The insurance sector was opened up for private participation with the enactment of the Insurance Regulatory and Development Authority Act, 1999. While permitting foreign participation in the ventures set up by the private sector, the government restricted participation of the foreign joint venture partner through the FDI route to 26 per cent of the paid-up equity of the insurance company. The objective of the liberalisation was to expand the scope and ambit of Insurance both Life an General in India .

Since opening up, the number of participants in the sector has gone up from six insurers (including the Life Insurance Corporation of India , four public sector general insurers and the General Insurance Corporation (GIC) as the national re-insurer) in the year 2000 to 37 insurers operating in the life, non-life and re-insurance segments as on December 2007. This includes specialized insurers, viz., Export Credit Guarantee Corporation; Agricultural Insurance Company and two health insurance companies. Of the 17 life insurance companies, as many as 15 are in joint venture with foreign partners. Of the 10 insurers which have been set up in the non-life segment, 9 are in collaboration with the foreign partners. In addition, two stand-alone health insurance companies have been set up in collaboration with joint venture foreign partners. 26 insurance companies in the private sector have been granted registration in the country in collaboration with established foreign insurance companies from across the globe.In the Life Insurance segment, the total premium underwritten by the industry has grown from Rs. 34,898 crore in 2000- 01 to Rs. 1,56,041 crore in 2006-07. The first year premium, which is a measure of new business secured, underwritten by the life insurers during 2006-07 was Rs. 75,617 crore as compared to Rs. 9,708 crore in 2000-01. The life industry has reported growth of 1.41 per cent in new business premium underwritten during the period April to November 2007.

Some estimates show that India is the fifth-largest country in Asia in terms of total insurance premium. The premium income in the country increased to 4.7 percent of GDP in fiscal 2006-07 from 3.3 percent in the fiscal 2002-03.Total premium in the insurance industry grew at a CAGR of 28.1 percent during the same period. The life insurance sector grew at a CAGR of 29.3 percent outsmarting the general insurance sector’s CAGR of 21.3 percent. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has projected that foreign direct investment (FDIs) will increase in insurance sector by $ 0.46 billion in next 2 years and likely to touch $ 0.96 billion as it is still regulated. A Paper on FDI’s Prospects in Insurance Sector brought out by the ASSOCHAM says that currently the total insurance market in India is about $ 30 billion, in which the element of FDI’s is $ 0.5 billion. This is 1.6 percent of total insurance business in India .  In the life insurance sector particularly on FDI’s front, the growth that has taken between 2006 and 2007 is estimated to be around 270 percent.

The penetration of insurance in India as a percentage of gross domestic products (GDP) stood at 4.8 per cent, as on February 2008, against 1.2 per cent in 1999–2000. Of this, life insurance accounted for 4.1 per cent and non-life insurance for 0.6 per cent. Also, as per industry estimates, out of 78 per cent Indian households that are aware about life insurance, only 24 per cent own a policy. A combined ICICI Prudential Life Insurance and IMRB survey, conducted in three metros— Delhi , Mumbai and Chennai—shows that households with income of Rs. 35000 on an average have two policies. Further, 79 per cent people prefer life insurance over other tax saving instruments like post office savings, Equity-Linked Saving Schemes and fixed deposits.

Since end of 2000 when insurance was privatized, life insurance company  and The distribution network expanded significantly. In the second quarter of fiscal 2008-09 1480 branches were added including 1293 branches set up by private sector life insurers. During this period the life industry added 53332 employees to their payrolls. The number of pay-roll employees now crossing over 300,000. Of the total 10,037 branches of life insurance companies around 7,000 are in semi urban and rural areas. The total premium of all insurance companies taken together aggregated to Rs 86,500 crore in the first half of current fiscal.

Until 2000, the general insurance sector had only four public sector players. The public enterprises – Oriental Insurance Company of India (OIC), National Insurance Company of India (NIC), New India Assurance Company of India (NIA) and United Insurance Company of India (UII) -- were located in Delhi , Kolkata, Mumbai and Chennai respectively. They primarily focused on their immediate regions and there was little competition, leading to a near monopolistic environment.

