From State Monopoly to Laissez Faire in Insurance: Manmohan Singh's Hidden Legacy

India mourns the loss of Manmohan Singh, a visionary leader celebrated as the architect of India's economic liberalization. His legacy in insurance and pension reforms was equally transformative, reshaping the nation's financial landscape and providing broader financial security for millions of Indians. This enduring legacy continues to offer reassurance and security, underscoring his profound impact on the nation's economic well-being.

Visionary Reforms

Manmohan Singh's visionary thinking laid the foundation for a more diversified and robust financial system in India. By increasing the availability and affordability of insurance products and services, a larger portion of the population gained access, enhancing financial security and resilience against economic shocks. The insurance reforms significantly strengthened prudential regulation through stricter solvency requirements and risk management practices, ensuring the financial health of insurance companies. Enhanced market conduct regulations promoted fair treatment of consumers and transparency, reduced mis-selling, improved governance standards, including independent boards and stricter compliance, and increased accountability within insurance companies.

These measures collectively fostered a more stable and trustworthy insurance sector, boosting consumer confidence. Opening the insurance and pensions sector to private and foreign investments was a strategic move that helped mobilize long-term funds for infrastructure and other critical industries, enhancing the capital markets' efficiency and depth, and promoting financial stability and growth.?

Historical context

When Manmohan Singh became Finance Minister in 1991 during Prime Minister Narasimha Rao's regime, India's insurance and pension sectors were state-controlled and underdeveloped. The government had nationalized life insurance in 1956, creating the Life Insurance Corporation of India (LIC), and general insurance in 1972 by establishing the General Insurance Corporation of India (GIC) and its four subsidiaries: National Insurance, New India Assurance, Oriental Insurance, and United India Insurance.

LIC and GIC were trusted household names with a strong nationwide presence, with branches in every district and a vast network of agents providing social security and protection for lives, assets, and incomes to millions of families. This extensive reach made insurance affordable and accessible, promoting financial inclusion and extending coverage to rural and underserved areas. Both played a crucial role in India's socio-economic development. Their contributions to a broader strategy to control the economy's "commanding heights," mobilizing public savings and investing in infrastructure projects like roads, railways, and housing, cannot be overstated.

Despite LIC and GIC's extensive reach, the insurance sector faced challenges such as low insurance penetration, limited customer-centric product innovations, slower adaptation to market changes due to bureaucratic inefficiencies, and insufficient capital to meet growing demands.

The Controller of Insurance in India, appointed under the Insurance Act of 1938, played a significant role in overseeing and regulating the insurance industry before nationalization. The Controller's duties included ensuring compliance with regulations, maintaining solvency margins, and protecting policyholders' interests. State-run insurers were required to adhere to these regulations, which included maintaining adequate reserves, submitting periodic financial statements, and ensuring fair business practices. However, the Controller's role diminished as the regulatory regime, primarily designed for a less complex market, became outdated as the industry evolved.

A more resilient and adaptive insurance sector demanded transitioning the regulatory regime from rule-based to principle-based, from compliance-based to disclosure-based, and introducing risk-based capital requirements. The Act also did not adequately address the need for a dynamic regulatory framework to oversee the growing and diversifying insurance sector. Key limitations included bureaucratic inefficiencies, lack of flexibility to adapt to international standards, and insufficient consumer protection and innovation provisions.

The government nationalized India's insurance sector in the public interest to ensure broader coverage, prevent wealth concentration, and support economic development. However, as the market evolved, opening up the industry to competition from the private sector also served the public interest by bringing in much-needed capital, fostering competition, and driving innovation. This dual approach, where state-run players competed with private and foreign players, aimed to balance the benefits of state control with the efficiencies and advancements of the private sector, ultimately enhancing the sector's ability to serve the population effectively, a testament to the sector's adaptability and commitment to public service.

The path to opening up

Committee on Reforms in the Insurance Sector

The insurance reforms were a sequel to the significant reforms happening in banking and capital markets in India in the early 1990s, aimed at creating a more dynamic and competitive financial sector to drive economic growth and stability. In this context, Singh constituted a Committee on Reforms in the Insurance Sector in 1993, headed by former Reserve Bank of India (RBI) governor R. N. Malhotra. The Committee was tasked with examining the insurance industry's structure, assessing its strengths and weaknesses, and recommending measures to improve its efficiency and competitiveness.

