ROLE OF INSURANCE IN THE ECONOMIC

DEVELOPMENT OF INDIA
Dr. S. Nirmala Devi, Head of the Department, Department of
Commerce, Sri Ramakrishna College of Arts and Science.
Vikhashini S V, PG Student, Department of Commerce,
Sri Ramakrishna College of Arts and Science.

ABSTRACT:
The insurance industry is key to the economic development of
any country. A well-developed insurance sector promotes risk-
taking in the economy by providing some protection in case of
losses due to unforeseen events. It also provides much-needed
support to family members in case of loss of life or health.
Insurance generally mobilizes investment in various productive
activities, leading to industrialization and economic growth. It
is an important industry and acts as a buffer between risks and
economic activities. Regular inspection of machinery and
premises and provision of medical services by insurance
companies save property and lives besides reducing risks and
increasing their creditworthiness. Since assets managed by
insurance companies represent long-term capital, they also act
as a fund that can be invested in long-term projects such as
infrastructure development. Along with the country's economy,
the insurance industry in India has also developed. Several
insurance companies in the country are expanding their
presence in both the public and private sectors. This thesis
analyses the role of the Indian insurance industry in sustainable
economic growth and also studies the concept of insurance, the
historical background of the insurance market in India, and the
current market situation in India. This article is based on
secondary data sources.

KEYWORDS: Sustainable Economic Growth, Life

insurance, General insurance, Risk, Protection, and GDP.

INTRODUCTION:
In developing countries like India, the insurance industry plays
an important role in achieving sustainable economic growth.
Insurance is a risk mitigation tool; it is an agreement to transfer
risk from one person to another with a consideration called
premium. The concept of insurance works with the principle of
"the loss of the few shared by the many". Insurance companies
help stabilize the economy, especially in times of financial
crisis. They are fundamentally different from investment banks
and commercial banks. Insurance is known to have existed in
some form since 3000 BC. Various cultures have, over the
years, practiced the concept of pooling and sharing all losses
suffered by some members of the community. For sustainable
economic development of a country, insurance provides a
sound mind, protection against property loss, and adequate
capital to generate more wealth. Agricultural production will
experience a loss of animals, machines, implements, and crops.
This kind of protection encourages more production in
agriculture, industry, factory premises, and machines. Adequate
capital from insurance companies accelerates the production
cycle. Thus, insurance fulfills all the needs of the economic
development of the country.

LITERATURE REVIEW:
1) Prof. Jagdeep Kumari (2016) in his paper "Role of
Insurance in India's Economic Development"
concluded that the insurance sector in India is one of the
fastest-growing sectors of the economy and is growing at
a rate of 15-20 percent annually. In India, insurance is a
thriving industry, with many national and international
players competing with each other. Indian insurance
companies offer a wide range of insurance plans.
2) Sajid Mohi ul Din, Arpah Abu-Bakarand Angappan
Regupathi (2017) in their paper "Does Insurance
Promote Economic Growth: A Comparative Study of
Developed and Emerging/Developing Economies"
examine the relationship between Insurance and
Economic Growth in 20 Countries for the period 2006. -
2015. The results also show that non-life insurance is
statistically related to economic growth for all three
proxies, for developing countries, while in the case of
developed countries, the results are significant only when
insurance density is used as a proxy for insurance like this.
3) [Link] Rao, and R. Srinivasulu (2013) in their article
"Contribution of Insurance Sector to Growth and
Development of Indian Economy" concluded that since
the establishment of IRDA in India, the development
performance of the insurance industry has increased
tremendously.,. , which oversees and regulates the entire
insurance industry. IRDA is playing a leading role in
increasing the number of insurers both in life and non-life,
increasing insurance penetration and density, increasing
the number of policies issued, and increasing the speed of
 settlement of claims and many other aspects. Indian
Insurance Sector.

OBJECTIVES:
✓ To define the role and contribution of insurance towards
sustainable economic development.
✓ To know the concept of insurance.
✓ To study the current situation of the insurance industry
in India.

RESEARCH METHODOLOGY:
This paper is based on secondary data and data were collected
from publications, books, articles in newspapers, journals and
research papers, and websites.

ECONOMIC GROWTH AND INSURANCE:

Economic growth refers to the rate of growth that can be
sustained without creating other significant economic
challenges, especially for future generations. There is a clear
difference between today's rapid economic growth and future
growth. Today's rapid growth can deplete resources and create
environmental problems for future generations, such as
depleting oil and fish stocks and global warming. Insurance
plays an important role in developing sustainable business
organizations through products and services. Community,
business organization, etc. by insurance against risk
uncertainty, it improves the standard of living of the people and
builds confidence to overcome challenges and seize
opportunities in the business community.

