Five years after India started down the mobile telephony road, in 1999, the country boasted a mere 1.20 million cellular subscribers, and most telcos offering the service were staring financial ruin in the face. Things have changed since. Today, India is considered the most happening (fine, second-most happening) telecom market in the world; it boasts 67.95 million mobile and 48.17 million fixed-line connections; one Indian telco is already among the 10 most valuable companies in the country; and teledensity has increased from an anaemic 1.30 per cent in 1995 to a not-so-bad 10.66 per cent today.

The Indian insurance sector was thrown open to the private sector in 2000 and the first company to start selling its policies, ICICI Prudential, did so on December 12, 2000. Today there are 13 private sector life insurance firms (together, they have a 26 per cent share of the market), and seven non-life ones (they boast a similar share) in the country. And the penetration of life insurance has increased from 1.7 per cent (premium income as a proportion of GDP) five years ago to 2.6 per cent today (the global average is 4.7 per cent).

The comparison with mobile telephony is apt, despite private insurers having achieved much more in their first five years of existence than private sector telcos because both businesses are similar, revolving as they do, around annuity payments. It is also apt because insurance could be poised at the brink of an explosive period of growth, the kind of growth Indian telcos saw between 1999 and 2005 (some 66.75 million mobile connections were added in this period).

In the five years before the entry of the private sector firms (1995-2000), India's insurance market (current size: Rs 45,000 crore), grew at an average rate of 10-15 per cent a year. In the five years since, it has grown by 20 per cent a year. "Most of the new growth has been coming from the private sector companies," says Shikha Sharma, Managing Director, icici Prudential Life, the country's largest private sector insurer. The first-year premium of the life insurance segment has grown 260 per cent between 2000-01 and 2004-05, to Rs 25,350 crore; the gross premium of the non-life segment, 180 per cent to Rs 18,095.25 crore. The real achievement of the private insurance firms, however, is the fact that insurance is no longer a sellers' market.

On the back of innovative product offerings, and new distribution channels (think Bancassurance, corporate agencies, even direct selling through the internet) it has become a buyers' market. "Alternate channels give us a faster way of reaching out to a larger number of customers in a more efficient way," says Gaurang Shah, Managing Director, Kotak Mahindra Old Mutual Life Insurance.

Among the new products launched by private sector life insurers is the unit-linked insurance plan (ULIP). Today, seven out of 10 policies sold by private insurers are ULIPs. The popularity of equity-linked ULIPs may have to do with the stock market's performance over the past 12 months; and that of debt-linked ULIPs with tax-concessions that are still available to insurance firms (they aren't to mutual funds). It has forced Life Insurance Corporation (LIC) of India to start experimenting with them; in 2004-05, ULIP schemes contributed almost 35 per cent of the corporation's first premium income.

Much of the growth (in both life and non-life segments) has come from urban centres. "Some areas that require attention are rural, social and health (insurance)," says C.S. Rao, Chairman, Insurance Regulatory Development Authority (IRDA). Most private sector insurance firms do not even have a presence in rural areas. LIC, in contrast, does, one reason why its market share in terms of policies issued is around 90 per cent. "The premium per policy in the rural market tends to be lower; the cost of servicing, higher," says T.S. Vijayan, Managing Director, LIC.

There are, however, more pressing issues than rural penetration. For non-life insurance firms, it is the fact that the tariffs on most of their offerings are still regulated (forcing them, for instance, to subsidise the motor insurance business where claims are high and tariffs low, with the fire insurance one). IRDA hopes to deregulate tariffs by the end of 2006. For both life and non-life insurance firms, it is the fact that the ceiling on foreign direct investment remains 26 per cent (again, IRDA believes this should be increased to 49 per cent), a deterrent to growth in an equity-intensive business. Should these change, the next five years could be insurance's golden age.