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Sunday, August 1, 2021

General Insurance Business (Nationalisation) Amendment Bill, 2021 - remembering something old !!

Year 1985 – January – We had proudly joined Oriental Insurance Company Limited after a tough process of Competitive Exam, Typing test and Interview.  After very neatly typing a letter on big letter head – placed it before the Officer for signature.  Without even reading, the Officer rejects it – orders it to be retyped. Not a single mistake or over-typing ! – neatly formatted on a manual typewriter – reason – wrong letterhead.  Company had just changed its name as ‘The Oriental Insurance Co Ltd’  from its earlier name as ‘The Oriental Fire & General Insurance Company Ltd’.  It was stated that since the Company was transacting all lines of General insurance business, the words ‘Fire & General’ were deemed inappropriate !!

Life certainly has changed – those were the days of only 4 PSU General Insurers and some competition among the Development Officers – there was concept of notional credit et. al.  – from dog days of so many Insurers / Brokers / Agents chasing every business .. .. ..

In India, the Insurance market is more than two centuries old, though the major contributor now – Motor Insurance is less than a century old ! According to IRDA website, 1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies.

                 In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.  

                 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 non-Indian 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. Years later, in 1972, General Insurance business too was nationalized by the enactment of  :  General Insurance Business (Nationalisation) Act, 1972 (GIBNA). The Government of India (GOI), through nationalisation took over the shares of 55 Indian insurance companies and the undertakings of 52 insurers carrying on general insurance business. General Insurance Corporation of India (GIC)  was incorporated in  1972 under the Companies Act, 1956 as a private company limited by shares. GIC was formed for the purpose of superintending, controlling and carrying on the business of general insurance.

As soon as GIC was formed, GOI transferred all the shares it held of the general insurance companies to GIC. Simultaneously, the nationalised undertakings were transferred to Indian insurance companies. After a process of mergers among Indian insurance companies, four companies were left as fully owned subsidiary companies of GIC – and thus we had four PSU Insurers :  National Insurance Company Limited; The New India Assurance Company Limited; The Oriental Insurance Company Limited &  the United India Insurance Company Limited

Year 2000 saw first Private Insurance Company, Royal Sundaram General Insurance obtaining license and transacting general insurance business – more than 30 companies have followed suit, making the competition much tougher. Now life is set to see more changes with the introduction of another Amendment bill in the Parliament.

A bill to amend the general insurance law to allow the government to pare its stake in state-owned insurers was introduced in the Lok Sabha on Friday, but Finance Minister Mrs Nirmala Sitharaman insisted that it will not lead to privatisation. Introducing the General Insurance Business (Nationalisation) Amendment Bill, 2021, Mrs. Sitharaman said its passage will help generate required resources from the Indian markets so that public sector general insurers can design innovative products. Several opposition members had opposed the introduction of the bill, saying it will bring in foreign investors and entail total privatisation of PSU general insurance companies.

The Honble Finance Minister said: - the apprehensions mentioned by the members are not well-founded at all. What we are trying to do in this is not to privatise. We are bringing some enabling provision so that the Government can bring in public, Indian citizens, and common people's participation in the general insurance companies. As per the statement of objects and reasons of The General Insurance Business (Nationalisation) Amendment Bill, 2021, it seeks to remove the requirement that the central government holds not less than 51 per cent of the equity capital in a specified insurer. Why do we need to raise the resources from the market? Our market can give the money from the retail participants who are Indian citizens. Through that, we can have greater money, bring in better technology infusion and also enable faster growth of such general insurance companies. We need money to run them, she said in the Lok Sabha.

The minister said general insurance companies in the private sector have greater penetration, they raise more money from the market and therefore give a better premium for insuring the public and also have innovative packages. Whereas public general insurance companies are not able to perform because they are always short of resources, Mrs Sitharaman said.  In the Budget 2021-22, FM  had announced a big-ticket privatisation agenda, including privatisation of two public sector banks and one general insurance company.

As of date, there are four general insurance companies in the public sector - National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and the United India Insurance Company Limited. Now, one of these will be privatised for which the government is yet to finalise the name.

The Oriental Insurance Company Ltd." earlier known as "The Oriental Fire & General Insurance Co. Ltd" was incorporated at Bombay on 12th September, 1947. The Company was a wholly owned subsidiary of The Oriental Government Security Life Assurance Company limited and was formed to carry out General Insurance business. The Company was promoted by Sir Purushothamdas Thakurdas, Chairman of Oriental Government Security Life Assurance Company Ltd., which was transacting life insurance business for nearly 75 years. The Company's Head Office was located in Bombay. The premium of the Company in the first year of its operation was  INR 99950. On nationalization of Life Insurance business in India, in 1956, the company became a subsidiary of Life Insurance Corporation of India (LIC). Subsequently on nationalization of general insurance business in India in the year 1973, the company became one of the subsidiaries of General Insurance Corporation of India (GIC). 10 Indian and 12 Foreign Insurance companies merged with Oriental Fire & General Insurance Co. Ltd.   The name of the Company was changed in the year 1984 to The Oriental Insurance Company Ltd.  

Interesting !

With regards – S. Sampathkumar
30th July 2021 


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