Key objectives included allowing private sector and foreign participation, enhancing customer service, and establishing a robust regulatory framework.

The Committee's key recommendations, submitted in 1994, included allowing private sector companies to enter the insurance market, permitting foreign insurers to operate in India with some restrictions, and creating an independent regulatory body to oversee the industry. The Committee also suggested restructuring agents' commissions to improve service quality and professionalism.

The GIC and LIC promptly responded by forming internal strategy groups to address the recommendations of the Committee's report. These groups evaluated the proposed reforms, such as opening the insurance sector to private and foreign players, and devised strategies to adapt to the new competitive environment. This included restructuring operations, improving customer service, and enhancing product offerings to remain competitive in a liberalized market. The internal strategy groups had mixed success. They implemented key changes, such as improving customer service and introducing new products to stay competitive. However, the transition was challenging due to inertia and a lack of flexibility to adapt.

Interim Insurance Regulatory Authority

Following the Committee's recommendations, one of Manmohan Singh's significant steps was appointing an interim Insurance Regulatory Authority (IRA) in 1996 under an executive order from the Ministry of Finance, setting the stage for future reforms. This interim regulator was responsible for overseeing the transition to a more liberalized insurance sector. It took over the functions of the Controller of Insurance and was mandated to develop a robust regulatory framework, ensure fair competition, and protect policyholders' interests. Additionally, the IRA was tasked with facilitating the entry of private and foreign players, promoting transparency, and enhancing the overall efficiency and stability of the insurance sector, paving the way for a dynamic and competitive market.

Political challenges and consensus building

The Indian National Congress lost its majority in the 1996 elections, leading to a series of coalition governments. Under the United Front Governments led by H.D. Deve Gowda and I.K. Gujral, Finance Minister P. Chidambaram (1996-98) announced a limited opening of the insurance sector to health insurance and pensions. However, these coalition governments were inherently unstable, relying on the support of multiple parties with differing agendas and priorities, making it challenging to garner sufficient parliamentary support for comprehensive insurance reforms.

The significant insurance sector reform occurred during the Bhartiya Janata Party-led National Democratic Alliance's tenure under Prime Minister Atal Bihari Vajpayee. He also supported insurance reforms as part of his broader vision for economic liberalization and modernization of India's financial sector. Known for building consensus across party lines, he garnered bipartisan support for passing the Insurance Regulatory and Development Authority (IRDA) Bill in 1999 in the Indian Parliament, piloted by Finance Minister Yashwant Sinha (1998-2002).

Building consensus was easier said than done. Parliamentarians across the political spectrum raised significant concerns about allowing private and foreign participation in the insurance sector. Balancing growth and foreign investment with protecting domestic interests was paramount in the broader debate on economic liberalization in India during that period. The government referred the IRA Bill to a Group of Ministers (GoM) for review and recommendations. Initially chaired by Biju Patnaik and later by Murli Deora, the GoM recommended several key changes, including opening up the insurance sector to private companies, capping foreign direct investment (FDI) in the insurance sector at 26%, and establishing a regulatory framework to oversee the operations of private and foreign insurers.

Biplab Dasgupta, a member of the GoM, expressed dissent primarily due to concerns about the potential negative impacts of privatization and foreign investment on the domestic insurance market. He worried that opening up the sector could lead to losing control over the insurance industry to foreign entities, adverse effects on employment within public sector insurance companies, and potential exploitation of policyholders by private insurers prioritizing profit over service.

The GoM noted Dasgupta's concerns about the potential negative impacts of privatization and foreign investment. However, the broader consensus favored liberalization and enhancing competition, efficiency, and growth in the insurance sector.

At this juncture, Manmohan Singh was the leader of the opposition in the Rajya Sabha. He played a significant role in parliamentary debates and discussions on economic reforms and the insurance bill. Just in time before the voting on the insurance bill in Parliament, the Indian National Congress agreed to support the bill, subject to several key conditions:

The "Insurance Regulatory Authority" was to have a developmental role, not just a regulatory one. This amendment ensured that the new regulator would also focus on promoting the growth and development of the insurance sector. To reflect this developmental role, the government needed to change the name of the regulatory body to the "Insurance Regulatory and Development Authority" in the bill.

