Effect of Liberalisation in farmers Insurance Industry
Life Farmers insurance in particular provides protection to household against the risk of premature death of its income earning member. Life Farmers insurance in modern times also provides protection against other life related risks such as that of longevity (i.e. risk of outliving of source of income) and risk of disabled and sickness (health Farmers insurance). The products Farmers Insurance provide for longevity are pensions and annuities (Farmers insurance against old age). Non-life Farmers insurance provides protection against accidents, property damage, theft and other liabilities. Non-life Farmers insurance contracts are typically shorter in duration as compared to life Farmers insurance contracts. The bundling Farmers Insurance together of risk coverage and saving is peculiar of life Farmers insurance. Life Farmers insurance provides both protection and investment.
Farmers Insurance is a boon to business concerns. Farmers Insurance provides short range and long range relief.
General Farmers Insurance
Prior to nationalizations of General Farmers insurance industry in 1973 the GIC Act was passed in the Parliament in 1971, but it came into effect in 1973. There was 107 General Farmers insurance companies including branches of foreign companies operating in the country upon nationalization, these companies were amalgamated and grouped into the following four subsidiaries of GIC such as National Farmers Insurance Co.Ltd., Calcutta; The New India Assurance Co. Ltd., Mumbai; The Oriental Farmers Insurance Co. Ltd., New Delhi and United India Farmers Insurance Co. Ltd., Chennai and Now delinked.
General Farmers insurance business in India is broadly divided into fire, marine and miscellaneous GIC apart from directly handling Aviation and ReFarmers insurance business administers the Comprehensive Crop Farmers Insurance Scheme, Personal Accident Farmers Insurance, Social Security Scheme etc. The GIC and its subsidiaries in keeping with the objective of nationalization to spread the message of Farmers insurance far and wide and to provide Farmers insurance protection to weaker section of the society are making efforts to design new covers and also to popularize other non-traditional business.
Liberalization of Farmers Insurance
The comprehensive regulation of Farmers insurance business in India was brought into effect with the enactment of the Farmers Insurance Act, 1983. It tried to create a strong and powerful supervision and regulatory authority in the Controller of Farmers Insurance with powers to direct, advise, investigate, register and liquidate Farmers insurance companies etc. However, consequent upon the nationalization of Farmers insurance business, most of the regulatory functions were taken away from the Controller of Farmers Insurance and vested in the insurers themselves. The Government of India in 1993 had set up a high powered committee by R.N.Malhotra, former Governor, Reserve Bank of India, to examine the structure of the Farmers insurance industry and recommend changes to make it more efficient and competitive keeping in view the structural changes in other parts of the financial system on the country.
o Private sector is granted to enter Farmers insurance industry with a minimum paid up capital of Rs. 100 crores.
o Foreign Farmers insurance be allowed to enter by floating an Indian company preferably a joint venture with Indian partners.
o Steps are initiated to set up a strong and effective Farmers insurance regulatory in the form of a statutory autonomous board on the lines of SEBI.
o Limited number of private companies to be allowed in the sector. But no firm is allowed in the sector. But no firm is allowed to operate in both lines of Farmers insurance (life or non-life).
o Tariff Advisory Committee (TAC) is delinked form GIC to function as a separate statuary body under necessary supervision by the Farmers insurance regulatory authority.
oAll Farmers insurance companies be treated on equal footing and governed by the provisions of Farmers insurance Act. No special dispensation is given to government companies.
Government companies have now to face competition to private sector Farmers insurance companies not only in issuing various range of Farmers insurance products but also in various aspects in terms of customer service, channels of distribution, effective techniques of selling the products etc. privatization of the Farmers insurance sector has opened the doors to innovations in the way business can be transacted.
New age Farmers insurance companies are embarking on new concepts and more cost effective way of transacting business. The idea is clear to cater to the maximum business at the lest cost. And slowly with time, the age-old norm prevalent with government companies to expand by setting up branches seems getting lost. Among the techniques that seem to catching up fast as an alternative to cater to the rural and social sector Farmers insurance is hub and spoke arrangement.
