India: The Door Of Opportunity For Foreign Insurance Companies Is Opening Wider.

Author:Govind, Har

Life insurance was nationalized in India in 1954 and all life insurance business was taken over by the Life Insurance Corporation of India (LIC), a wholly-owned government undertaking.

Unlike the banking sector, in which Indian private and Government banks and foreign banks operate and compete, the LIC is a monolith. It has it head office in Bombay and branches all over India. These branches do not compete with each other. There are some overseas branches also. General insurance was nationalized in 1974 and the entire business was given to an apex government undertaking, the General Insurance Corporation of India (GIC). It has four subsidiaries with offices in Bombay. Calcutta. Delhi and Madras which compete with one another.

The premium rates of LIC and GIC, for specified categories of insurance coverage, are uniform throughout India. The LIC branches function under unified control and guidelines. Business competition is practically non-existent in the LIC. The GIC subsidiaries have some elbow-room for competition only in regard to services offered to customers. These subsidiaries have their own branches throughout the country.

There is long-standing criticism that the premiums charged by the two corporations are high, the quality of service is indifferent, efficiency is low due to absence of competition and there are delays in settling claims.

International financial institutions like the World Bank and International Monetary Fund and representative of foreign governments with substantial investment in or trade with India, like in USA, Japan, Germany and UK, are urging that India permit entry of foreign insurance companies in India's insurance marketplace.

Taking all these factors into consideration and so ward off criticism from left wing politicians, the Indian government has set up a High Power Committee for an in-depth study of the insurance industry, aimed at introducing a more competitive environment.

The High Power Committee is headed by R.N. Malhotra. He is an experienced civil servant. He was secretary to the Central Government for Economic Affairs and before his retirement was governor of the Reserve Bank of India. The other two members of the committee include S.A. Dave, chairman of the Unit Trust of India and M.P. Modi, president of Actuarial Society of India. Remaining four members represent expertise in life insurance, general insurance, management and administrative fields.

The Malhotra Committee has been asked to examine...

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