There was an emphasis on promoting health insurance and ensuring that the licensing process gave preference to new applicants who expressed interest in underwriting health insurance.

Insurance companies were required to fulfill certain obligations in rural and social sectors. This amendment aimed to ensure that insurance benefits reached underserved and rural areas.

The government introduced a definition of an Indian insurance company to ensure that majority ownership and control remained with Indian entities.

Additionally, the Finance Minister assured Parliament that the government would protect jobs despite the sector's opening up to private and foreign players.

These conditions aimed to balance the need for modernization and foreign investment with protecting domestic interests and social responsibilities.

The BJP needed the support of the Congress to ensure the smooth passage of the bill in Parliament. By agreeing to the amendments, they could build a broader political consensus, which was crucial for passing significant economic reforms while addressing the concerns of the opposition and the public.

Insurance reforms and its impact?

The reforms were implemented gradually to allow time for adjustment, helping to manage the transition smoothly and minimize disruptions.

The establishment of the Insurance Regulatory and Development Authority (IRDA) ensured a strong and independent regulator for the sector, guaranteeing a well-regulated and transparent liberalization process. The IRDA's governance structure was designed for independence and effectiveness, featuring part-time members from fields like actuarial science, accounting, and policyholder representation, ensuring diverse and balanced decision-making. Supported by an Insurance Advisory Committee with members from various disciplines, the IRDA received expert advice on policy and regulatory matters. The thorough and inclusive consultation process involved stakeholders from across the insurance industry, ensuring well-informed and balanced regulations. This structure maintained transparency, accountability, and responsiveness, fostering a stable and trustworthy insurance sector.

The IRDA established stringent prudential and solvency norms to ensure the financial health of insurance companies. These norms required insurers to maintain adequate capital reserves to cover their liabilities, thereby protecting policyholders and maintaining market stability. Risk-based capital requirements were introduced to align the capital held by insurers with the risks they underwrite. This approach ensured that insurers maintained sufficient capital to cover their specific risk profiles, significantly enhancing the overall resilience of the insurance sector. Comprehensive investment regulations were also implemented to ensure that insurers' investments were prudent and diversified. These regulations aimed to safeguard policyholders' funds by limiting exposure to high-risk assets and promoting investments in stable and secure financial instruments.

Provisions were introduced to enhance the retention of reinsurance business within India, aiming to reduce the outflow of premiums to foreign reinsurers and strengthen the capacity of the domestic reinsurance market. In response to the global impact of the 9/11 attacks, a terrorism pool was established to cover terrorism-related risks. This pool provided a collective mechanism for insurers to manage and mitigate the financial impact of terrorism incidents, ensuring that adequate coverage was available for such risks.

Between 2000 and 2004, the government took several key measures to consolidate the reforms further. The Indian insurance sector underwent significant regulatory reforms to improve prudential regulations and align with international standards and the Financial Sector Assessment Program (FSAP) recommendations, allowing for more flexibility and innovation while ensuring consumer protection. The IRDA strengthened corporate governance norms to ensure transparency, accountability, and ethical conduct within insurance companies. Licensing insurance brokers and third-party administrators (TPAs) significantly contributed to the expansion and efficiency. The enhancement of market conduct regulations ensured policyholders' fair treatment and protection from unfair practices. This period saw the introduction of various innovative insurance products, including unit-linked insurance plans (ULIPs) and health insurance policies, catering to the population's diverse needs.

Additional provisions were included to ensure that insurance companies met their social and rural sector obligations, addressing concerns about privatization's impact on underserved areas. Strengthening the regulatory framework provided better protection for policyholders, with more stringent oversight and improved grievance redressal mechanisms. This robust framework ensured a stable, transparent, and resilient insurance sector capable of withstanding economic shocks and providing reliable coverage to policyholders.

The reforms led to the entry of several private and foreign insurers who introduced new technologies and practices, increasing competition and expanding the range of insurance products available to consumers. This influx significantly improved the quality of service and expanded the insurance market in India, enhancing the overall efficiency of the sector. This growth was reflected in higher insurance penetration and density.

