General Insurance: Meaning, Scope and Importance

• Preface
• History and Development
• Meaning and definition of general insurance business
• Importance of general insurance
• Nationalization of General Insurance
• Operation and Management of Nationalized General Insurance Companies
• Reorganization of Nationalized General Insurance Business,

Apart from life insurance, all other types of insurance come under general insurance. General insurance business can be done in conjunction with fire insurance, marine insurance, miscellaneous insurance or a combination thereof. The weaker section has further developed through the general insurance business.

Before nationalization, the scope of the general insurance business was not widespread. The income of the companies engaged in this business was also negligible. Since the time of nationalization of life insurance business, it has been raised by the people continuously that it is in the interest of the nation to nationalize general insurance like life insurance business. Especially when many adverse arrangements have made their impact in the working of general insurance business, such nationalization will be an important achievement for the country.

In 1967, once again the talk of nationalization of general insurance gained momentum, but the then Finance Minister Shri Morarji Desai called it impractical. Since the government was committed to remove the shortcomings in the working of general insurance business even at that time, the government decided to exercise social control on this insurance business with the aim of maintaining effective control over the institutions engaged in the general insurance business. Accordingly, by changing the Insurance Act of India, the Insurance Controller was given wide powers of supervision and control of the institutions engaged in the general insurance business. Social control of the general insurance business was considered an important step in this direction and the critics did not take the time to deny the justification for the recognition of nationalization to those who were already parties to nationalization. The nationalization of general insurance business was further strengthened by the nationalization of 14 banks in 1969 and the then Prime Minister Mrs. Indira Gandhi herself said that if the nationalization of general insurance business is important in the economy and achieving social goals, it is in the interest of the nation. If so, we should consider the question of nationalization in a constructive manner.

In the context of the above background, on May 13, 1971, the President took an important step of nationalizing the general insurance business by issuing an ordinance. As a result, from this date, the ownership and control of all the institutions engaged in the general insurance business came in the hands of the government. The General Insurance (Emergency Provisions) Act, 1971 was passed in June 1971 with the objective of making this ordinance permanent. Due to this nationalization, a total of 112 institutions of that time, of which 67 were Indian and 45 foreign, came under the ownership and control of the government.

As per Section 2 of Insurance Act 1938 – Goods insurance business means fire, marine or miscellaneous insurance business whether carried on singly or in combination with one or more of them. It is clear from this definition that except the life insurance business, all other types of insurance business are called general insurance business. General insurance business can be carried on with only fire insurances, marine insurances, miscellaneous insurances or any combination thereof. Motor accident, aviation engineering and guarantee insurance are covered under various insurances. After nationalization, the general insurance business in our country has progressed very rapidly. Different types of insurance forms are being issued to cover different types of risks.

The importance of general insurance in the industrial and commercial development of any country is remarkable. Risk is a well-known fact of commercial and industrial life, it cannot be avoided. Therefore, it is necessary to get protection from these risks so that the business can run continuously. General insurance provides protection against these risks. At present, the General Insurance Corporation and its subsidiaries are playing an important role in the development of commerce and industry in many ways.

