Insurance Sector Reforms

 

In 1993, Malhotra committee headed by former Finance secretary and RBI Governor was formed to evaluate the Indian Insurance Industry and recommend its future direction.

The committee was set up with an objective of complementing the reforms in the Indian Financial Sector. The reforms aimed at creating a more efficient and competitive financial system

Malhotra committee

Purpose

1. To suggest the structure of the insurance industry, to assess its strengths and weaknesses of insurance companies in terms of the objectives
2. To make recommendations for changing structure of insurance industry, for changing general policy frame work etc.
3. To take specific suggestions regarding LIC and GIC with a view to improve functioning of LIC and GIC.
4. To make recommendations on regulation and supervision of the insurance sector in India.
5. To make recommendations on role and functioning of surveyors, intermediaries like agents etc. in the insurance sector

Recommendations

In 1994, the committee submitted the report and gave the following recommendations

Structure

• Government stake in the insurance companies to be brought down to 50%.
• Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.
• All the insurance companies should be given greater freedom to operate.

Competition

• Private Companies with a minimum paid up capital of Rs. 1 billion should be allowed to enter the industry
• No Company should deal in both Life and General Insurance through a single entity
• Foreign Companies may be allowed to enter the industry in collaboration with the domestic companies
• Postal Life Insurance should be allowed to operate in the rural market
• An Insurance regulatory body should be setup
• Controller of Insurance should be made independent

Investments

• Mandatory Investments of LIC Life Fund in government securities to be reduced from 75 % to 50%
• GIC and its subsidiaries are not to hold more than 5% in any company

Customer Service

• LIC Should pay interest on delays in payments beyond 30 days
• Insurance companies must be encouraged to set up unit linked pension plans
• Computerization of operations and updating of technology to be carried out in the insurance industry.

Overall the committee strongly felt that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. Students specializing in Insurance are expected to know how these reforms have been started and changes have been made till date for the growth of the Insurance Industry.