HISTORY OF INSURANCE IN INDIA:

India has a deep insurance history. Mentioned in the writings of
Manu (Manusmrithi), Aghagnavalkya (Dharmasastra), and
Kautilya (Artasastra). The verses refer to the accumulation of
resources that can be redistributed during disasters such as
fires, floods, plagues, and famines. This is probably the
standard cursor for modern insurance. Ancient Indian history
preserves the first traces of insurance in the form of maritime
trade credit and carrier contracts. Insurance in India has grown
significantly over time from other countries, especially the UK.

In 1818, the birth of the life insurance industry in India began

with the establishment of the Oriental Life Insurance Company
in Calcutta. The company failed in 1834. In 1829, Madrasa
Equitable started a life insurance business under the Madrasa
Presidency. In 1870, the British Insurance Act came into force,
and in the last three decades of the 19th century, Bombay
Mutual (1871), Oriental (1874), and Indian Empire (1897) were
launched in the Bombay Residency. However, this period was
dominated by foreign insurance offices doing good business in
India, namely Albert Life Assurance, Royal Insurance,
Liverpool, and London Globe Insurance, and Indian offices for
competition from foreign companies.

The Insurance Amendment Act of 1950 abolished the main

agency. However, there are many insurance companies and a
high level of competition. Allegations of unfair trade practices
have also been made. Therefore, the Indian government
decided to nationalize the insurance industry. On January 19,
1956, the decision to nationalize the Life Insurance industry
was passed and the Life Insurance Company came into force
that year. LIC has attracted 154 Indian and 16 non-Indian
insurers, as well as 75 provider communities - a total of 245
Indian and foreign insurers. LIC had a monopoly until the late
90s when the insurance industry was opened up to the private
sector.

General insurance in India was established in 1850 by the

British in Calcutta as Triton Insurance Company Ltd. It goes
back to the creation of 1907 Indian Trade Insurance Ltd. It was
the first company to conduct all classes of general insurance
business. 1957 saw the establishment of the General Insurance
Council, a wing of the Insurance Association of India. The
General Insurance Board has established a code of conduct to
ensure fair conduct and business practices.

General Insurance Corporation of India was incorporated as a

company in 1971 and commenced operations on January 1,
1973. This millennium has seen insurance come full circle in
its nearly 200-year journey. The process of opening up the
sector started in the early 1990s and the last decade has seen
significant opening up. In 1993, the government established a
committee headed by former RBI Governor RN Malhotra to
recommend proposals for reforms in the insurance sector. The
goal is to complete the reforms that have started in the financial
sector. The committee submitted a report in 1994 that
recommended, among other things, that the private sector be
allowed to enter the insurance industry. Indian companies
floated by foreign companies are allowed to enter, preferably
through joint ventures with Indian partners, he said. In 1999,
the Insurance Regulatory and Development Authority (IRDA)
was established as an autonomous body for regulation,
following the Malhotra Committee report. and the development
of the insurance industry. IRDA was incorporated as a statutory
body in April 2000. IRDA's main objectives include ensuring
the financial security of the insurance market while promoting
competition to increase consumer choice and customer
satisfaction through affordable prices. IRDA opened the market
in August 2000 with an invitation to apply for registration. 26%
ownership is given to foreign companies. The authority is
empowered to make rules under Section 114A of the Insurance
Act, 1938, and from 2000 to make several rules, from
registering companies to carry out insurance business to
protecting the interests of policyholders.

Today there are insurance industry comprises a total of 57

insurance companies in India. There are 24 companies
recognized by IRDA for life insurance business and 34
companies have received permission from IRDA for non-life
insurance. Life Insurance Corporation of India is the only
public sector life insurer.

ROLE OF INSURANCE:
Provide security and safety: Insurance provides security and
safety against loss in certain events. Life insurance premiums
are paid on death or at the end of the policy term. Premature
family bereavement and old age coverage are adequately
covered by insurance. Similarly, the insured property is covered
against fire loss under fire insurance. Insurance protects against
loss of earnings on death or old age, loss by fire, damage, loss
or loss of property, goods, equipment, and machinery.

Job creation: Life insurance increases employment

opportunities. The number of employees in the insurance sector
as of 31st March 2015 is around 20 lakhs. Many agents depend
on insurance for their livelihood. Number of agents as of 31st
March 2004 15.59 lakhs. Brokers, corporate agents, and
training institutes provide additional employment
opportunities. Many of these openings are in rural areas.

Insurance offers peace of mind: Desire for security is the

main driving factor. This is the desire that stimulates to work
more, if this desire is unsatisfied, it will create a tension that
manifests itself in the individual in the form of an unpleasant
reaction that leads to reduced work, security fears, and
uncertainty. , fire, hurricanes, auto-mobile accidents, loss, and
death are beyond the control of the human agency, and any of
these events can depress or weaken the human mind. However,
through insurance, much of the uncertainty surrounding
security and the desire to obtain it can be removed.
Generates financial resources: Insurance generates funds by
collecting premiums. These funds are invested in government
securities and stocks. These funds are beneficially employed in
the industrial development of the country to generate more
funds and to be utilized for the economic development of the
country. Employment opportunities increase through large
investments which lead to capital formation.

