Insurance industry will outpace economic growth and is likely to reach $350-400 billion in terms of premium income by 2020, making it among the top three life insurance markets, an industry report revealed.

India will also be among the top 15 non-life insurance markets by 2020, according to an industry study conducted by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the US-based Boston Consulting Group.

The report points out that penetration of the insurance industry, premium as percentage of the country's gross domestic product (GDP), has increased from 2.3 percent in 2001 to 5.2 percent in 2011.

In addition, there has been a vast increase in the coverage of insurance. The number of life policies in force has increased nearly 12-fold over the past decade and health insurance, nearly 25-fold.

Better terms and availability of a wide variety of products, like unit-linked products, whole life, maximum net asset value (NAV) guarantee, auto assistance, auto pay per km insurance, disease management and wellness, have boosted the growth of the industry.

"While the industry has come a long way over the past decade, the big challenge is profitability. Private life insurers have accumulated losses of over Rs. 16,000 crore till March 2010," said Alpesh Shah, partner and director of Boston Consulting Group India, the author of the report.

"The non-life insurance industry has cumulative underwriting losses of nearly Rs. 30,000 crore," he said.

Commenting on the report, FICCI Director General Rajiv Kumar said: "The report estimates the total insurance premium at approximately Rs. 17 lakh crore to Rs. 22 lakh crore in 2020, with life insurance being Rs. 15 lakh crores to Rs. 20 lakh crores."

"This growth will have a significant impact on India's ranking in the global insurance industry and is based on strong fundamentals," said Kumar.