The substantial foreign direct investment (FDI) into the insurance sector brought increased capital inflow, which helped develop infrastructure and create jobs, thereby contributing to economic growth.

Implementation of pension reforms

The IRDA was initially mandated to regulate the pensions sector. However, during Prime Minister Vajpayee's tenure, with Jaswant Singh serving as Finance Minister, the government established the Pension Fund Regulatory and Development Authority (PFRDA) in 2003 as a separate entity from the IRDA. This move was to specifically focus on the regulation and development of the pension sector, which has distinct needs and challenges compared to the insurance sector. The PFRDA was mandated to regulate and develop the pension sector, ensuring transparency, efficiency, and accountability in managing pension funds.

The establishment of the PFRDA was part of broader pension reforms aimed at modernizing the pension system in India with the introduction of the National Pension System (NPS). This reform aimed to ensure the sustainability of pension funds by linking benefits to the contributions made by individuals, marking a significant shift from the traditional Defined Benefit (DB) pension scheme to a Defined Contribution (DC) scheme. The government intended to reduce its financial burden and make the pension system more financially viable. The old pension scheme, which guaranteed a fixed pension based on the last drawn salary, was phased out for new government employees joining after January 1, 2004, necessitating a dedicated regulatory body to manage the transition and implementation effectively.

Manmohan Singh’s return and further reforms?

With Manmohan Singh back at the helm as Prime Minister, and Pranab Mukherjee and P. Chidambaram as Finance Ministers, India witnessed another round of significant insurance sector reforms.

The Insurance Laws (Amendment) Bill of 2008 sought to amend the Insurance Act of 1938, the General Insurance Business (Nationalisation) Act of 1972, and the IRDA Act of 1999. It included provisions for raising the FDI limit and enhancing the regulatory framework. Detariffication in non-life insurance led to more competitive premium rates and customized coverage options. The ?IRDA was further empowered to ensure robust regulation and development of the insurance sector, including better oversight and consumer protection measures.

The government also proposed increasing the insurance sector's FDI cap from 26% to 49% to attract more foreign investment, bringing in capital, expertise, and global best practices. This major reform was eventually implemented in 2015 under Prime Minister Narendra Modi's tenure with Arun Jaitley as Finance Minister.

Manmohan Singh’s regime ensured the continuity of pension reforms initiated during the Vajpayee government. His administration continued to support and expand the NPS, making it mandatory for all new government employees (except the armed forces) to join after January 1, 2004. This ensured a steady transition from the old DB scheme to the DC scheme. The Pension Fund Regulatory and Development Authority (PFRDA) Bill was introduced in Parliament in 2005 and passed in 2013, providing a statutory basis for the PFRDA, enhancing its regulatory powers, and ensuring a robust framework for the pension sector.

His government worked on making the NPS more inclusive by extending its benefits to the unorganized sector through the Swavalamban Scheme. This initiative aimed to encourage low-income workers to join the NPS by providing government co-contributions. The government made sustained efforts to increase public awareness about the NPS's benefits and encourage more involvement by educating the public about the importance of retirement planning and the advantages of the NPS. These measures helped ensure the continuity and expansion of pension reforms, making the system more sustainable and inclusive.

Regulatory turf wars

During Manmohan Singh's tenure as Prime Minister, significant turf wars emerged between key regulatory bodies: the PFRDA, the IRDA, and the Reserve Bank of India (RBI).

One notable conflict arose between IRDA and PFRDA over the regulation of pension products. IRDA contended that pension products offered by insurance companies should fall under its jurisdiction, while PFRDA asserted its authority over all pension-related products. This dispute was particularly intense regarding the regulation of unit-linked insurance plans (ULIPs) with pension components. The government ultimately resolved this conflict through legislative intervention, clarifying the roles of each regulator with the Securities and Insurance Laws (Amendment and Validation) Bill of 2010.

Additionally, there were instances where the RBI and PFRDA had overlapping interests, especially in regulating financial products and services that combined banking and pension elements.

