The Indian insurance sector is on a bull run. The average Indian now spends 5.4 times as much on life insurance as what s/he did seven years ago when the industry was yet to be opened up for private participation.

With the largest number of life insurance policies in force in the world, India's insurance sector accounted for 4.1 per cent of GDP in 2006-07, up from 1.2 per cent in 1999-2000, far ahead of China where insurance accounts for just 1.7 per cent of the GDP and even the US where insurance penetration stands at 4 per cent of the GDP.

Indians are now setting aside a larger chunk of their income on life insurance when measured as a percentage of GDP. They are allocating a small amount of their take-home to buy insurance products given their rising equated monthly installment (EMI) payments for home mortgage and other loans.

The growth in insurance premium collections has spelt an opportunity for the equity market too. The industry's investment in the equity market stood at US$ 38.1 billion and the assets under management were at US$ 152.6 billion as on March 31, 2007.

Indian insurance companies recorded a 19.9 per cent growth in premium in dollar terms (adjusted for inflation) in 2006-07, compared to the world market growth rate of 2.9 per cent. This rate of growth of the industry looks particularly impressive when seen against the fact that the combined penetration of both life and non-life is less than 2 per cent of the GDP compared to world average of 7.52 per cent. Clearly, the scope for growth is enormous.

Life Insurance

Led by the Life Insurance Corporation (LIC), the life insurance industry registered a growth of 110 per cent in fiscal 2006-07, taking the total business to US$ 19.2 billion from the previous year's US$ 9.1 billion. The life insurance market has grown rapidly over the past six years, with new business premiums growing at over 40 per cent per year owing to the entry of a host of new players with significant growth aspirations and capital commitments.

The total life insurance market premiums is likely to more than double from the current US$ 40 billion to US$ 80-US$100 billion by 2012, says a study by McKinsey. The study titled 'India Insurance 2012: Fortune Favours the Bold,' expects a rise in premiums between 5.1 and 6.2 per cent of the GDP in 2012 from the current 4.1 per cent driven by greater insurance intensity per capita as the average per capita income increases and rise in penetration in urban and rural areas.

The life insurance premium contributions per capita have jumped from a little over US$ 7 in 1999-2000 (pre-liberalisation) to US$ 38.5 in 2006-07.

Life insurance penetration in India - which was less than 1 per cent till 1990-91 - increased to 2.53 per cent in 2005, and to 3 per cent in 2006-07. The impetus for growth has come from both public and private insurers. Also, the number of players in this segment has also increased to 17 (16 in private sector), with Life Insurance Corporation (LIC) being the dominant player (market share of about 74 per cent).