How Insurance Came to India
Chapter Four
Syllabus topic 1, "Introduction"
Pages 18 to 21 of 745
In one line
Insurance came to India with British trade, was carried on for a century by companies that treated Indian lives as worse risks than European ones, and was brought under a single statute only in 1938 after repeated failures of small offices.
In the wording a student can write in an exam: modern insurance in India begins with the Oriental Life Insurance Company at Calcutta in 1818; the first Indian statute of general application was the Indian Life Assurance Companies Act, 1912, which was replaced by the comprehensive Insurance Act, 1938, the Act still in force.
Why the law arrived when it did
Indian insurance legislation has always been a response to failure. The 1912 Act came after a period in which life offices were founded on nothing and collapsed. The 1938 Act came after a further wave of failures in the 1920s and 1930s in which policyholders lost their savings. Nationalisation in 1956 came after the Corporation's predecessors had been found to be mismanaged.
Read that way, the whole history has one shape. Each statute widened the State's control over an institution that holds other people's money for very long periods. The 1938 Act, the 1956 Act and the 1972 Act are three steps of the same movement, and the reforms of 1999 and after are the movement running the other way.
Before the British: the indigenous forms
India had risk sharing long before it had insurance. Joint family property spread the cost of a death across a household. Village and caste funds met the cost of funerals, illness and disaster. Trade guilds and the hundi system carried commercial risk among merchants. The Manusmriti, the Dharmasastra and the Arthasastra all contain passages about pooling losses and about the rates that may lawfully be charged on a risky loan.
None of it was a contract of insurance in the modern sense. There was no separate promisor assuming a risk for a premium as a business, and no policy. What existed was mutual assistance within a group, which is closer to what this book calls social insurance than to a commercial contract.
The nineteenth century: British offices and Indian lives
The Oriental Life Insurance Company was established at Calcutta in 1818. It is treated as the first insurance company in India, though it was founded by Europeans and its business was almost entirely European lives. It failed in 1834.
The pattern of the century was two markets in one country. British offices operating in India charged Indian lives a heavy extra premium, often on the assumption that they were poorer risks. The Bombay Mutual Life Assurance Society, founded in 1870, was the first Indian office to charge Indian lives at ordinary rates, and that fact is the reason it is remembered.
How Insurance Came to India
Indian offices multiplied around the swadeshi movement. The National Insurance Company was founded in 1906 and is the oldest general insurer still operating in India. The Oriental (a different company from the 1818 office) and the New India were founded soon after, and the Hindustan Co-operative, the United India and others followed. By the 1930s there were well over a hundred Indian offices.
The first legislation was piecemeal and it was about companies, not insurance. The Indian Life Assurance Companies Act, 1912 required deposits and periodical actuarial valuations of life offices, and it is the first Indian statute of general application to the business. The Indian Insurance Companies Act, 1928 required insurers to file statistical returns, so that the Government could see the shape of a market it did not otherwise know.
The Insurance Act, 1938
The 1938 Act is the first comprehensive Indian insurance statute, and it is still the principal Act. It was passed after the failures of the preceding decade, and it introduced the machinery a modern reader recognises: registration of insurers, minimum capital, separation of the life fund from other funds, prescribed investments, actuarial valuation, limits on management expenses and commission, control over agents, and a Controller of Insurance to supervise the whole.
Its shape has never been abandoned. The Controller was replaced by the Insurance Regulatory and Development Authority in 1999, the sector was nationalised and then reopened, and the Act has been amended heavily, most recently by the Insurance Laws (Amendment) Act, 2015 and by the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 with effect from 5 February 2026. But the architecture of registration, solvency, investment and conduct is the architecture of 1938.
The Act extends to the whole of India and applies to every insurer carrying on insurance business here, subject to the special provisions for International Financial Services Centres in sections 2CA and 118A.
