| Rangachary: All for cover
New Delhi, May 23: Insurance companies have been allowed to invest in venture capital funds as part of their long-term investment strategy.
The Insurance Development Regulatory Authority (IRDA), which announced the decision today, did not, however, raise the cap on investment in approved funds which remains at 5 per cent of the premium collected.
“Insurance companies are obliged to invest in a place that matches their liability profile. At least quality venture funds can be a part of this,” said IRDA chairman . Rangachary at the launch of a Rs 150-crore biotechnology venture fund by Andhra Pradesh Industrial Development Corporation (APIDC) — Venture Capital Limited.
He added, “Initially we were reluctant to permit this. But after seeing the approach of APIDC and after understanding it in greater detail, we have come to the conclusion that good funds can be vehicles for purposes of good investment.”
Rangachary said, “In developed markets such as the US, insurance companies have as large as 10 per cent exposure to VC funds. Pensions and insurance companies account for almost three fourths of all investment in venture capital funds. However, in India, insurers have invested less than 1 per cent.”
Rangachary, who is scheduled to retire on June 9, told reporters on the sidelines of the function that the Tamil Nadu government had given a land worth Rs 50 crore to IRDA for test driving facilities.”
He said, “A unanimous decision on this was taken at the workshop attended by various automobile and insurance companies as we are heading towards the April 1, 2005, motor detariffication deadline. We need to create a reliable database as industry has no knowledge about the quality of vehicles”.
Rangachary said the regulator should be vested with more penal powers. “What the Insurance Act of 1938 lacks is sufficient penal machinery to take action against defaulters,” he said.
He said the Insurance Act of 1938 had become vintage by 2002 and IRDA was trying to match the Act of 1938 to come up to the level of 2002.
“Also, we have to introduce an appellate forum for purposes of hearing appeals against the orders of the authority,” the IRDA chairman added.
At present the maximum penalty that can be imposed is a paltry Rs 100-1000 depending on the nature of the offence.
“You may laugh at those figures (the penalties) and so we need to have a modern approach,” Rangachary said.
Asked about the move to transfer IRDA’s funds to the public account of India, he said, “Which regulator (Sebi or the RBI) have their funds with public account that we are being asked to put our funds there' I am still opposed to the idea as the fund is meant to be utilised by us for development purposes.”
He said, “The Insurance Act authorises the imposition of a levy on insurance companies which is used to maintain regulator’s office and to carry out objectives that have been laid out in the Act. This money does not belong to anybody other than IRDA”.