India's insurance industry accounted for 12% of total Gross Domestic Product (GDP) in 200-01, the year in which this sector was liberalized, It increased to 20.1% in 2005-06. The total market for life insurance was worth about Rs. 35,000 cr in 2000-01, but estimated potential for this segment was Rs. 80,500 cr. If the average growth rates (20-25%) are sustained, the market would grow to Rs. 260,000 cr by 2010. Presently, 17 life insurers are operating with 1.2 million agents and 300 brokers in the market (including one public sector player, LIC). The market share of the private insurers and LIC, in terms of policies underwritten, was 10.92% and 89.08% in 2005-06 as against 8.52% and 91.48% respectively in 2004-05. The life insurance industry premium income was Rs. 105,875.76 cr during 2005-06 as against Rs. 82,854.80 cr in the previous financial year, recording a growth of 27.78%. New policies underwritten were worth Rs. 354.62 lakh in 2005-06 as against Rs. 262.11 lakh during 2004-05 showing an increase of 35.29% as against a decline of 8.44% in the year before, while the private insurers exhibited a growth of 73.37%. Total pay-out by the life insurance industry towards commissions in 2005-06 was Rs. 8,643.29 cr as against Rs. 7,104.46 cr in 2004-05. With a population of more than one billion, 16% of the rural population is insured, whereas, average population insured in India is 21%. Since, 72% of the Indian population lives in rural areas, the potential is very attractive. The purpose of this paper is to analyze the impact of the life insurance business in India.

Since time immemorial, we have been trying to achieve a perfect balance between risk and the return for any investment decision. In practical life also it is our constant endeavor to secure our assets and plan in such a manner so as to ensure fulfillment of current and future liabilities. One such tool for achieving the above condition is insurance (Zelizer, 1979).

The basic concept of insurance is not minimization of risk, but to arrange for compensation of risk. A person who opts for an insurance policy, be it life or general, is in a way trying to compensate the expected losses which he or she may face in case of an untoward event. The basic purpose of insurance is not to earn profits, but to hedge against expected losses (Donald and Ronald, 2000). In India, insurance is generally considered as a tax saving device instead of its other implied long-term financial benefits. Indian people are prone to investing in real estates and gold followed by bank deposits. They also selectively invest in shares.

This paper discusses the growth in the Indian economy as well in the insurance sector. It also clearly shows the operational performance of life insurance sector with reference to participation of private players and intermediaries. Then, the business performance of life insurance sector is analyzed followed by conclusion.

The market for life insurance in India has evolved in the context of specific socioeconomic and political environment that existed over the years (Bajpai and Jyothi, 1994). After globalization in 1991, the Indian economy has been growing rapidly and the growth impulses continued during 2005-06. There has been sustained manufacturing activity and impressive performance of the services sector along with a reasonable recovery in the agricultural sector. The agricultural and allied activities registered a growth of 3.9% due to improvement in agricultural production. The industrial sector increased by 7.6% and the services sector maintained a higher growth of 10.3%. Within the services sector there has been an improved performance in finance, insurance, real estate and business services. Thus, the growth in real Gross Domestic Product (GDP) was at 9.0% during 2005-06 as against 7.5% in 2004-05. Gross Domestic Savings (GDS) as well as capital formation started declining after 1995-96.

Risk And Insurance Journal, Growing Indian Economy, Life Insurance Business, Gross Domestic Product, Premium Income, Investment Decision, Insurance Policy, Socioeconomic Environment, Gross Domestic Savings, Wholesale Price Index, International Monetary Fund, Life Insurance Corporation Of India, LIC.