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Banks, serving as distribution channel for insurance products, have contributed about 20 per cent of the total insurance business in financial year 2005, according to a Fitch report on the insurance sector.

The difficulties faced in training a new agency force with skill sets is the main reason why private players have sought recourse to alternate channels.

Alternative distribution channels, as a whole, have contributed towards 25-30 per cent of sales in private insurance companies, the report added. These distribution channels include corporate brokers, bancassurance, the internet and corporate agents.

Currently within the 1.2 million agents in India, LIC alone has over one million agents, pointed out the report. However the advantage that private insurers such as ICICI Prudential, HDFC Standard Life and SBI Life enjoy is the presence of their domestic partners in the banking space.

The Fitch report observed that the domestic insurance industry accounts for nearly 10-15 per cent of the country’s total financial sector assets. Despite the strong growth and improving penetration levels, the market is still quite small and holds the potential to expand further. Total gross premiums amounted to Rs 95,140 crore in FY05, split roughly in the ratio 60:40 between life and non-life businesses, respectively. Total (life and non-life) premiums were equivalent to 3.17% of GDP in 2004 as compared to 8.27% in the US, 7.89% in Europe (western, central and eastern) and 7.4% in Asia as a whole. This potential for growth is likely to attract more players.

At present, there are 13 private insurers in the life sector and eight in the non-life sector. According to report, “Private insurers are able to garner a higher marketshare because they offer greater choice in terms of products and services and also make a concerted effort to increase consumer awareness about the benefits and importance of insurance via vigorous marketing.”

Most private insurance companies are joint ventures between Indian and foreign partners; foreign partners' share is currently capped at 26%. Several new players are expected to enter India's rapidly growing insurance market in the next few years, especially if the foreign direct investment (FDI) limit is raised to 49%.

The increase in FDI will also allow a fresh infusion of capital into the insurance sector, given the business' strong capital needs.

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