In 1991, alongside India’s big liberalisation push and the new industrial policy, planning began for reform of the insurance industry which was then a government monopoly. In 1993, a committee was set up to recommend changes.
The core recommendation of the Report of the Committee for Reforms in the Insurance Sector (1994), headed by Dr R. N. Malhotra, former Governor of the Reserve Bank of India, was to allow private and foreign capital into the industry in a phased manner. Last month, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, was passed allowing 100% foreign direct investment (FDI). With that, the industry has come a full circle in terms of ownership.
When the Malhotra Committee Report (MCR) was submitted, the very idea of private or foreign capital was the subject of intense debate. It was loudly decried as the beginning of the end of many things, including infrastructure investments and government social welfare spending supported by the investment portfolio of insurers, particularly the Life Insurance Corporation of India (LIC).
For the better part of the 1990s, it was a case of much talk and little – often aborted – action. Each government tabled a Bill to liberalise insurance, and the Opposition failed to support it. When the government changed, it was action replay, but with players reversing roles.
IRA set up
A ‘voluntary’ body called the Insurance Regulatory Authority (IRA) was created and it set about hearing opinions from various sections of business and society and studying insurance regulations in other countries to work out India-specific rules for the future.
Stakeholders in the insurance space from within India and abroad met frequently at conferences and seminars organised by the three apex industry associations to discuss liberalisation of the industry.
New entrants into this circle were reporters like myself, tasked with covering an industry that was just beginning to emerge in public consciousness as a business rather than a social service like business activity operating in a black box.
As an insider – having worked in the insurance industry earlier and later in the financial press – I could sense both excitement and hope among those who wanted in, and resentment, confusion and despair among the incumbents. There was anticipation among some insurance company employees too, because new companies offered lucrative jobs and high-flying careers outside the bounds of the public sector.
As it happened then
The Indian insurance industry had been nationalised for various historical reasons, and this was done in two instalments. Life insurance was taken over in 1956, leading to the monolithic LIC. General insurance was nationalised in 1972, consolidated into four companies with equal business sizes, and the General Insurance Corporation of India (GIC) was created as a holding company.
These new companies had exemplary technical training, structured professional qualification systems and well-defined management systems – including accounts, audit and internal audit. Their transparent recruitment, promotion and posting/transfer policies became more refined over time.
With its strong focus on training in a business replete with technicalities, legal frameworks and deep domain knowledge across industries – from aviation to agriculture, manufacturing to healthcare and transportation and the vast area of investment of all kinds – the general insurance sector became hunting ground for talent to staff and lead a significant number of insurance companies in the Gulf and several Asian countries.
A similar story unfolded in life insurance, with an important addition. Indian actuaries of pre-LIC vintage suddenly found themselves with only one employer. Many emigrated and went on to excel in independent practice and senior actuarial roles across the world.
Liberalisation in the 1990s promised to recreate such opportunities within India.
MCR or IRA notwithstanding, insurance reforms waited for over half a decade until the Insurance Regulatory and Development Authority (IRDA) Act, 1999, was passed. It crystallised the framework for the industry going forward.
Not just FDI
Apart from private capital, both Indian and foreign, other key objectives included more products, better customer service, higher penetration and density and expanded coverage in rural areas and among economically weaker sections. Each of these areas remains a work in progress, with varying degrees of success after 25 years.
Insurance products: How much is too much?
There are certainly more insurance products today, offered by over 60 insurance companies. They are innovative, push the envelope and offer solutions to many known problems, some unknown problems and some that probably do not really exist!
In fact, the industry may just have over performed here and there are too many policies now, making decision-making extremely challenging for customers since too many options means no options. With quantity, clarity is lost and the time may be ripe to simplify and streamline offerings, keeping sophisticated insurance covers for select, corporate segments or high net worth individuals rather than for everyday motor or home insurance policies for the common man.
On the subject of streamlining, simplifying policy wordings would go a long way in making access to insurance more realistic and meaningful for the common man.
Penetration and Density: More, but more needed
Insurance penetration and insurance density are two important metrics of the industry’s development. They are also markers of a country’s economic development, indicating adequacy or otherwise of social security and financial protection in the context of death of earning members of families, hospitalisation expenses, post-retirement living expenses or loss of property.
Insurance penetration is the percentage of insurance premiums to GDP and insurance density is the ratio of premium to population, in other words, per capita premium.
A comparison of these parameters for India between around 1998-1999 to 2024-25 is eye-opening. Statistics show that both have grown over this period, but have a long way to catch up with other countries.
Insurance penetration in 1999 was 1.93% of the GDP of ₹1.15 lakh crore. After about a quarter century of liberalisation, in 2024-25, it grew to 3.7% of the GDP of ₹330.68 lakh crore. That is, penetration has almost doubled as a percentage of GDP, which has itself grown over 17 times.
Similarly, when it comes to insurance density, in 1999, the per capita spend on insurance (life and non-life together) was $8.5 (about ₹432), and the population then was 99.1 crore. In 2024-25 it was about $97 per capita (about ₹9,000), the population being 144 crore.
The world’s average insurance penetration for 2024 was around 7.3% in 2024 and density was $943, showing that India has a way to go yet.
Customer service: Delight & Despair
Customer service was a sore point during the public sector monopoly era. After liberalisation, competitive forces, aided by technology and growing awareness have transformed this parameter. Whether it is sufficient remains an open question, given the rise in complaints, their nature and the rate at which they are resolved. Having said that, the awareness would also be contributing to willingness to raise complaints and disputes.
There are many channels for insurance grievances. The insurance company itself, IRDAI’s website where customers can complain simultaneously overseen by the regulator, the IRDAI initiated insurance portal Bima Bharosa, and the most formal forum, the quasi-judicial Insurance Ombudsman. While some channels saw as much as a 20% increase in complaints compared to last year, some had the same volumes. However, pendency seems to have grown alarmingly, almost doubling in many channels. A significant portion of the complaints related to claims and mis-selling.
With time and technology, customer awareness grows. And with it, expectations of better service. Alongside customer delight where claims are settled in a faceless environment and without follow ups, insurance customers have also become more familiar with the frustration of never being able to speak to a real human being when policy service is actually needed.
Insurance for the masses
An important focus area of insurance reforms, insurance for weaker sections, has been a relatively high-profile success. This is mainly due to mass health insurance schemes for below-poverty-line families, enthusiastically adopted by State governments as a social welfare measure. Ayushman Bharat, the Centre’s flagship mass health insurance scheme, was largely inspired by programmes such as Andhra Pradesh’s Arogyasri and Tamil Nadu’s Comprehensive Health Insurance Scheme. Ayushman Bharat covers over 55 crore beneficiaries, who earlier did not have this ₹5 lakh financial security against illness and hospitalisation. Add to this about 16 crore beneficiary families of various State government run mass insurance schemes.
These schemes have glaring gaps in execution and operation, but are reportedly learning to fix them and correct errors as they go along. It does follow that significant awareness about insurance is being created at this socio-economic level and this could well be seeping into other walks of life.
Apart from companies, regulators and consumers, an important stakeholder that drives progress in any industry is the press.
Much more coverage of insurance, as a financial product and as one of the country’s most impactful financial industries, is yet to come of age in India. It must begin with deeper homework, a study of technicalities of the subject and the market, sharper questions to the industry and regulatory agencies and the ability to recognise whether the answers offered are sufficient and truly appropriate.
(The writer is a business journalist focusing on insurance & corporate history)
