premiums for life insurance to per capita GDP of a country.
As per WEF's Financial Development Report 2012, India has been ranked 40th in terms of overall financial development of a country, but it is placed better than many larger economies like the US, UK, Japan and China for life insurance density.
India is followed by China, Japan, US and UK in the top-five countries for life insurance density, WEF said.
In terms of non-life insurance density, India is ranked third after China and the US at top-two positions, but is ahead of countries like Germany, France, Japan and the UK.
Global consultancy giant McKinsey said in a recent report that Indian insurance sector is expected to see an exponential growth in 2012 amid increasing household incomes and higher premiums (as a percentage of the GDP).
WEF said its report measures the financial development of 62 countries across various segments of their financial systems and capital markets.
The overall rankings are based on more than 120 variables spanning banking financial services, financial stability and non-banking financial services among other factors.
"Recent empirical research has found a strong positive relationship between insurance sector development and economic growth; this relationship holds quite strongly even in developing countries," WEF said in its report.
"Insurance also creates liquidity and facilitates the process of building economies of scale in investment, thereby improving overall financial efficiency," it added.
Reliance Life Insurance president and executive director Malay Ghosh said the country's life insurance industry is one of the fastest growing in the world but remains a highly under-penetrated and untapped market.
"The percentage of young people, the number of people likely to be in their work life in the next few years and the spread of literacy are all set to give a significant fillip to the domestic insurance sector," he said.
Another area where India has been ranked on the top is the output loss during a banking crisis, along side 19 other countries. These 20 countries have been found to have suffered the minimum output loss during any banking crisis.