Business
Regulator must now ensure flow of insurance money into infrastructure
By
Venkatachari JagannathanChennai, March 19
The insurance regulator must
come out with proper norms to ensure that private players invest in
long-gestatation projects like infrastructure deveopment since this was
one of the underlying reasons for hiking foreign equity cap in the
sector, experts maintain.
Thuas far, the promise of doing their
bit for nation building by parking their long-term funds has turned out
to be a mirage as the private players mainly sold unit-linked insurance
policies (ULIP) where the investment structure is specified by
policyholders and is quite uncertain.
"Only the state-run Life
Insurance Corp (LIC) has continued to invest in infrastructure out of
the premium earned by selling traditional policies," said an industry
expert, adding earlier this week it signed a pact with Indian Railways
for a Rs.1.5 trillion over the next five years.
"The new
insurance law has made substantial amendments to the provisions relating
to investment of funds. It is now it is for the insurance regulator to
determine the investment framework," D. Varadarajan, a Supreme Court
advocate and expert in the sector, told IANS.
"It will also be a
challenge for IRDAI (nsurance Regulatory and Development Authority of
India) to balance the need for nation-building and securing the
interests of policyholders -- not only the safety of their funds but
also getting higher returns," Varadarajan said.
The remarks came
against the backdrop of parliamentary nod for the Insurance Laws
(Amendment) Bill, 2015, which among a host of issues, raises the foreign
equity can in the industry to 49 percent from 26 percent earlier.
India
currently has 52 insurance companies -- 24 in life and 28 are non-life.
In life business, the state-run LIC is the sole public sector company,
while in non-life, there are six state-run firms. Accordingly, there are
45 private insurance companies in operation.
The total underwritten premium in 2012-13 was Rs.3.5 trillion, as per the regulatory authority.
In
addition to these, there is sole national re-insurer, namely, General
Insurance Corporation of India. Other stakeholders in Indian Insurance
market include agents (individual and corporate), brokers, surveyors and
third party administrators servicing health insurance claims.
"It's
high time the regultor's investment regulations were brought in line
with the objectives of market liberalisation," said K.K. Srinivasan, a
former member for non-life buisiness with the regulatory authority.
"IRDAI
can bring out investment regulations, stipulating that, say, 25 percent
of the premium and investment income from Unit-linked insurance
policies be invested towards infrastructure development," added R.
Ramakrishan, a member of the Malhotra Committee on Insurance Reforms.
At
the same time, Varadarajan warned that the fundamental purpose of
insurance -- of financial security must not be comproised. "Insurance
should not be speculative financial instrument. One should be wiser
after the experience of volatilty in unit-linked plans," he added.
Also
sounding positive was a the top official with the Life Insurance
Council, a forum for all stakeholders that develops and coordinates
discussions between the government, regulatory board and the public.
"The
idea (of norms for infrastructure and long-term investments) sounds
good. It is for the regulator to take a call, taking into account the
government's intention and infrastructure needs of the country,"
Secretary General V. Manickam told IANS.
But another senior
industry official, not wanting to be quoted, said: "Mandated investments
are old concepts. There are no investment papers in India for long-term
infrastructure investments."
He felt there should be a move
instead towards a market for securitisation where the ill-liquid assets
are converted into securities that can be traded. "The securitisation
market has not yet developed in India," he said.
"If there are
investment avenues and the securitisation market is developed, there
will be no need for regulatory mandates," he said, adding: "The main
purpose of insurance business is to maximise returns to the
policyholders."
(Venkatachari Jagannathan can be contacted at [email protected])