The concept of insurance is believed to have emerged almost 4,500 years ago in the ancient land of Babylonia where traders used to bear risk of the caravan by giving loans, which were later repaid with interest when the goods arrived safely. In order to protect against the risk of loss of goods in transit, piracy and natural calamities like storms and so on, medieval guilds (trade associations) formed a common pool of funds, which was used as support in times of sickness and death and sometimes even offered as ransom for members held captive by pirates. The first insurance contract was entered into by European maritime nations in 1347 to accept marine insurance as a practice.
The concept of insurance as we know today took shape in 1688 at a place called Lloyd’s Coffee House in London where risk bearers used to meet to transact business. This coffee house became so popular that Lloyd’s became the one of the first modem insurance companies by the end of the eighteenth century.
Marine insurance companies came into existence by the end of the eighteenth century. These companies were empowered to write fire and life insurance as well as marine. The Great Fire of London in 1966 caused huge loss of property and life. With a view to providing fire insurance facilities, Dr. Nicholas Barbon set up in1967 the first fire insurance company known as the Fire office.
The oldest life insurance company in existence today is the Society for the Equitable Assurance of Lives and Survivorship, known as ‘Old Equitable’. It was established in England in 1756.
The mortality tables were constructed in the seventeenth century. The first mortality table was constructed by an astronomer Edmund Haley in 1693. This table provided a link between the life insurance premium and average life spans based on statistical laws of mortality and compound interest. In 1756, Joseph Dodson reworked the table, linking insurance premium rate to age.
The infamous New York Fire and the great Chicago Fire in 1835 and 1871, respectively, created an awareness and need for insurance. The concept of reinsurance emerged to deal specifically for such situations. Industrialisation and urbanisation popularised the concept of insurance and growth in insurance led to the development of new insurance products.
History of Insurance in India
The early history of insurance in India can be traced back to the Vedas. The Sanskrit term ‘Yogakshema’ (meaning well being), the name of Life Insurance Corporation of India’s corporate headquarters, is found in the Rig Veda. Some form of ‘community insurance’ was practiced by the Aryans around 1000 BC. The joint family system prevalent in India was an important form of social cooperation.
Life insurance in its modem form came to India from England in 1818. The Oriental Life Insurance Company was the first insurance company to be set up in India to help the widows of European community. The insurance companies, which came into existence between 1818 and 1869, treated Indian lives as subnormal and charged an extra premium of 15 to 20 per cent. The first Indian insurance company, the Bombay Mutual Life Assurance Society, came into existence in 1870 to cover Indian lives at normal rates. Moreover, in 1870, the British Government enacted for the first time the Insurance Act, 1570. Other companies, such as the Oriental Government Security Life Assurance Company, the Bharat Insurance Company, and the Empire of India Life Insurance Company Limited, were set up between 1870 and 1900.
The Swadeshi movement of 1905-07, the non -cooperation movement of 1919, and Civil Disobedience Movement of 1929 led to an increase in number of insurance companies. In 1912, the first legislation regulating insurance, the Life Insurance Companies Act, 1912, was promulgated. The growth of life insurance was witnessed during the first two decades of the twentieth century not only in terms of number of companies but also in terms of number of policies and sum assured. Indian Insurance Year Book was published for the first time in 1914.
The Insurance Act, 1938, the first comprehensive legislation governing both life and non-life branches of insurance was enacted to provide strict state control over insurance business. This amended insurance Act looked into investments, expenditure, and management of these companies. An office of the Controller of Insurance came into existence. The Controller of Insurance had wide-ranging powers, which included directing, cautioning, advising, prohibiting, inspecting, investigating,searching, seizing, prosecuting, penalising, authorising, registering, amalgamating, and liquidating insurance companies.
By the mid-1950s, there were 154 Indian insurers, 16 foreign insurers, and 75 provident societies carrying on life insurance business in India. Insurance business flourished and so did scams, irregularities, and dubious investment practices by scores of companies. As a result, the government decided to nationalise the life assurance business in India. The Life Insurance Corporation of India (LIC) was set up in 1956 to take over 245 life companies. The nationalisation of life insurance was followed by general insurance in 1972. The General Insurance Corporation of India and its subsidiaries were set up in 1973. Most of the powers of the Controller of Insurance were taken away and vested in state-owned LIC and GIC for operational convenience. These nationalised companies enjoyed monopoly for decades. They did a commendable job in extending the distribution network and successfully handled a large volume of business. But with only 20 per cent of the population insured there was a vast potential untapped. Besides, as a sequel to the reform process and to tap the insurance sector as a source of long-term funds, the government decided to introduce reforms in the insurance sector.
The Government set up, in 1993, a committee under the chairmanship of R N Malhotra, the former insurance secretary and RBI governor to evaluate the Indian insurance industry and recommend its future direction. This committee submitted its report in 1994 and suggested the re-opening up of the insurance sector to private players. This sector was finally thrown open to the private sector in 2000. The Insurance Regulatory and Development Authority (IRDA) was set up in 2000 as an autonomous insurance regulator. The government has entrusted IRDA with the responsibility for carrying out the reforms in this sector.