At present, the first largest business for insurers is motor insurance, followed by fire insurance in the second place and health insurance at third. While motor insurance would retain its number one position in the next three years, health insurance would take up the second position, he explained.

"The health insurance premium which stood at Rs 675 crore (Rs 6.75 billion) in 2001-2002 has risen to Rs 3,200 crore (Rs 32 billion) by March 31, 2007. The growth is 5 times in five years. The health insurance portfolio has reached to the 3rd place from the 5th position and is likely to be at the 2nd position in 3 years," he said.

Currently, the general insurance industry is partially detarrifed with insurance companies now allowed to offer a maximum of 51.25 per cent in discounts on fire and engineering businesses.

"Once the insurers have filed their rates with us and we are convinced of the pricing, the regulator will completely lift tariffs from the month of November," Rao said.

Detarrifing is likely to put an end to the cross subsidisation of profitable lines of businesses such as fire and engineering with group health insurance. With a major price reduction in fire insurance, insurers will focus on personal lines of business and move away from doing risky corporate business.

"We have suggested separate licensing for standalone health insurance companies to the finance ministry. At present, health insurance companies are given a license under general insurance which should be separated."

"Bringing down the minimum capital requirement for stand alone health insurance companies to Rs 50 crore (Rs 5 billion) from Rs 100 crore (Rs 1 billion) will require an amendment to the Insurance Act. "

However, we are looking at introducing risk-based norms." Currently, two health insurance companies, Star Health and Allied Insurance and DKV Health Insurance, are present in the country and around two to three more are likely to come in.

"In order to ensure that standalone health insurance firms succeed, we are looking at switching from the traditional solvency requirement to risk-based norms," he said.

Insurance companies are required to maintain a solvency of 1.5 times the capital plus assets over the liabilities.