1. Protection of Property – General insurance provides insurance of business and industry’s properties, goods, etc., to protect them from possible loss.
2. Protection from natural hazards – The insurance industry has played an important role in providing protection against natural hazards to the commerce and industries of the country. Fire and Marine Insurance has contributed the most in this sector. The facility of insurance for factories, shops, godowns, machines etc. has provided utmost protection to the businessmen. This is the reason that due to many horrific fires, even after factories and shops turn into piles of ashes or even after ships and goods moving in the sea are sunk. Business organizations maintain their existence.
3. Protection against man-made risks – Today the insurance industry is also providing protection to business entities from man-made risks. The General Insurance Corporation and its subsidiaries have started many insurance papers, under which protection is provided against many such risks. For example, the risks of strike, riot, malpractice, damage, theft, dacoity etc. can be insured. Commercial and industrial organizations are getting great relief in the modern era from the insurance of these risks. Similarly, the amount to be carried on the way can also be insured. Due to this, businessmen have been freed from the fear of robbery, theft etc. on the way. Similarly, with the introduction of insurance of the credibility of individuals, the businessman has also got 1227 opportunities to protect his employees from the losses arising out of the degradation of moral values. General Insurance Corporation’s subsidiaries have contributed a lot in protection against losses arising due to man-made or human factors.
4. Protection against loss of profits – Nowadays such insurance letters have been started in which there is an insurance to compensate for the loss in profits due to the destruction of a factory or shop. In this way, in addition to the direct loss arising due to the risk of the businessman by such insurance, the indirect loss (profit that is not earning) is compensated. All the general insurance companies of India are not only for big industries but for small shopkeepers and businessmen. In order to protect the loss from profits, insurance has started issuing letters.All businessmen big and small can benefit from this.
5. Protection from risk of research and innovation – Industrial and commercial organizations keep doing research and innovation. The hypothetical risks arising from these have to be borne by the businessman himself, but there are some pure things associated with them, such as stopping someone’s work, fluctuations in the power supply. Plays an important role in promoting research and innovation by providing protection against such risks.
6. Promoting the development of service industries – Insurance has played an important role in the development and expansion of the service sector. Air buses, air tennis, hospitals, banks, courier services, hotels and catering services, tents etc. are very risky service work. . Insurance institutions have provided insurance for all these services and works.
7. Promotion of small traders and craftsmen – Insurance institutions have obtained comprehensive insurance letters for small shopkeepers, craftsmen and small and cottage industries. They have also provided the facility to insure them on taking loans from banks and other financial institutions. Due to this small traders, craftsmen etc. are expanding and developing their business by making continuous progress.
8. Commercialization of Agriculture – Agriculture is a risky business. It is even more vulnerable in India as the monsoon in our country is very uncertain. Sometimes due to excessive rain and sometimes due to non-rainfall, the farmers have to bear heavy losses. Agricultural diseases further increase their exposure. But the government has played an important role in commercializing agriculture by starting the crop insurance scheme. Now the farmer can take the help of more and more machines, chemicals and other capital resources and can put the risk on the insurance institution.
9. Commercialization of animal husbandry, poultry and fish farming, milk production etc. – Insurance institutions have also encouraged their commercialization by providing the facility of insurance of livestock, chickens, fish ponds, dairies etc. As a result, these works have been started on commercial basis.
10. Cooperation in the fulfillment of statutory obligations – The general insurance industry of all countries has also contributed in the fulfillment of social and legal obligations of business. Insurance organizations have helped Shri Businessmen in many ways to do many labor welfare and social security. Apart from this, it has also assisted the businessmen in fulfilling the statutory obligations of Workers’ Compensation Act, Ex-gratia Payment Act etc. The General Insurance Corporation and its subsidiaries have helped the businessmen in fulfilling their statutory obligations by providing insurance facilities under the Public Liability Insurance Act. Similarly vehicle insurance has rendered a great service to the society by providing the service of third party insurance.

Before nationalization the condition of general insurance business in our country was not good. The income and capital investment of the companies were also very low. For reinsurance, our companies had to depend on foreign companies, a large amount of income of these companies went away in the form of reinsurance premiums. Before nationalization, Life Insurance Corporation also entered the field of general insurance business in the year 1964. On the whole, it can be said that the position of general insurance was very backward in terms of business profits and area etc. before it was nationalised.

Therefore, on 13 May 1971, the President of India issued an ordinance handing over the management of the companies engaged in the general insurance business to the government. Thus the ownership and management of general insurance business came under government control.

While nationalization of general insurance was strongly welcomed by others, at the same time many called it completely unnecessary and impractical. Many arguments were given in favor and against nationalization. Which is the following:

1. Arguments in favor of nationalization – Those who were in favor of nationalization were of the opinion that the question of nationalization is related to the priorities of the country’s economic programs, so nationalization should be given importance. It is also necessary to nationalize general insurance especially in our country because we have cherished the dream of establishing a socialist society in our country. These people gave many arguments in favor of nationalization which are as follows:-

a) Establishment of socialist society: – Insurance business is a business of public interest full of service and goodwill. It is necessary that it should be given in the hands of such an institution which can develop it keeping in mind the social interest. Therefore it is necessary to nationalize it.

