Submitted by: Submitted by vikramiyer
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Words: 954
Pages: 4
Category: Business and Industry
Date Submitted: 06/15/2011 10:44 PM
Insurance in India used to be tightly regulated and monopolised by state-run insurers. Following
the move towards economic reform in the early 1990s, various plans to revamp the sector finally
resulted in the passage of the Insurance Regulatory and Development Authority (IRDA) Act of 1999.
Significantly, the insurance business was opened on two fronts. Firstly, domestic private-sector
companies were permitted to enter both life and non-life insurance business. Secondly, foreign
companies were allowed to participate, albeit with a cap on shareholding at 26%. With the
introduction of the 1999 IRDA Act, the insurance sector joined a set of other economic sectors on
the growth march.
During the 2003 financial year1, life insurance premiums increased by an estimated 12.3% in real
terms to INR 650 billion (USD 14 billion) while non-life insurance premiums rose 12.2% to
INR 178 billion (USD 3.8 billion). The strong growth in 2003 did not come in isolation. Growth in
insurance premiums has been averaging at 11.3% in real terms over the last decade.
Insurance development and potential
Notwithstanding the rapid growth of the sector over the last decade, insurance in India remains at an
early stage of development. At the end of 2003, the Indian insurance market (in terms of premium
volume) was the 19th largest in the world, only slightly bigger than that of Denmark and comparable
to that of Ireland.2 This was despite India being the second most populous country in the world as
well as the 12th largest economy. Yet, there are strong arguments in favour of sustained rapid
insurance business growth in the coming years, including India’s robust economic growth prospects
and the nation’s high savings rates.3
The dynamic growth of insurance buying is partly affected by the (changing) income elasticity of
insurance demand. It has been shown that insurance penetration and per capita income have a
strong non-linear relationship.4 Based on this relation and other...