The country’s infrastructure needs to be updated from time to time, Russian companies need additional capital to develop import-substituting industries, and insurance companies are looking for new vehicles for investment. If the area of legislation is changed, life insurance will be able to help solve these problems.
Russian insurance companies today invest about 95% of their reserves in the national economy. In the USA and Western Europe, the government is actively using the insurance industry to attract long-term money into the economy. These capitals help, among other things, effectively and comprehensively develop local industries, provide jobs, etc. makes it possible. Russian insurers have a significant reserve of funds: by the end of 2021, the total assets of insurance companies reached 4.3 trillion rubles. For comparison, this is 3.4% of Russia’s GDP. Life insurers today, by law, invest in conservative and reliable instruments – corporate and government bonds, municipal bonds, deposits. Let’s see in what areas this “long” coin can be useful and what mechanisms are needed for this.
Infrastructure needs internal reserves.
Russian Federation President Vladimir Putin said at a meeting on road construction in June that the current momentum in road construction will allow at least 85% of the country’s entire spine road network to be brought to a standardized state within the next five years. In March, the government allocated more than 163 billion rubles from the federal budget for the reconstruction and construction of federal and regional highways, as well as road infrastructure facilities.
Anton Siluanov, then head of the Ministry of Finance, called for more active participation in the private sector in road construction. The head of the department emphasized that there are precedents for which such concession decisions yield results and that more roads can be built in Russia with the participation of private money.
Now there are several promising toll road projects in Russia. Direct investment by insurers could become a working mechanism to attract capital to the country’s infrastructure development. To do this, it is necessary to develop procedures that also guarantee 100% protection of deposited funds for customers of insurance companies. The Central Bank of Russia can create new rules of the game that are mandatory for the market in such a scenario. Such projects constantly generate cash flow, so the return on investment will make the projects work. Russian drivers are increasingly choosing toll roads: for example, in 2021, 213 million (+53% by 2020) car crossings were registered at the facilities of the state company Avtodor.
But not only road builders need money. Now the country is faced with the task of import substitution. Here, the concession mechanism can come to the rescue when some of the funds for the development of enterprises from certain sectors of the economy are provided by the government, and some by insurance companies. To do this, insurers can create a new financial product that will enable investors to invest, for example, in the development of the industry.
How might this work in practice? Suppose a businessman decides to start his own furniture production. A certain investment contribution to this project is made by the state. Life insurers, in turn, offer an investment program with the support of local businesses and a direct portion of funds invested in development policy. Once the company starts making profits, it will be distributed among investors, including customers of insurance companies.
Another example of a promising area of investment would be, for example, the production of lysine, an important feed additive (amino acid) for the agricultural industry. At the end of 2021, the National Meat Association warned that feed mills are in danger of closing due to a lack of amino acids and vitamins, including lysine, which could lead to lower feed quality and higher costs in the meat industry. There is a shortage of lysine in the world, and only two enterprises produce it in Russia. Investments in this area will not only support the import substitution trend, but will also increase the country’s level of food security.
Updating the parameters of the financial system and introducing investment protection mechanisms will make it possible to direct the “long” money of insurers to domestic production and infrastructure projects. Investors will have attractive financial instruments for capital investment.
The author expresses his personal opinion, which may not coincide with the editors’ position.