(b) Expansion of the public sector: – Nationalization of the general insurance business will lead to expansion of the public sector. Centralization of money in private hands will be stopped and the income received can be appropriated in the maximum interest of the general public. Therefore nationalization of general insurance business is necessary.

(c) Elimination of irregularities: – People were constantly complaining about irregularities prevailing in insurance institutions. To prevent these irregularities, it was necessary that these institutions should be taken out of the private sector and given to the public sector.

(d) Expansion of insurance business: – Being in private hands, the facilities of general insurance business are getting only in some important areas of the country, while the whole country should get its benefits. Since the general insurance business under the private sector was limited to cities and big towns, it was necessary to nationalize it for its spread in villages and untouched areas.

e) Protection to the insured: – With the nationalization of the general insurance business, the insured will not only get protection, but their interests will also increase greatly. Private insurance companies can also express their inability to pay claims. Whereas nationalization will not create such incapacity. Private companies charge higher premium amount from the insured while nationalization tax will also enable proper determination of premium rates.

f) To earn foreign exchange: – 42 foreign companies are working in the general insurance business, due to which a large part of the profits of this business goes abroad every year, to prevent this nationalization of general insurance is necessary.

(g) Decentralization of economic power:- With all the general insurance business coming into the hands of the government, there will be decentralization of economic power.

h) Providing Insurance Facility:- The people in favor of nationalization of general insurance have also believed that nationalization will reduce the cost of insurance. As a result, there will be time to be insured at lower premium rates and it will be possible to get insurance facilities at the lowest premium rates.

i) Improvement in working conditions: – There was a lot of dissatisfaction among the working conditions which were available in various general insurance business companies before nationalization. Nationalization was also considered appropriate for the purpose of removing this dissatisfaction and improving the working conditions of the people working in these institutions.

Arguments in opposition to nationalization – Critics of nationalization have given many arguments in opposition to nationalization, which are as follows –

(a) End of competition: – Critics also believed that nationalization would generate monopoly. As a result, mutual competition will decrease. Since insurance is a public utility business, it is very important to maintain healthy competition.

b) Increase in administrative expenses: – Some people also believed that the nationalization of general insurance business would have an effect on administrative expenses. Administrative expenses will increase as compared to earlier, which will increase the insurance cost. Ultimately, the burden of this will have to be borne by the insurers.

(c) Slave of Efficiency :- Years of experience of the people proves that where the policy of nationalization has been implemented, there has been a decrease in the efficiency of the organization and there has been a decline in the services, because there is a mutual competition for the increase of efficiency. The existence of this business is necessary, so the critics believed that the promotion of this business would be possible in a better way only in the private sector.

d) Lack of importance of managerial skills: – Critics also believed that after nationalization, bureaucracy would dominate the management of general insurance business. Accordingly, the importance of professional persons will decrease. The sway of the bureaucracy will lead to an increase in red tape and stop the spread of the insurance business.

e) Insignificant from economic point of view: – The possible income to be received from nationalization of general insurance business is 4 crores whereas the income of life insurance business was about 100 crores at the time of nationalization. Since this very small income does not seem likely to cause any drastic changes in the plans of the government, it would be better if the government allows this insurance business to flourish in the private sector.

After the nationalization of general insurance business, the central government dissolved the board of directors of nationalized general insurance companies and appointed 30 custodians for the management operations. The custodians were given full rights to conduct the general insurance business of these companies. The Government also assured to continue the services of full time officers of nationalized general insurance companies as per their ex-service conditions. Thus these nationalized companies started doing their business under the direction and control of the preservatives.

The Central Government passed the General Insurance Business (Nationalization) Act 1972 in 1972 to restructure the nationalized general insurance business. Under the provisions of this Act, the General Insurance Corporation of India was established so that the general insurance business could be inspected, controlled and operated properly from January 1, 1973. Thus, since the establishment of the General Insurance Corporation of India, the general insurance business of the country has started operating in an integrated manner.