Life Insurance Promotes Savings: Insurance not only protects

against risks and uncertainties but also provides an investment
channel. Life insurance enables systematic savings due to
regular premium payments. Life insurance provides a form of
investment. He develops the habit of saving money by paying
premiums. The insured receives a lump sum on the maturity of
the contract. Thus life insurance encourages savings.

Promotes economic growth: Insurance creates a significant

impact on the economy by mobilizing domestic savings.
Insurance turns accumulated capital into productive
investment. Insurance enables mitigation of losses, and
financial stability and promotes trade and commerce activities
that result in economic growth and development. Thus,
insurance plays a crucial role in the sustainable development of
the economy.
Medical Assistance: Medical insurance is considered essential
to manage health risks. Anyone can unexpectedly fall victim to
a serious illness. And rising medical costs are a major concern.
Medical insurance is one of the insurance policies that cover
various types of health risks. In the case of a medical insurance
policy, the insured gets medical assistance.

Spreading: Insurance facilitates the spreading of risk from the

insured to the insurer. The basic principle of insurance is to
spread risk among a large number of people. A large number of
individuals obtain insurance policies and pay premiums to the
insurance company. Whenever there is a loss, it is compensated
from the funds of the insurance company.

Source of fundraising: Major funds are raised through

premiums. These funds are used in the industrial development
of the country, which boosts economic growth. Employment
opportunities increase through such large investments. Thus,
insurance has become an important source of capital formation.

INSURANCE INDUSTRY CONTRIBUTION

IN INDIAN ECONOMY:
Insurance companies, without further defaults, receive a steady
cash flow of premiums or contributions to pension plans.
Various actuarial studies and models enable them to predict
their expected cash flows relatively accurately. Insurance
companies' liabilities are long-term or contingent in nature,
liquidity is excellent, and their investments are also long-term.
As a combined result of all these, insurance companies have
mostly invested in bonds issued by GOI, PSUS, State
Governments, local bodies, corporate bodies, and mortgages of
a long-term nature. The insurance industry also provides
critical financial intermediation services, which transfer funds
from the insured to capital investment, critical to continued
economic expansion and growth, as well as generating long-
term funding for infrastructure development. Infrastructure
investments are ideal for asset-liability matching for life
insurance companies given their long-term liability profile.
According to preliminary estimates released by the Reserve
Bank of India, the contribution of insurance funds to fiscal
savings was 14.2 percent in 2005-06, i.e., 2.4 percent of GDP
at current market prices. Thus, the development of the
insurance sector is necessary to support continuous economic
transformation. Social security and pension reforms also
benefit from a mature insurance industry.
CONCLUSION:
The risk transfer facility provided by insurance companies can
be viewed in terms of efficient use of capital. If there are no
insurance markets, industrial, commercial, and trade
enterprises will have to hold more precautionary capital to run
their enterprises. In effect, insurance companies supply
contingent equity capital to industrial and commercial
enterprises. Insurance promotes foreign trade and plays an
important role in expanding and encouraging international
trade. When the goods are shipped out of the country, the goods
are subject to various risks like ship sinking, ship collision,
robbery, etc.
REFERENCE:
✓ Prof. Jagdeep Kumari (2016) in his paper “Role of
Insurance in Economic Development of India” Vol-2,
Issue-12.
✓ Sajid Mohy Ul Din, Arpah Abu-Bakarand Angappan
Regupathi (2017i their paper “Do insurance p econo
growth: A comparative study of developed and
emerging/developing economies ”
✓ Dr. M. Subba Rao, R. Srinivasulu (2013) Contribution of
Insurance Sector to Growth and Development of the
Indian Economy” IOSR Jou and Management (IOSR-
JBM) e-ISSN: 2278-487X. Volume 7, Issue 4 (Jan. -Feb.
2013), PP 45-52
✓ [Link]
✓ [Link]
✓ [Link]
✓ [Link]
✓ INSURANCE PRINCIPLES AND PRACTICE Mishr
Mishra and S B Mishra, S. Chand publication. ISBN 97-
89-385-6760-79.
✓ FUNDAMENTALS OF INSURANCE by P.K Gupta,
Himalaya Publishing House. ISBN 978-93-5097-079-
9.
✓ INSURANCE MANAGEMENT (TEXT AND CASES)
by Swarup C. Sahoo and Suresh C. Das, Himalaya
Publishing House. ISBN 978-93-5097-716-3.