Dynamics of Insurance Sector in India – A Road Map towards Growth and Development

Abstract

The service sector consists of the soft parts of the economy such as insurance, government, tourism, banking, retail, education, and social services. One of the reasons for the sudden growth in the services sector in India in the nineties was the liberalization in the regulatory framework that gave rise to innovation and higher exports from the services sector. In the current economic scenarioit looks that the boom in the services sector is hereto stay as India is fast emerging as global services hub. The insurance industry has grown by 83 percent since the opening up of the sector. Insurance sector constitutes one of the major segments of the financial market. It plays a predominant role in the process of capital formation of the country as mobilize of savings and also as financial intermediary. The Insurance industry commands large funds through sale of Insurance products to alarge number of individuals and organizations located in different parts of the country. Insurance and growth mutually influences each other. As the economy grows, the living standards of people increase. As a consequence the demand for life insurance increases. As the assets of people and of business enterprises increase in the growth process the demand for general insurance also increase. A well-developed insurance sector promotes economic growth by encouraging risk taking. Risk is inherent in all economic activities. Also insurance and more particularly life insurance is a mobilize of long term savings and life insurance companies are thus able to support infrastructure projects which require long term funds. There is thus a mutually beneficial interaction between insurance and economic growth. This paper attempts to study the density and penetration of insurance in India.