To address these issues, the government established the Financial Stability and Development Council (FSDC), chaired by the Finance Minister. This council provided a platform for resolving inter-regulatory disputes and promoting financial stability. Regular meetings and consultations helped minimize regulatory overlaps and clearly demarcate responsibilities. These measures maintained a balanced regulatory environment and ensured the protection of all stakeholders' interests.

Insurance as? a pillar for social security

During Manmohan Singh's tenure as Prime Minister, his government introduced several significant reforms to enhance the social security net for India's population, providing better protection against health, agricultural, and disaster-related risks.

Health insurance

• Launched in 2005, the National Health Mission aimed to improve healthcare delivery across rural and urban areas. It included the National Rural Health Mission and the National Urban Health Mission (NUHM), focusing on accessible and affordable healthcare.
• Introduced in 2008, the Rashtriya Swasthya Bima Yojana (RSBY) provided health insurance coverage to families Below the Poverty Line (BPL). It aimed to reduce out-of-pocket healthcare expenses and improve access to quality healthcare services. Later, Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PM-JAY), launched in 2018, subsumed RSBY and expanded its scope significantly.

Agriculture insurance

• Supported and expanded the National Agricultural Insurance Scheme (NAIS), introduced in the Rabi season of 1999-2000 before his tenure, to assist farmers during crop failures due to natural calamities, pests, and diseases.
• Designed and launched a ?Weather-Based Crop Insurance Scheme (WBCIS) in 2007 to protect farmers against adverse weather conditions, which could affect crop yields to complement the NAIS and offer more specific coverage based on weather parameters.
• Launched of the Modified National Agricultural Insurance Scheme (MNAIS) in 2010 to help address the shortcomings of NAIS by providing better coverage and quicker claim settlements.

Disaster insurance

• Passage of the Disaster Management Act of 2005 led to establishment of the National Disaster Management Authority (NDMA) to coordinate disaster response and mitigation efforts. While not an insurance scheme per se, it laid the groundwork for better disaster preparedness and response, indirectly supporting disaster insurance initiatives. The government encouraged the development of disaster insurance products to protect individuals and businesses from the financial impact of natural disasters.

Continuing the momentum

Prime Minister Narendra Modi's government continued this trajectory by further liberalizing sectors, promoting digital financial inclusion, and enhancing social security schemes.

The name of the IRDA was changed to the Insurance Regulatory and Development Authority of India (IRDAI) following the promulgation of the Insurance Laws (Amendment) Ordinance on December 26, 2014

The Insurance Laws (Amendment) Act of 2015 played a crucial role in this process. The Act removed archaic and redundant provisions from the Insurance Act of 1938 and the General Insurance Business (Nationalisation) Act of 1972. It incorporated specific provisions to provide the Insurance Regulatory and Development Authority of India (IRDAI) with the flexibility to discharge its functions more effectively and efficiently.

Key highlights of the Act include:

• Increasing the foreign investment cap in an Indian insurance company from 26% to a composite limit of 49%, safeguarding Indian ownership and control. This change enabled capital raising through new and innovative instruments under IRDAI's regulatory supervision. The greater availability of capital for the capital-intensive insurance sector broadened the distribution reach to underserved or unserved areas, more innovative product formulations to meet the diverse insurance needs of citizens, efficient service delivery through improved distribution technology, and enhanced customer service standards.
• Consumer protection measures introduced penalties on intermediaries and insurance companies for misconduct and disallowed multilevel marketing of insurance products to curtail the practice of misselling, and better serve consumers' interests. The Act also allowed agents to work more broadly across companies in various business categories, entrusted the responsibility of appointing insurance agents to insurers, and directed IRDAI to regulate their eligibility, qualifications, and other aspects.
• Definition of 'health insurance business' was expanded to include travel and personal accident coverage, while retaining capital requirements for health insurers at Rs. 100 crore. This paved the way for the promotion of health insurance as a separate vertical.
• Foreign reinsurers were allowed to set up branches in India. In addition, the possibility of fronting risk to a reinsurer was excluded by defining 'reinsurance' as the insurance of part of one insurer's risk by another insurer who accepts the risk for a mutually acceptable premium.
• The Life Insurance Council and General Insurance Council were designated as self-regulating bodies.
• Insurers or insurance intermediaries aggrieved by an order made by IRDAI could appeal to the Securities Appellate Tribunal

These reforms collectively strengthened the insurance sector, ensuring better protection and support for India's population against various risks.

