Insurance companies will have to offer customization in terms of nature of risks covered and flexibility in terms of multiple options offered to the customers, the report said. India opened up its insurance market for domestic and foreign companies in 1999. The Indian insurance industry is dominated by the life insurance segment that forms nearly 70 percent of the premium mobilization. Only five percent of India's one billion people have taken out life insurance policies and the vast majority are urban residents. The ICRA report pointed out that the limited range of products offered by the Indian companies was one of the reasons for low penetration of insurance products in the country.
Product development is likely to be a crucial competitive tool.
The importance of distribution is particularly important in life insurance and the retail segment of non-life insurance. The penetration of non-life products in the corporate segment is already quite significant and the demand growth for these products is likely to be higher in the retail segment for sectors such as health, professional indemnity and personal accident. According to the report, duplicating the distribution network and sales force of the nationalized companies will involve high fixed costs for the new players. However, the price sensitivity of the Indian market, as evidenced in many other sectors, is not likely to permit the private players to charge significantly higher premiums. Therefore, break-even volumes may not be attained in the medium term and adequate capitalization will be necessary, it added.