THE UNIVERSITY OF NOTTINGHAM

Centre for Risk & Insurance Studies

Privatization of the Insurance Market in India: From the British Raj to Monopoly Raj to Swaraj

Tapen Sinha
CRIS Discussion Paper Series – 2002.X

Privatization of the Insurance Market in India: From the British Raj to Monopoly Raj to Swaraj by Tapen Sinha, Ph.D. ING Comercial America Chair Professor Instituto Tecnológico Autónomo de México Mexico City, Mexico and Professor, School of Business University of Nottingham, UK tapen@itam.mx, tapen@nottingham.ac.uk Abstract We examine the institution of insurance in India. Over the past century, Indian insurance industry has gone through big changes. It started as a fully private system with no restriction on foreign participation. After the independence, the industry went to the other extreme. It became a state-owned monopoly. In 1991, when rapid changes took place in many parts of the Indian economy, nothing happened to the institutional structure of insurance: it remained a monopoly. Only in 1999, a new legislation came into effect signaling a change in the insurance industry structure. We examine what might happen in the future when the domestic private insurance companies are allowed to compete with some foreign participation. Because of the time dependence of insurance contracts, it is highly unlikely that these erstwhile monopolies are going to disappear.

Acknowledgement: I would like to thank Rebecca Benedict and Samik Dasgupta for their input in this article without implication. The views expressed here are personal. I alone am responsible for any error.

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Introduction Insurance in India started without any regulation in the Nineteenth Century. It was a typical story of a colonial era: a few British insurance companies dominating the market serving mostly large urban centers. After the independence, it took a dramatic turn. Insurance was