Malhotra Committee - Purpose and Recommendations

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In view to bring Reforms in Insurance sector to evolute the Indian insurance industry and to recommend its future direction the central government formed Malhotra Committee, Headed by former Fiance Secretary and RBI Governor, R. N. Malhotra in the year 1993.

The reforms were aimed at "creating a more efficient and competitive financial system suitable for the requirements of the economy keeping in mind the structural changes currently underway and recognising that insurance is an important part of the overall financial system where it was necessary to address the need for similar reforms".

Purpose

• To suggest the structure of the insurance industry, to assess strengths and weaknesses of insurance companies in terms of the objectives of creating an efficient and viable insurance industry, which will have a wide reach of insurance services, a variety of insurance products with a high quality of services to the public and servicing as an effective instrument for mobilization of financial resources for development.
• To make recommendations for changing structure of insurance industry, for changing general policy frame work etc.
• To make specific suggestions regarding LIC and GIC with a view to improve their functioning. 
• To make recommendations on regulation and supervision of the insurance sector in India.
• To make recommendations on role and functioning of surveyors, intermediaries like agents etc in the insurance sector. 
• To make recommendations on any other matter which are relevant for development of hte insurance industry in India.

Recommendations

In 1994, the committee submitted the report and gave the following recommendations

Structure

1. Government stake in the insurance Companies to be brought down to 50%
2. Government should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as independent corporations.
3. All the insurance companies should be given greater freedom to operate

Competition

1. Private Companies with a minimum paid up capital of Rs. 1 billion should be allowed to enter the industry.
2. No Company should deal in both Life and General Insurance through in a single entity.
3. Foreign companies may be allowed to enter the industry in collaboration with the domestic companies. 
4. Postal Life Insurance should be allowed to operate in the rural market. 
5. Only one State Level Life Insurance Company should be allowed to operate in each staet. 
6. The Insurance Act should be changed. 
7. An Insurance Regulatory Body should be set up.
8. Controller of Insurance (Currently a part of the Finance Ministry) should be made independent. 

Investment

1. Mandatory Investments of LIC Life Fund in government securities to be reduced from 75% to 50%
2. GIC and its subsidiaries are not to hold more than 5% in any company (Their current holdings to be brought down to their level over a period of time.)

Customer Service

1. LIS Should pay interest on delays in payments beyond 30 days.
2. Insurance companies must be encouraged to set up unit linked pension plans. 
3. Computerization of operations and updating of technology to be carried out in the insurance industry.

Overall, the committee strongly felt that in order to improve the customer services and increase the coverage of the insurance industry should be opened up to competition. But at the same time, the committee felt the need to exercise caution as any failure on the part of new players could ruin the public confidence in the industry.  

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