A timeline a student can reproduce
| Year | Event | Why it matters |
|---|---|---|
| 1818 | The Oriental Life Insurance Company, Calcutta | The first insurance company in India; failed 1834 |
| 1870 | The Bombay Mutual Life Assurance Society | The first Indian office to insure Indian lives at ordinary rates |
| 1906 | The National Insurance Company | The oldest general insurer still operating in India |
| 1912 | The Indian Life Assurance Companies Act | The first Indian statute of general application; deposits and actuarial valuation |
| 1928 | The Indian Insurance Companies Act | Statistical returns, so that the Government could see the market |
| 1938 | The Insurance Act, 1938 | The comprehensive statute still in force; registration, solvency, investment, conduct, and the Controller of Insurance |
| 1956 | The Life Insurance Corporation Act | Life insurance nationalised; worked in topic 3 |
| 1972 | The General Insurance Business (Nationalisation) Act | General insurance nationalised; worked in topic 3 |
| 1999 | The Insurance Regulatory and Development Authority Act | The sector reopened under an independent regulator; worked in topic 3 |
| 2026 | Act 40 of 2025 in force from 5 February | Foreign holding up to one hundred per cent; worked in topic 3 |
How Insurance Came to India
A worked example: why the 1938 Act looks the way it does
Imagine a life office in Lahore in 1931 with three thousand policyholders. It has taken premiums for twenty years and promised sums assured payable in another twenty. Its directors have lent the fund to companies they themselves control, it has paid its agents forty per cent of the first year's premium, and no actuary has ever valued its liabilities.
Nothing in the law of contract can help those policyholders. Each of them has a good contract with a company that will not be able to perform it. By the time the breach occurs the money will be gone and the directors elsewhere.
Every one of the 1938 Act's central provisions answers one of those facts. Section 27 prescribes how the fund must be invested and section 29 forbids loans to directors. Section 40 and section 40B limit commission and management expenses. Section 13, read with section 12A, requires an actuarial investigation by an appointed Actuary. Section 64VA requires a solvency margin. Sections 33 and 34 give the Authority powers of inspection and direction, and sections 52A to 52G let it displace a board that is running an insurer against its policyholders.
That is the answer to the question why insurance is regulated at all, and it is worth carrying into any question about the objects of the Act.
What it does NOT mean
It does not mean insurance was unknown in India before 1818. Risk sharing through the family, the village, the guild and the hundi is ancient. What arrived in 1818 was the commercial contract and the company.
It does not mean the 1938 Act was original. It follows the English legislation of the period closely, and much of its detail was borrowed. Its importance is that it applied one regime to a market that had none.
It does not mean that the Act of 1938 has been superseded. Students sometimes write that the 1999 Act replaced it. The 1999 Act constituted the Authority and amended the 1938 Act; the 1938 Act remains the principal statute, and the current text of it is the one to quote.
Quick revision
1818, the Oriental Life Insurance Company at Calcutta, the first in India, failed 1834.
1870, the Bombay Mutual, the first Indian office to charge Indian lives ordinary rates.
How Insurance Came to India
1906, the National Insurance Company, the oldest general insurer still operating.
1912, the Indian Life Assurance Companies Act: deposits and actuarial valuation.
1928, the Indian Insurance Companies Act: statistical returns.
1938, the Insurance Act: registration, capital, separation of funds, prescribed investments, actuarial valuation, limits on commission and expenses, control of agents, the Controller of Insurance. Still the principal Act.
The pattern: every Indian insurance statute follows a failure, and each widens State control over an institution holding other people's money for a very long time.
Test yourself
1. Which was the first insurance company in India, and what happened to it? The Oriental Life Insurance Company, established at Calcutta in 1818. It failed in 1834.
2. Why is the Bombay Mutual Life Assurance Society of 1870 remembered? It was the first Indian office to insure Indian lives at ordinary rates, at a time when British offices loaded them with a heavy extra premium.
3. Name the two statutes that preceded the Insurance Act, 1938 and say what each did. The Indian Life Assurance Companies Act, 1912, which required deposits and periodical actuarial valuations of life offices; and the Indian Insurance Companies Act, 1928, which required statistical returns.
4. What did the Insurance Act, 1938 introduce that the earlier Acts did not? A comprehensive regime: registration of insurers, minimum capital, separation of funds, prescribed investments, limits on commission and management expenses, control over agents, and a Controller of Insurance to supervise it.
5. Did the Act of 1999 replace the Act of 1938? No. It constituted the Insurance Regulatory and Development Authority and amended the 1938 Act, which remains the principal statute.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.