Core sector to see insurance flush

Regulator realigns investment ambit with RBI norms.

Insurance funds will soon start flowing to special economic zone (SEZ) projects, agro-processing and infrastructure projects, domestic satellite services and social infrastructure like educational institutions and hospitals.

This follows an internal redefinition by insurance regulator Insurance Regulatory Development Authority of India (IRDA) of the infrastructure sector to align it with that of the Reserve Bank of India (RBI).

The revised definition awaits a formal notification, a senior IRDA official said, which is expected "anytime soon".

The inclusion of new sectors under the definition of infrastructure answers a major complaint of insurance companies that they lacked investment avenues to comply with regulatory requirements.

Life insurance companies are required to invest 15 per cent of their premium income from traditional (non-ULIP) policies in the infrastructure and social sectors. For non-life companies the proportion is 10 per cent.

At present, IRDA allows insurers to lend to infrastructure companies that develop a road, highway, bridge, airport, port and railway projects, road transport system, water supply projects, irrigation projects, industrial parks, water treatment system, solid waste management systems, sanitation and sewerage systems, generation, distribution and transmission of power, telecommunication and housing projects.

Sectors to be included under the new definition would be companies operating and maintening roads, airports and port projects, SEZs, internet services, broadband networks, agro-processing and supply of inputs to agriculture, preservation and storage of processed agro-products and perishable goods (fruit, vegetables and flowers including testing facilities for quality); construction of educational institutions and hospitals and the laying down and/or maintenance of gas, crude oil and petroleum pipelines.

Explaining the move, a senior IRDA official said: "The Deepak Parekh committee for infrastructure financing had recommended that the IRDA definition should be realigned with the RBI definition."

Vikram Kotak, Chief Investment Officer, Birla Sun Life Insurance, said: "The move will ensure more funds from the insurance sector to infrastructure development. Today, India needs close to $350 billion investments for infrastructure over the next five to seven years. Long-term investors like insurance companies and pension funds can play a vital role in infrastructure development."

The total premium of 15 life insurance companies in 2006-07 was Rs 1,56,042 crore. Their total investment in infrastructure as on March 31, 2006, was Rs 49,636 crore which increased to Rs 78,000 crore as on March 31, 2007.

The total premium of 12 non-life insurance companies in 2006-07 was Rs 25,000 crore.