In 2006-2007, India ’s general insurance market witnessed a variety of changes. On the whole, the sector achieved double-digit growth and this trend is expected to persist over the medium term.

According to ICRA, the regulatory system has several impacts on the India Insurance sector. IRDA was set up with introduction of the IRDA Act in 1999. Its initial purpose was to bring about general discipline to the industry. It is responsible for protecting the interest of policy holders and promoting efficiency in the insurance business.

To ensure their stability, transparency and financial strength, new entrants are subject to rigorous scrutiny and the conduct of their business is closely monitored, particularly in relation to capital adequacy and prudent investment policies. The regulatory environment to date has attracted many insurers whose domestic partners are leaders in their chosen fields and their foreign counterparts are all well-established with considerable experience in developed and emerging markets.

The regulator has laid down investment guidelines that limit exposure in certain class of assets and also sets threshold limits for some assets. At the moment, insurers have to invest a minimum 30% in government securities, in contrast to some of the more mature markets like the US and Australia, which do not have such restrictions. Compliance with these relatively restrictive guidelines could limit insurers’ ability to diversify and build optimal portfolios.

The guidelines also stipulate a minimum 10% investment in the social and infrastructure sector. The investment in un-approved securities has been limited to 25% of total investment books.

General insurers must maintain a solvency ratio (available solvency margin/required solvency margin) of 1.5 times, calculated based on net premium earned and net claims incurred in various segments. Public sector entities have maintained comfortable solvency margins, supported by their strong investment portfolios and capitalizations. The private players, being in a growth phase, may require capital infusions from time to time to maintain their solvency requirements.

The Indian insurance regulator has set the minimum capital required at a level to ensure that all insurers especially the start-ups have enough funds to meet their claim obligations and to limit their overall writings to the amounts supported by their capital bases. The need to manage capital to comply with IRDA’s solvency margin will induce insurers to be more risk conscious when taking on new business

To ensure an orderly transition towards a deregulated insurance market and risk-based pricing, IRDA has enacted enabling legislation and issued guidelines to de-tariff various segments. De-tariffing introduced in January 2007 has been well accepted and corrections to prices in profitable lines have been dramatic and have noticeably impacted premium growth rates. In fact, the discounting has been so extreme that the regulator intervened in September 2007 and capped maximum discounts at 52.5%

Life Insurance Corporation (LIC) has now entered the health insurance market and has mobilised premium income of US$ 21.23 million in the last two months of 2007–08. Birla Sun Life on January 7, 2008 also announced its plans to enter into the US$ 40.75 billion health insurance business with the launch of two plans nationally. ICICI Prudential Life on January 5, 2008 launched Health Saver, to help consumers meet their current healthcare expenses and also invest for future healthcare expenses.

According to ICRA,the Rs. 281 billion Indian general insurance industry reported a compounded annual growth rate (CAGR) of 15.1% over the last five years. The ICRA report on Indian General Insurance Industry says that currently, there are 14 active general insurance companies in the country, including four from the public sector. Over the last five years, the private sector entities have reported strong growth, and together they now have a market share of around 60%. While the public sector players remain the largest in the industry, the gap between the top three private sector players and the public sector entities has narrowed substantially during the last few years. Overall, the top eight players in the Indian general insurance industry continue account for over 90% of the total business. In terms of business lines, motor and health, which are predominantly retail lines, now account for over 60% of the total business, as againstaround 50% five years back as paer the ICRA report.

 The non-life insurers (excluding specialized institutions like ECGC and AIC) underwrote premium within India to the tune of Rs. 24,905.47 crore in 2006-07, as against Rs. 9,807 crore in 2000-01. Two of the fastest growing segments are motor and health accounting for 42.73 and 12.77 per cent of the premium underwritten in India in 2006-07. The premium underwritten in these two segments alone in 2006-07 was Rs. 11,080 crore and Rs. 3,311 crore, respectively. During the current year, the non-life insurers underwrote premium of Rs. 18,509 crore during April to November 2007 as against Rs. 16,560 crore in the corresponding period of the previous year. Post-de-tariffing, while the growth in premium has slowed down on account of reduction in rates, the number of policies underwritten has shown an increase.