India’s insurance sector was nationalized and the Life Insurance Company formed in 1956. The new company subsumed 156 Indian and 16 foreign companies and 75 provident societies. For the next three and a half decades, insurance was publicly owned, with little scope for entry of private players.

In 1991, the government virtually abolished industrial licensing, eased quantitative restrictions on imports, reduced tariffs, and made efforts to usher in foreign investment. It set up the Foreign Investment Promotion Board and made provisions for automatic approval of 51 percent of foreign equity in 34 sectors. In 1993, the government set up the Malhotra Committee, chaired by R. N. Malhotra, former Governor, RBI, which was asked to review the structure of the insurance sector and suggest ways to liberalize the sector. The committee was also asked to assess the regulatory and functional aspects of the Life Insurance Company and the General Insurance Corporation. Members included R. Narayan (former Chaiman, LIC); R. K. Daruwala (former Chairman, GIC); Prasanna Chandra (IIM Bangalore); S. A. Dave (Chairman, Union Trust of India); R. Ramakrishnan (President, Acturial Society of India); Deepak Parekh; and M. P. Modi (Special Secretary, Insurance and Member-Secretary).

In its report in 1994, the committee recommended that the insurance sector be opened up to competition. It called for including private domestic players as well as foreign companies by way of joint ventures with Indian partners. Based on its recommendations, the Insurance Regulation and Development Act was passed in 1999, which allowed newer players and joint ventures to enter the sector on a risk-sharing and commission basis. It led to a change in product composition and led to the creation of the Insurance Regulatory and Development Agency, which evolved into the autonomous Insurance Regulatory and Development Authority of India. The institution was established to stimulate competition, increase consumer choice, and lower premiums while maintaining financial stability. It not only enabled registration of new insurance companies but monitored insurance-sector activities to help the sector develop healthily and to protect policyholders’ interests. The Malhotra Committee also made suggestions for raising professional standards in risk management and underwriting and accelerating claims settlement. These measures built up an active insurance and pensions industry, which in turn helped restore long-term savings and added depth to capital markets, meaning it increased the range of investment options and liquidity available in financial markets.

By identifying lack of competition, limited consumer choice, and inefficiencies in claims settlement as key problems in the insurance sector, the Malhotra committee sought to address these by recommending the introduction of private and foreign players, strengthening regulatory oversight, and improving professional standards to create a more competitive, consumer-friendly, and financially stable insurance market.