A Brief History of Insurance: Origins, Evolution, and Its First Claim in India
What is Insurance?
Insurance is a financial arrangement that provides protection against losses. It works on the principle of risk-sharing, where individuals or businesses pay a small amount (premium) to an insurance company. In return, the insurer compensates them for financial losses arising from unforeseen events such as accidents, illnesses, or disasters.
How Did Insurance Begin?
The concept of insurance dates back thousands of years. Some of its earliest forms can be traced to:
- Ancient Babylon and China (3000–2000 BCE): Traders used risk-sharing methods to protect their goods during transportation.
- Ancient Greece and Rome: These civilizations had early forms of life insurance and burial funds.
- Medieval Europe: Merchants in Italy and England developed marine insurance to protect cargo and ships.
The modern insurance system began in the 17th century when Lloyd’s of London established itself as a center for marine and fire insurance.
Who Invented Insurance?
While no single person "invented" insurance, modern insurance practices were formalized by:
- Lloyd’s of London (1686): Established the first structured insurance market.
- Benjamin Franklin (1752): Founded the first fire insurance company in America.
First Insurance Claim in India
India’s insurance journey began with Oriental Life Insurance Company in 1818, which focused on European clients. The first-ever insurance claim in India isn’t well documented, but early policies covered British officers and traders.
The insurance industry evolved, leading to the Life Insurance Corporation of India (LIC) in 1956 and the liberalization of the sector in 2000, which allowed private companies to enter.
The insurance industry in India has seen significant developments recently. Here's an overview of the major updates:
1. Expansion of Russian Insurers' Pool
To maintain a steady supply of affordable Russian oil amidst new U.S. sanctions, India has broadened the list of Russian insurers authorized to provide marine coverage for tankers docking at Indian ports. Notably, Soglasie Insurance Company has been approved to offer insurance until February 2026, while approvals for Sogaz Insurance, Alfastrakhovanie, and VSK Insurance have been extended until February 2030. Ingosstrakh Insurance Company is recognized until February 2029. This move ensures uninterrupted oil imports despite Western sanctions targeting Russian entities.
2. Industry's Aspirations for the 2025 Budget
The insurance sector is advocating for substantial reforms in the upcoming 2025 budget to enhance financial inclusion and address affordability challenges. Key expectations include:
Goods and Services Tax (GST) Reductions: Lowering GST rates on insurance products to make them more accessible.
Tax Exemptions: Introducing tax incentives to encourage individuals to opt for insurance coverage.
Regulatory Reforms: Aligning India's insurance practices with global standards to foster growth and innovation.
These measures aim to broaden insurance coverage and deepen market penetration across the country.
3. Challenges in Achieving 'Insurance for All' by 2047
At the 18th IR India Rendezvous on January 22, 2025, industry expert T.L. Alamelu highlighted concerns regarding the ambitious goal of 'Insurance for All' by 2047. While there is readiness in terms of distribution channels and ecosystem, the actual implementation has been sluggish. Accelerated efforts are necessary to meet this target within the stipulated timeframe.
4. Performance of Leading Insurance Companies
ICICI Prudential Life Insurance: Reported a 43% increase in third-quarter profit, reaching ₹3.26 billion, driven by a 23.5% rise in net premium income due to higher new policy sales.
SBI Life Insurance: Experienced a 71% surge in third-quarter profit to ₹5.51 billion, attributed to higher policy renewals and new sales. Net premium income rose by 11% to ₹248.28 billion.
These developments underscore the dynamic nature of India's insurance sector as it navigates challenges and seizes opportunities in a rapidly evolving landscape.
As of 2024, India's insurance market reached a size of approximately USD 303.3 billion. Projections indicate that by 2025, the market is expected to grow to USD 228.70 billion in terms of gross written premium.
Looking ahead, the market is anticipated to expand further, reaching USD 807.9 billion by 2033, with a compound annual growth rate (CAGR) of 11.50% during 2025-2033.
In India, insurance offerings are broadly categorized into two main types:
1. Life Insurance: This category provides financial protection against the risk of death. In the event of the policyholder's demise, a predetermined sum is paid to the designated beneficiaries. Life insurance policies can also serve as investment instruments, offering returns over time. Common types include:
Term Life Insurance: Offers coverage for a specific period; if the policyholder passes away during this term, the beneficiaries receive the death benefit.
Endowment Plans: Combine life coverage with savings, providing a lump sum upon policy maturity or death.
Unit-Linked Insurance Plans (ULIPs): Integrate investment and insurance, allowing policyholders to invest in various funds.
2. General Insurance: Also known as non-life insurance, this category covers a range of policies that protect against financial losses other than those covered by life insurance. Key types include:
Health Insurance: Covers medical expenses arising from illnesses or injuries.
Motor Insurance: Provides coverage for vehicles against accidents, theft, and other damages.
Home Insurance: Protects against damages to one's residence due to events like fire, theft, or natural disasters.
Travel Insurance: Offers coverage for unforeseen events during travel, such as trip cancellations, medical emergencies, or lost luggage.
Additionally, the Indian insurance market has seen the emergence of Bite-Size Insurance products. These are small-ticket insurance policies available at very low premiums, focusing on specific needs across various categories like health, travel, and property.
The diverse range of insurance products available in India caters to the varying needs of individuals and businesses, ensuring comprehensive financial protection against potential risks.
Conclusion
Insurance has come a long way from its ancient roots to modern-day policies covering life, health, vehicles, businesses, and more. It remains a crucial financial tool for individuals and businesses to mitigate risks and ensure financial security.
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