Insurance sector reforms
In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R.N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. Financial sector reforms were initiated and it was felt that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms. Some of the recommendations of the Malhotra committee included:
Ö Government stake in the insurance Companies to be brought down 50%.
Ö Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations
Ö All the insurance companies should be given greater freedom to operate
Ö Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the industry
Ö No Company should deal in both Life and General Insurance through a single entity
Ö Foreign companies may be allowed to enter the industry in collaboration with the domestic companies.
Ö The Insurance Act should be changed. An Insurance Regulatory
body should be set up.
Ö Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%
Ö GIC and its subsidiaries are not to hold more than 5% in any company
Ö Customer Service
Ö LIC should pay interest on delays in payments beyond 30 days
Ö Computerisation of operations and updating of technology to be carried out in the insurance industry.
The committee emphasized that it was essential that the sector was open to competition to improve the customer services and increase the coverage of the insurance industry. However, enough precaution should be exercised to prevent failure of the new entrants .Hence a minimum capital requirement of Rs.100 crores was stipulated. To provide greater autonomy to insurance companies and enable them to act as independent companies, it proposed setting up an independent regulatory body.