While no aspect of the reform
process in India has gone smoothly since its inception in 1991, no individual
initiative has stirred the proverbial hornets' nest as much as the proposal to
liberalize the country's insurance industry. However, the political debate that
followed the submission of the report by the Malhotra Committee has presumably
come to an end with the ratification of the Insurance Regulatory Authority
(IRA) Bill both by the central Cabinet and the standing committee on finance.
This section traces the evolution of the life insurance companies in the US
from firms underwriting plain vanilla insurance contracts to those selling
sophisticated investment contracts bundled with insurance products. In this
context, it brings into focus the importance of portfolio management in the
insurance business and the nature and impact of portfolio related regulations
on the asset quality of the insurance companies. It also provides a rationale
for the increased autornatisation of insurance companies, and the increased
emphasis on agent-independent marketing strategies for their products. If politicized,
regulations have potential to adversely affect the pricing of risks, especially
in the non-life industry, and hence the viability of the insurance companies.
Finally, the backdrop of US experience provides some pointers for Indian
policy makers.
