Best says, though, that India's long-term prospects remain positive, with GDP forecasted to have grown 7.8 percent in 2011, according to the International Monetary Fund. Regarding inflation, Best says the Reserve Bank of India has been steadily tightening monetary policy since March 2010 and has been lifting interest rates to improve the situation.

Best also says that while India's insurance market is expanding, “it has been characterized by intense competition and losses emanating from the motor pool.”

The Indian Motor Third Party Insurance Pool (IMTPIP) was created in April 2007, Best explains, and “has been among the most significant contributors to underwriting losses, as claims inflation has been rising.”

Best says losses are distributed to all insurers according to their overall market share of all lines of business. “The IMTPIP's loss ratio reached 194.2 for the year 2009-2010, while it maintained reserves at a loss ratio of 126.”

Private insurers have called for the restructuring or abolishment of the pool for years, Best says, and plans have been announced to dismantle the pool in March 2012.

Despite the challenges, Best says there are opportunities for insurers in India, and top-line growth remains strong, with non-life gross written premiums increasing 23.8 percent from April 2011 to October 2011. Still, insurers will need to find a way to turn around the trend of underwriting losses. Best says the non-life combined ratio has increased from 106.9 in 2007 to 122.3 in 2011.