INSURANCE SECTOR
Compiled by Tamara Rebeira
DRIVERS OF FUTURE GROWTH
Siva Karthigun tracks the evolution of insurance amid post-crisis realities
Q: What are the opportunities for growth in the local insurance market over the next five years?
A: The insurance sector typically mirrors the macroeconomic conditions of the country. As such, growth prospects are aligned with the economy’s overall drivers.
At present, the motor and marine insurance segments are experiencing rapid growth, largely due to the easing of import restrictions. We anticipate this trend will continue for a period before stabilising.
The motor segment has also witnessed a notable shift with rising interest in electric vehicles (EVs). Additionally, insurance products linked to construction are expected to expand once the government resumes funding for development projects. With lending rates remaining low, home loan related insurance products are also seeing growth.
Health insurance has been a notable growth driver in recent years and we believe this momentum will persist. Other segments offering strong growth opportunities include tourism, the digital economy, healthcare and logistics.
Q: How is the sector evolving post-economic crisis, particularly in terms of consumer behaviour and digital adoption?
A: The insurance sector embraced digital platforms early on – even prior to the COVID-19 pandemic and subsequent economic crisis.
This digital shift has continued with an increasing number of services now delivered through online channels. We expect further advancements in digital transformation in the years ahead.
However, a critical concern in the post-crisis period has been the decline in consumer spending, primarily due to reduced disposable incomes. This has impacted demand across the insurance sector, prompting providers to re-evaluate their product offerings and pricing strategies.
Q: Do you believe the current regulatory framework adequately supports growth in the insurance sector?
A: Sri Lanka’s insurance sector has performed commendably over the past decade, recording an impressive compound annual growth rate (CAGR) of 14 percent. This level of consistent growth would not have been possible without a responsive and forward-thinking regulatory framework.
The Insurance Regulatory Commission of Sri Lanka (IRCSL) has played an instrumental role in shaping a policy environment, which encourages innovation while maintaining stability. Regulatory updates have been introduced in phases, allowing sector participants time to adjust and implement the necessary changes.
As the sector continues to evolve, ongoing collaboration between regulators and insurance providers will be essential, to ensure that policies keep pace with emerging trends, risks and consumer needs.
Q: How can regulators and insurance providers collaborate more effectively to improve penetration in the country?
A: Awareness is crucial to increasing insurance penetration. The IRCSL has designated 1 September as National Insurance Day and the entire month as Insurance Awareness Month. During this period, the sector collectively conducts various programmes, campaigns and activities nationwide to raise public awareness.
In addition to these efforts, targeted awareness initiatives are directed at schoolchildren – the future consumers of insurance.
Sri Lanka could also consider adopting measures that have proven successful in other countries such as mandating local travel or medical insurance for tourists, or introducing compulsory micro insurance products in areas such as health and life cover.
Furthermore, granting tax exemption for life insurance premiums – as practised in many other jurisdictions – could enhance penetration and drive sector growth.
Q: What is your view on the effectiveness of current risk based capital requirements in Sri Lanka?
A: The risk-based capital (RBC) rules have been largely effective in achieving their intended objectives, particularly in enhancing the financial soundness and risk management practices of insurers.
While a few companies have faced challenges in adapting to the framework, the majority have responded well.
However, there remains scope for improvement.
As market dynamics continue to evolve, insurance sector stakeholders are currently revisiting the RBC rules to make them more robust, forward-looking, and better aligned with emerging risks and changing economic conditions.
Q: How can the sector address public mistrust or misconceptions surrounding insurance?
A: Once again, awareness plays a vital role in building trust. The initiatives mentioned earlier not only aim to increase penetration but also work towards enhancing public confidence in insurance.
Despite the sector paying out billions in claims annually, a degree of mistrust persists. To counter this, insurers are simplifying policy documents, offering digital claims processes – including app based tracking – and improving communications with policyholders.
These efforts aim to boost transparency and strengthen consumer trust.
Q: How should organisations balance affordability with coverage adequacy when designing new products?
A: This remains a challenging task especially given the current low consumer spending power. Nevertheless, by empathising with customer needs, the challenge can be overcome.
Digitalisation and lean distribution cost structures are key strategies that help manage product costs without compromising insurance cover. Many insurers and brokers are already adopting this approach.
Segmenting customers, and introducing life and medical products at a younger age, is another effective solution.
As coverage requirements increase over time due to inflation and lifestyle changes, insurers must offer flexible options to upgrade policies to accommodate customers’ evolving financial capabilities.