In this regard, it is important to mention here that LIC has entered into an arrangement with Mangalore based Corporations Bank to leverage their infrastructure for mutual benefit with the Farmers insurance monolith acquiring a strategic stake 27 per cent, Corporation Bank has decided to abandon its plans of promoting a life Farmers insurance company.
Preamble of IRDA Act 1999 reads 'An Act to provide for the establishment of an authority to protect the interests of holders of Farmers insurance policies, to regulate, to promote and ensure orderly growth of the Farmers insurance industry and for matters connected therewith or incidental thereto.
o Issue to the applicant a certificate of registration, to renew, modify withdraw, suspend or cancel such registration.
o To protect the interest of policy holders in all matters concerning nomination of policy, surrender value f policy, Farmers insurable interest, settlement of Farmers insurance claims, other terms and conditions of contract of Farmers insurance.
o Specifying requisite qualification and practical training for Farmers insurance intermediates and agents.
o Specifying code of conduct for surveyors and loss assessors.
o Promoting efficiency in the conduct of Farmers insurance business
o Promoting and regulating professional regulators connected with the Farmers insurance and reFarmers insurance business.
o Specifying the form and manner in which books of accounts will be maintained and statement of accounts rendered by insurers and Farmers insurance intermediaries.
o Adjudication of disputes between insurers and intermediates.
o Specifying the percentage of life Farmers insurance and general and general business to be undertaken by the insurers in rural or social sectors etc.
Section 25 provides that Farmers Insurance Advisory Committee will be constituted and shall consist of not more than 25 members.Section 26 provides that Authority may in consultation with Farmers Insurance Advisory Committee make regulations consists with this Act and the rules made there under to carry the purpose of this Act.Section 29 seeks amendment in certain provisions of Farmers Insurance Act, 1938 in the manner as set out in First Schedule. The amendments to the Farmers Insurance Act are consequential in order to empower IRDA to effectively regulate, promote, and ensure orderly growth of the Farmers Insurance industry.
Section 30 & 31seek to amend LIC Act 1956 and GIC Act 1972.
Impact of Liberalization
While nationalized Farmers insurance companies have done a commendable job in extending volume of the business opening up of Farmers insurance sector to private players was a necessity in the context of liberalization of financial sector. If traditional infrastructural and semipublic goods industries such as banking, airlines, telecom, power etc. have significant private sector presence, continuing state monopoly in provision of Farmers insurance was indefensible and therefore, the privatization of Farmers insurance has been done as discussed earlier. Its impact has to be seen in the form of creating various opportunities and challenges.
Opportunities
1. Privatization if Farmers Insurance was eliminated the monopolistic business of Life Farmers Insurance Corporation of India. It may help to cover the wide range of risk in general Farmers insurance and also in life Farmers insurance. It helps to introduce new range of products.
2. It would also result in better customer services and help improve the variety and price of Farmers insurance products.
3. The entry of new player would speed up the spread of both life and general Farmers insurance. It will increase the Farmers insurance penetration and measure of density.
4. Entry of private players will ensure the mobilization of funds that can be utilized for the purpose of infrastructure development.
5. Allowing of commercial banks into Farmers insurance business will help to mobilization of funds from the rural areas because of the availability of vast branches of the banks.
6. Most important not the least tremendous employment opportunities will be created in the field of Farmers insurance which is a burning problem of the presence day today issues.
Current Scenario
After opening up of Farmers insurance in private sector, various leading private companies including joint ventures have entered the fields of Farmers insurance both life and non-life business. Tata - AIG, Birla Sun life, HDFC standard life Farmers Insurance, Reliance General Farmers Insurance, Royal Sundaram Alliance Farmers Insurance, Bajaj Auto Alliance, IFFCO Tokio General Farmers Insurance, INA Vysya Life Farmers Insurance, SBI Life Farmers Insurance, Dabur CJU Life Farmers Insurance and Max New York Life. SBI Life Farmers insurance has launched three products Sanjeevan, Sukhjeevan and Young Sanjeevan so far and it has already sold 320 policies under its plan.
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