Banks fuel insurance boom: Fitch

The domestic insurance industry accounts for 10-15% of the total financial sector assets.

Banks, serving as distribution channel for insurance products, have contributed about 20 per cent of the total insurance business in financial year 2005, said a Fitch report on the insurance sector.

Alternative distribution channels, as a whole, have contributed towards 25-30 per cent of sales in private insurance companies, the report added.

These distribution channels include corporate brokers, bancassurance, the internet and corporate agents.

The report observed the domestic insurance industry accounts for nearly 10-15 per cent of the country's total financial sector assets. The report explained that despite strong growth figures and improving penetration levels, the local market is still untapped.

Industry statistics state that, 'The total premiums from both the life and non-life sectors were equivalent to 3.17 per cent of the gross domestic product, (GDP) in 2004 as compared with 8.27 per cent in the US and 7.4 per cent in Asia as a whole.

The difficulties faced in training a new agency force with skillsets matching that of Life insurance Corporation is the main reason why private players have sought recourse to alternate channels, the report said.

Currently within the 1.2 million agents in India, LIC alone has over one million agents, pointed out the report. However the advantage that private insurers such as ICICI Prudential, HDFC Standard Life and SBI Life enjoy is the presence of their domestic partners in the banking space.

In addition to this, Fitch notes that with the possibility of hike in foreign direct investment limit in insurance , several new players would look at foraying into the insurance market.

Currently, most private insurance companies are joint ventures between Indian and foreign partners, wherein the foreign partners' share is capped at 26 per cent.

At present, there are 13 private insurers in the life sector and eight in the non-life sector. According to analyst, Purvi Harlalka, "Private insurers are able to garner a higher marketshare because they offer greater choice in terms of products and services and also make a concerted effort to increase consumer awareness about the benefits and importance of insurance via vigorous marketing."