Addressing an insurance summit organised by the Confederation of Indian Industry, Sarma said opening up of the insurance sector will open up new avenues for employment generation and will not affect the interest of employees in the public sector insurance companies.

Sarma commended the public sector insurance companies for their spectacular role in extending insurance coverage in the country. Since nationalisation, these companies had seen a massive rise in performance and coverage, with the life insurance companies having 142 million policy holders and the general insurance companies 21 million. They were fully equipped to compete in an open market, and in fact, competition might drive them to become truly global, Sarma said. Sarma said privatisation of the sector will help ruraldevelopment and the low-income segment apart from mobilising long-term funds for infrastructure sectors. The full potential of household saving has not been utilised so far and privatisation of insurance will help achieve that.

The entry of new players would also expand the product range in the insurance sector and reduce transaction costs, Sarma said, adding that private insurance companies with social sensitivity alone will be sustainable in the long term.

The secretary said the 250-odd life and general insurance private companies were nationalised a few decades back as they indulged in several malpractices including fund diversion to malafide activities. This time round, the regulator of the insurance sector will ensure that insurance grows in an orderly and regulated manner, he said.

Speaking on the occasion, ICICI chief executive KV Kamath said the opening up of the insurance sector would not be a threat to the public sector companies but supplement the existing players in the development of theeconomy.

He said insurance sector would also help in development of secondary-debt market which was in a nascent stage in the country.

Kamath said the distinction between different financial entities - banks insurance, mutual funds - was getting blurred. Even the term universal banking was getting outdated, to be replaced with financial services. Banks cannot afford to sell any single product to survive profitably for long, he added.

Kamath said the development of technology would completely change the structure of the financial sector, especially the insurance sector.

"With the entry of internet, the rules of the game will be completely re-written. Big offices and large bank networks will be replaced by thin branches with thick wires," he said.

He said non-finance companies could also be a good source for marketing various products of finance companies. In this connection, he cited the case of Amazon.com, a company catering to retail customers through internet, which was better equipped forservicing customers compared to any bank or finance company.

Deepak Satwalekar, chairman, CII insurance committee, urged the government to cut out obsolete laws that hampered the functioning of the insurance industry. Passing of the Information Technology Bill would facilitate e-commerce, he added.