to ensure accountability, it was imperative to have in place an effective regulatory regime. Insurers being repositories of public trust, efficient regulation of their business became necessary to ensure that they remained worthy custodians of this trust. Further, insurance cash flows generated funds which are required for investment in the social sector and for the development of infrastructure. Therefore, the regulation of insurance required a paradigm shift from just a supervisory and monitoring role to a development role so that the insurance business promoted economic growth.









  

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