Development Agenda for Insurance Regulation

Government of India began the process of reforms of Indian insurance in April 1993 with the appointment of a committee headed by late R N Malhotra. In the progression of events towards liberalisation initiated in the early 1990s, that was a trifle late. But it did mark political and executive recognition of the latent and apparent potential of the insurance sector in the context of financial sector reforms and overall liberalisation process. In and about the same time, there were developments around the world such as crises in the Lloyds of London, major insolvencies of insurance companies, de-leftisation and reconfiguration of the eastern bloc countries, consolidation of the European Union, great strides in information technology, etc. These developments have triggered transformations in the structure of the insurance industry, and the manner in which its business is run, reported, and regulated in the developed and other emerging markets.

Insulated from the competitive market forces, the nationalised insurance monopolies of India have not really participated in these global developments. Besides, and largely because of this insularity, both the insurance density and penetration in India have remained very low compared to the world and also closer home in Asia. Malhotra Committee gave its report in January 1994. This report made detailed recommendations for opening up of the insurance sector and for structural reforms in the Indian insurance institutions. A definitive action on the insurance reforms process has started with parliamentary approval to the Insurance Regulatory and Development Authority (IRDA) Bill in November 1999, albeit almost after six years of the Malhotra Committee report. In its nomenclature, IRDA is an improvement on Malhotra Committee’s recommendation, with added and manifest emphasis on ‘development’. To the laity, regulation and development are very different if not antithetical words. The fact that the parliament has passed IRDA Act with deliberate insertion of ‘development’, therefore, merits some consideration.