SCDL MBA PROJECT - FDI in Insurance

The General Insurance Corporation of India

Although efforts were made to maintain an open market for the general insurance industry amending the Insurance Act of 1938 from time to time, malpractice escalated beyond control. Thus, the general insurance industry was nationalized in 1972. The General Insurance Corporation (GIC) was set up as a holding company. It had four subsidiaries: New India, Oriental, United India and the National Insurance companies (collectively known as the NOUN). It was understood that these companies would compete with one another in the market. It did not happen. They were supposed to setup their own investment portfolios. That did not happen either. It began to happen after29 years.

The GIC has a quarter of a million agents. It has more than 2,500 branches, 30million individual and group insurance policies and assets of about USD 1,800 million at market value (at the end of 1999). It has been suggested that the GIC should close 20-25% of its nonviable branches (Patel, 2001). The GIC has so far been the holding company and re-insurer for the state-run insurers. It reinsured about 20% of their business.

Two Committee Reports: One Known, One Unknown

Although Indian markets were privatized and opened up to foreign companies in a number of sectors in 1991, insurance remained out of bounds on both counts. The government wanted to proceed with caution. With pressure from the opposition, the government (at the time, dominated by the Congress Party) decided to set up a committee headed by Mr. R. N. Malhotra (the then Governor of the Reserve Bank of India).