By Venkatachari Jagannathan
Chennai, March 19 (IANS): 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."