The year 2005 is a landmark year for Life Insurance sector as the private insurance companies celebrate their 5 years of successful operation and industry’s behemoth LIC celebrates its Golden Jubilee year with handsome bonus to policyholders and new innovative schemes. Since the entry of private Life Insurance companies the market is growing at a rate of over 20% per year and private insurance companies have captured most of the growth.

Undoubtedly the market leader is LIC with over 74% of the market share and the other 13 companies share the remaining 26% of the market. ICICI Prudential followed by Allianz Bajaj and HDFC Standard Life are the leaders among private life insurers

These developments have been of great benefit to the common man. To start with it has become a buyers market and insurers have to vie with one another in offering innovative products, diversify distribution channels and offer quality service. This probably has woken up LIC that no more enjoys the monopoly. LIC has invested heavily in technology and ITES in keeping the policyholders and agents updated. Private insurers having started business in IT era have all these in place. Today a prospect or proposer in insurance parlance can access all information he needs about all insurance plans available in the market from the web, get quotation and buy a plan to suit his needs and in some cases probably even pay through credit card.

The stock market boom during the past 3 years has made unit linked plans (ULIPs) very popular. These plans are marketed very aggressively by insurance companies, in fact so aggressively that it has drawn the attention of the regulator who is now contemplating to put in place restrictions and control mechanisms to ensure that an insurance policy remains primarily an insurance tool and not a market linked investment product. Probably in the year 2006 this will come into force and from then on it will be interesting to watch if the high growth achieved in the recent past can be sustained particularly by the private players.

There are a few other constraints, which could slow down the progress. The high growth achieved by the private players is also necessitating the promoters to pump in more money to comply with regulations. Owing to the cap on FDI in this sector pegged at 26% Indian partners barring a few are probably strained and are looking for liberalization of this cap.

Government policy changes in the personal income tax concessions announced in the last general budget has reduced the importance of investing heavily in life insurance plans for tax saving purposes- it has made insurance one among many enjoying same tax benefits while contributing.

As an industry it has low penetration in India - about 50% of global average penetration. Rural market remains practically untapped by private players. To meet all these challenges, the fittest who will ultimately survive will probably come out with still more innovative products combining risk cover, security of growth partly linked with market returns. Interest in this sector has not waned as new companies have been licensed and will be marketing their plans from the next year - Bharti AXA Life insurance and Shriram Group with Sanlam of South Africa are two new certain players and we may also see Allahabad bank and IDBI Bank with their own collaborators in the market soon.

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