After a long period, in which the reform process seemed to have come to a halt, a new era of reforms may have been initiated with the formal sanction for the entry of three new companies into the insurance sector. This has come in the form of the Insurance Regulatory and Development Authority issuing the first set of licenses to three domestic companies with tie-ups to foreign insurance companies. This marks a transformation of the insurance industry in India, which has been a government monopoly since 1973. The dismantling of government monopoly in the insurance sector has not come without a long and bitter struggle. Employees' unions in the insurance sector, along with most of the left parties, have fought hard to prevent the opening up of the sector. For the record, they have been claiming that the insurance sector does not have much untapped potential, and that private and foreign companies would indulge in profiteering and unfair practices. They would, therefore, convert the insurance sector into an essentially urban phenomenon by neglecting development of the insurance business into the less profitable rural sector. Neither of these objections is tenable. First, it is ridiculous to claim that the insurance sector has no scope for expansion in India. As little as seven per cent of the Indian population has life insurance. The corresponding figure in developed countries is several multiples of this paltry figure. Health insurance is virtually absent. Second, the nationalized industry, even today, has not really bothered to spread out to the rural areas. Also, one can turn the argument about profiteering on its head and argue that it is the private sector which will actively develop the insurance industry in rural India. This has started to happen in banking and there is no reason to believe that a similar development will not occur in the insurance sector. The main reason for their opposition has been the apprehension that the entry of private companies in general and foreign companies in particular would eventually lead to the privatization of the existing nationalized companies. Privatization in turn is feared to result in retrenchment because of computerization and the weeding out of various inefficiencies. This has been a common fear of employees in all nationalized enterprises. However, similar fears were expressed when the banking sector was opened up to the private companies. No forcible retrenchment has taken place in the nationalized banks, and it is unlikely that the government of the day will allow any of the nationalized banks to close shop - though many will argue that this should be done. Almost everyone must acknowledge that the average consumer gets better service in the new private banks. There is no reason to believe that the experience in the insurance sector will be vastly different. Competition will result in lower premiums, while the much-maligned profit motive will ensure the introduction of new insurance products. Apart from improving the consumers' welfare through lower premiums and better service, the insurance companies will typically raise the average savings rate in the economy. Of course, cut-throat competition can result in firms lowering premiums to unsustainably low levels, resulting in some firms going bankrupt. But the chances of this happening are extremely remote. The IRDA is sure to play a very active regulatory role in order to protect the interests of consumers. This must inevitably involve at least some efforts to ensure the orderly growth of the industry.