Insurance occupies an important position in the financial sector of an economy. It contributes to economic development through risk management, protection of assets, and mobilisation of savings leading to capital formation in the country. Insurance industry in India has undergone structural changes over a period. Its origin in the country dates back to the year 1823 when Oriental Life Insurance Company was set up and thereafter general insurance company named Triton Insurance Company was established in 1850.

One of the distinct emerging trends after liberalisation is the enlargement of the insurance market and gradual coverage of uninsured population. In the near future, there is bound to be a domination of the share of public sector companies in the insurance market owing to their wide and extensive network of infrastructure covering small towns and semi urban areas and a well-established brand equity.

Liberalisation of the insurance market and entry of new players has induced significant growth in the total premium income of life insurance business. It recorded growth rate of 18.9% in FY 2004 with the total premium income of Rs 6,62,880 million. As regards the first year business premium, it aggregated to Rs 2,53,429 million in FY 2005 compared to Rs 1,87,102 million in FY 2004 registering a growth of 35.8% as compared to a growth of 10.2% in FY 2004.

The number of policies sold increased to 26.26 million in FY 2005 from 17.21 million in FY 2000. First year business is indicator of new business secured by the life industry. The significant growth in the first year premium during the last two to three years could be achieved primarily due to the entry of new companies and aggressive insurance awareness campaigns launched by both LIC and private companies.

The gross domestic premium in India (GDPI) of general insurance amounted to Rs 1,80,953 million in FY 2005 registering a growth of 12.8% over the previous year.

The growth rate of public sector companies fell to 5.5% in FY 2005 with gross premium of Rs 1,45,400 million compared to the growth rate of 6.8% recorded in FY 2004. However, the growth rate of private companies was 57.4% in FY 2005 with the gross premium of Rs 35,552 million. Their GDPI was merely Rs 71 million in FY 2001. The share of public sector companies has declined to 80.4% from 85.9% in FY 2003.

The private sector companies are gradually increasing their share in the market on a sustained basis. They are developing new products and introducing innovative marketing methods. They are slowly developing their distribution network in metropolitan towns and urban areas. The present strategy of these companies is to initially capture the established corporate market and serve the insurance needs of the affluent segment. Both public and private sector companies are increasingly tying up with corporate entities for marketing insurance products. In general insurance, private insurance companies have initially concentrated on capturing fire and engineering businesses which are the most profitable and are urban-based. The market share of these private companies in fire and engineering insurance business increased to 22.5% and 24.1% in FY 2004 from 14.8% and 16.4% in FY 2003 respectively. Proportionally, public sector companies have lost the above business to private sector companies. They have also increased their share in marine business. The market share of these companies in GDPI has increased to 19.6% in FY 2005.