The need for greater insurance penetration in both life and non-life segments has been underscored by the economic survey. The survey points out that the entry of insurance in the country remains significantly lower than its Asian peers.

Insurance penetration is defined as the ratio of premium underwritten in a given year to gross domestic product (GDP). The survey mentioned that the insurance penetration has increased significantly since the opening up of the sector for private players. This increase is due to the entry of new players, introduction of new products and channels of distribution and increasing penetration of private insurance companies in uncovered markets.

Life insurance penetration increased from 1.77 percent in 2000 to 4.10 percent in 2006-07 and it declined slightly to 4 percent in 2007-08. As per the provisional figures provided by the Life Insurance Council, the life insurance penetration in year 2008-09 was 4.30 percent.

General insurance penetration in 2000 was 0.55 percent of the GDP, which went up to 0.60 percent in 2006 and remained the same in 2007. The survey has also called for greater reforms in the pension sector and has argued that this will not only help in facilitating the flow of long-term savings for investments and funds for infrastructure development but also help the government to fund its pension liabilities.

The interim pension regulator has already launched the New Pension Schemes (NPS) for public from May 1. Tier I of the NPS constituting the non-withdraw-able pension account has become operational from May 1 and tier II of the NPS account will become operational in about six months.

The Insurance Regulatory Development Authority (Irda) has taken various steps to ensure increased penetration. It includes bringing in more transparency in the industry through monitoring of consumer-related aspects, such as market conduct, consumer education and creation of an integrated platform for redressal of customer grievances.

TR Ramachandran, chief executive officer and managing director of Aviva India, said, "Products will play an important role in increasing penetration. Insurance addresses four key needs in a customer's economic lifecycle, which include savings, protection, investment and retirement. The low threshold level for term products will result in more people getting an insurance cover. Financial literacy initiatives by the insurance companies will also play a big role in educating customers and increasing penetration. Tax benefits along with products will encourage people to invest in insurance."

S B Mathur, secretary general of Life Insurance Council, said, "The government should provide incentives to long-term investors and look at removal or bringing down of service tax on insurance products. These steps will definitely help in increasing insurance penetration."

Insurers feel that to increase penetration, the companies will require more capital. Hence, the industry is looking forward to the foreign direct investment (FDI) going up to 49 percent. Santosh Balan, spokesperson from Bajaj Allianz, said, "We feel that penetration can be increased if insurance companies can access more capital. Thus increase in FDI to 49 percent is important. Also service tax on health insurance should be removed and a separate limit for tax exemption for life insurance should be announced."

The total premium underwritten by the industry in the life segment has grown from Rs 156,076 crore in 2006-07 to Rs 201,351 crore in 2007-08, recording an increase of 29 percent in 2007-08. It increased further by 10.8 percent to Rs 223,053 crore in 2008-09.