Asia: Hurdles need to be removed to facilitate insurers' investments in infrastructures
Source: Asia Insurance Review | Mar 2017
The infrastructure sector in Asia’s emerging markets promises huge opportunities for insurers but first, hurdles like state monopolies and regulatory frameworks need to be re-examined, said Mr Chandri Gunawardhana, a former Director General of the Insurance Board of Sri Lanka.
Government monopoly over insurance cover of infrastructure projects needs to be removed, he said, in an article in The Sunday Times of Sri Lanka.
“In many emerging/frontier markets, large infrastructure projects are reserved for state insurers and the rest of the market is locked out. In certain instances, in addition to the state monopoly, specific foreign insurers not registered in the country, where the project is implemented, are permitted to cover the project risks, excluding locally registered insurance companies. This not only deprives the market of growth but also increases the risk of national financial system instability.”
Call for investment incentives
He also suggested that governments of emerging and frontier markets review the insurance regulatory framework to provide incentives to insurers to invest in long-term infrastructure debt. This could be achieved through reduced or risk-neutral capital charges under a Risk Based Capital framework. Citing India as an example, he pointed out that IRDAI mandates 15% of long-term funds to be invested in the infrastructure development sector, and this is expected to be increased to 20%.
Whilst general insurers have a major role in providing the required insurance cover to infrastructure projects, life insurers can play their role by investing long term funds in infrastructure development, said Mr Gunawardhana.