The IRDAI has implemented several key initiatives to enhance efficiency, innovation, and consumer protection in the insurance sector:

• Supporting Insurtech startups by encouraging the use of AI, blockchain, and telematics to streamline processes and improve security.
• Improving accessibility and transparency by launching digital platforms like telematics-based insurance and customer-centric solutions such as Bima Sugam and Bima Vistaar, while empowering women in rural areas through Bima Vahak.
• Introducing electronic insurance accounts by establishing a data governance framework to ensure secure and compliant data management.
• Enhancing supervisory oversight with the introduction of principle-based regulations to strengthen oversight.
• Strengthening consumer protection with the help of the Integrated Grievance Management System, enforcing stricter claims settlement timelines, and enhancing the Insurance Ombudsman to resolve disputes efficiently.
• Educating consumers by raising awareness about consumer rights and the nuances of insurance through various media channels.

These initiatives collectively aim to modernize the insurance sector, making it more efficient, innovative, and consumer-friendly.

The establishment of the International Financial Services Centres Authority (IFSCA) in 2020 under the International Financial Services Centres Authority Act of 2019 in Gujarat International Finance Tec-City (GIFT City) and the IFSCA (Insurance) Regulations, 2020, aims to create a liberal regime for insurance businesses. Businesses in GIFT City can operate in freely convertible foreign currencies, enjoy significant tax benefits, including a 10-year tax holiday, leading to substantial cost savings and increased profitability. This allows them to tap into international clients and transactions, enhancing risk management and broadening market reach.

Driving inclusive growth with insurance and pensions

From 2014 to 2024, the government has introduced several impactful insurance and pension reforms:

Pradhan Mantri Jan Dhan Yojana, a financial inclusion program that provides affordable access to financial services, including insurance and pensions.

Pradhan Mantri Jeevan Jyoti Bima Yojana offers affordable life and accident insurance.

Atal Pension Yojana ensures a defined pension for unorganized sector workers, enhancing social security.

Pradhan Mantri Jan Arogya Yojana (PMJAY) is the world's largest government-funded health insurance scheme which provides coverage up to ?5 lakh per family per year for secondary and tertiary care hospitalization.

National Pension System Reforms have improved tax benefits and flexibility, with the Unified Pension Scheme launched in 2024 and now ensures that government employees will receive 50% of their last drawn pay as a lifelong monthly benefit.

Pradhan Mantri Fasal Bima Yojana (PMFBY) is a government-sponsored crop insurance scheme offering comprehensive crop risk coverage from pre-sowing to post-harvest losses, protecting farmers' livelihoods and providing financial support in case of crop failure due to natural calamities, pests, and diseases.

These reforms collectively strengthened India's social security net, ensuring better protection and support for all citizens.

Future proofing insurance

As we advance, a proposed Insurance Law (Amendment) Bill, approved by the Union Cabinet in 2023, awaits introduction in Parliament. This bill aims to modernize the insurance sector further, making it more inclusive, dynamic, and consumer-centric. It is designed to benefit both insurers and policyholders while deepening insurance penetration. Some of the significant second-generation reforms on the horizon include:

• Increasing the FDI cap from 74% to 100% to attract more foreign investment, enhance the sector's capital base, and promote growth.
• Lowering entry barriers by reducing paid-up capital requirements for smaller, specialized companies and linking them to the insurer's size and scope, this reform seeks to foster greater competition and innovation in the market.
• Issuing composite insurance licenses to increase operational flexibility and efficiency, enabling insurers to offer a wider range of products and services.
• Allowing large corporations to set up captive insurance companies to help them tailor their insurance coverage to specific needs, potentially reducing costs and reliance on traditional insurers.
• Permitting insurers to distribute financial products such as mutual funds, loans, and bank deposits and thereby create new revenue streams and providing consumers with more comprehensive financial solutions.

