Chandana Aluthgama believes that ‘insurtech’ will drive the insurance sector

Compiled by Yamini Sequeira

The insurance sector has to be well prepared for unforeseen events but perhaps a pandemic that spread to every corner of the world and has lasted as long as it has may not have been factored into this equation.

In 2020, insurance companies had to combat the impact of COVID-19 on various fronts as the economic fallout became obvious.

Chandana Aluthgama explains that “as a developing country, Sri Lanka’s economy will face its own particular challenges when responding to the impact of the pandemic. A majority of small businesses will require a turnaround time to adjust to the ‘new normal’ in the country while the economy recovers slowly.”

“With vaccinations, we can expect the economy to regain its position especially given the resilience of the affected sectors such as tourism and affiliated businesses,” he says, adding: “The apparel industry too is making an effort to return to normal operations while telecommunications and retail are booming due to high demand.”

As for the impact on the local sector, the motor insurance segment has faced major challenges due to the drop in vehicle registrations as a result of the ban imposed on imports. In addition, the slowdown in mega infrastructure projects has also impeded growth.

PROTECTION Aluthgama notes that “treaty renewals with reinsurers were also challenging for insurance players last year. An increase in life insurance was seen but more because of the high demand for mortgage protection through banks.”

“The main obstacle to increased penetration in life insurance continues to be inadequate disposable incomes and low spending capacity,” he explains.

Spending on insurance is usually the last priority in Sri Lanka since most people have strong family ties, Aluthgama asserts. “They depend on family and friends to tide over crises unlike in the West where people fend for themselves financially,” he points out.

There should be a transition where people understand and embrace the benefits of insurance, while appreciating and harnessing our unique value system, he urges.

As disposable incomes rise, this will have a direct correlation to higher penetration in life insurance. As Aluthgama points out, “life insurance is a long-term commitment and requires you to put aside a fixed sum. It also entails an understanding of the true value of life insurance in times of crisis.”

Insurance penetration, which is reflected by insurance premiums as a percentage of GDP, amounted to 1.3 percent in 2019. This is low compared to other countries in the Asian region. As a result, the protection gap between insured losses and economic or uninsured losses is high.

He says: “Sri Lanka’s free healthcare system shouldn’t be a reason for people to not opt for insurance cover. Instead, health insurance should complement free medical healthcare provided by the state.”

It’s necessary to grow other insurance avenues besides motor insurance, he argues while acknowledging that reinsurers may not cover the risks as some avenues don’t have critical mass.

TECHNOLOGY One major shift Aluthgama would like to see is insurance being ‘bought’ rather than ‘sold’ – and he believes online delivery channels could help in this regard. For the time being however, traditional selling channels reign supreme.

“In time, blockchain technology will help integrate insurance with other service providers and delivery will be much faster. The challenge is to find the right delivery mechanism to offer traditional products quicker and cater to younger people for whom speed is of the essence,” he adds.

Aluthgama is of the view that insurance policies in the future will be simplified so that people understand the provisions, and terms and conditions that aren’t relevant will be phased out.

Digitalisation is also paving the way for the future of insurance. He explains: “Constant innovation is key to facing future challenges. This may need new insurance products, processes and communication tools that can address the different needs of customers.”

Micro-insurance has been a buzzword due to its importance in taking simple and affordable products to a large number of people. The trend of increasing dependency ratios with demographic transition – together with the non-availability of sufficient coverage of pension schemes and low penetration levels – creates more opportunities for insurers and micro-insurers.

“The insurance sector is facing unprecedented times – the pandemic has shifted consumer needs and expectations, while compelling insurers to rethink their business models and adapt to the situation,” he muses.

Looking ahead, Aluthgama sees the sector moving towards more digitalised products and processes, with the help of AI and virtual technologies. ‘Insurtech’ will be the driving force behind the sector together with innovative products to cater to dynamic needs. Big data and data analytics too will play a pivotal role, in his view.

He adds: “As businesses are moving to remote work, protection will be needed against cyber-threats.”

CAREER PATH Presently, approximately 45,000 agents serve the sector – they play an important role in propagating the concept of insurance and fulfilling customers’ needs, which are key to its long-term growth.

To generate a steady stream of youth to this segment, the sector needs to promote insurance as a career path to attract more people. This can be achieved by working with academic institutions and universities, to update and streamline courses and academic qualifications that are aligned with modern industry practices.

He observes that in the recent past, regulators and insurance institutions have played a key role in developing licensing exams in the sector, and made them mandatory for sales advisers. Furthermore, technology is assisting sales advisers in fast tracking the process.

CONCLUSIONS General insurance will suffer for some time until vehicle imports are permitted and mega construction projects recommence. As for life insurance, individual loans will benefit as interest rates have fallen.

Commenting on the sector’s prospects, Aluthgama sums up: “Now that a bold move has been taken to keep the economy open, businesses must learn to navigate this crisis as best as they can. And unless something untoward happens, Sri Lanka will experience a gradual recovery.”

The interviewee is the Chief Executive Officer of Sri Lanka Insurance