However, the proposed changes could bring several potential risks:

• Increased FDI and relaxed investment regulations might strain regulatory oversight, making it more challenging to ensure compliance and monitor the financial health of insurers with significant foreign ownership.
• Allowing composite insurers could lead to operational complexities, as insurers may face challenges in managing diverse product lines and maintaining regulatory compliance across different insurance segments.
• Reduction in initial capital requirements and the introduction of composite licenses could lead to market concentration, with larger insurers potentially dominating the market and stifling competition and innovation from smaller players.
• Allowing large corporations to set up captive insurance companies may lead to conflicts of interest and raise concerns about corporate governance and risk management practices.
• Insurers distributing other financial products could blur the lines between insurance and other financial services, increasing risks for consumers if insurers prioritize selling higher-margin financial products over traditional insurance policies.

These risks highlight the need for robust regulatory frameworks and vigilant oversight to ensure that the country can realize the benefits of these reforms without compromising market stability and consumer protection.

Reflecting with pride

When the Indian government opened the insurance sector to private players in 2000, the market was small and underdeveloped, dominated by state-owned giants like LIC and GIC. Insurance penetration was a mere 2.71% of GDP in 2001 with life insurance contributing 2.15% and non-life insurance 0.56%.

Fast forward to 2023, and the transformation is remarkable. India now ranks as the 10th-largest insurance market globally and the 5th-largest in Asia, with a total premium volume of approximately $131 billion. The life insurance sector alone has collected over $85 billion in premiums.

As of 2024, India has 26 life insurance companies, 32 general insurance companies, and 1 reinsurance company (General Insurance Corporation of India). Additionally, there are 13 foreign reinsurance branches, including the branch office of Lloyd's of London. Among the general insurance companies, there are 5 standalone health insurance companies. The insurance sector includes approximately 3.028 million agents, 735 registered brokers, and 24 registered third-party administrators.

While the insurance market growth is impressive, the risk landscape is continuously changing, offering new opportunities for insurers to manage emerging risks and drive inclusive economic growth:

• More frequent natural catastrophes underscore the need for a robust insurance market to mitigate financial impacts.
• Rising cyber threats highlight the importance of insurance coverage for data breaches and cyberattacks.
• COVID-19 pandemic has emphasized the critical role of health insurance in reducing the burden on public health systems.

A well-regulated, growing insurance market attracts foreign investors, bringing in capital and expertise to further boost the sector. This influx of capital channels long-term investments into infrastructure projects, supporting job creation and economic growth. Increased insurance penetration protects the financial well-being of individuals and businesses, promoting economic resilience. India's insurance sector has not only expanded but also evolved to meet new challenges, driving stability and growth in the economy. The future looks promising as the sector continues to innovate and adapt, ensuring robust economic development and financial security for all.

Summing up the journey of a legend

Blessed are those who plant trees under whose shade they will never sit. The transformation of India's insurance sector is nothing short of remarkable. From a modest beginning dominated by state-owned entities, the industry has evolved into a powerhouse. This growth is not just about numbers; it's about resilience and adaptability in the face of a changing risk landscape.

The nation owes a debt of gratitude to Manmohan Singh, the architect of India's economic reforms. As Finance Minister in the early 1990s, he laid the groundwork for a modern insurance sector, opening it to private and foreign players. This pivotal move transformed the insurance landscape, making it more competitive and efficient.

Manmohan Singh's successors built on this foundation, establishing and strengthening the Insurance Regulatory and Development Authority of India (IRDAI) in 1999 to regulate and promote the industry. This regulatory framework ensured transparency, protected policyholders' interests, and encouraged innovation.

As India embarks on second-generation reforms, the focus is on addressing the evolving risk landscape. These reforms aim to protect assets, lives, and incomes while leveraging vast funds for resilient infrastructure investment, boosting employment, increasing incomes, and improving overall welfare and sustainability.

Every reform comes with its inherent risks. While Manmohan Singh’s legacy of economic liberalization and regulatory reforms has set a strong foundation for the future growth and resilience of the insurance sector, his wisdom and foresight will be missed as the Indian insurance sector navigates new challenges.

[Arup Chatterjee is the Unit Head of the Capital Markets and Insurance Practice Team at the Asian Development Bank Headquarters in Manila. He supported the Committee for Reforms in the Insurance Sector and was a former staff of the interim Insurance Regulatory Authority (1996-2000) and the Insurance Regulatory and Development Authority of India (2001-2005)]

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