Compiled by Yamini Sequeira
STRETCHING THE SAFETY NET
Pankaj Banerjee says an ageing population may spur insurance adoption
“The life insurance sector has been in Sri Lanka for the past four decades. And thanks to a per capita GDP of US$ 4,000, the nation has substantial upside potential in the insurance segment compared to other Asian economies that are pursuing a similar development path,” says the Chief Executive Officer of AIA Insurance Lanka Pankaj Banerjee.
He adds that “the country’s life insurance premiums-GDP ratio is less than 0.5 percent, whereas in other nations such as Vietnam, Thailand and Indonesia, life insurance penetration ranges from one to three percent.” And he asserts that this clearly indicates a significant opportunity in terms of further penetration for life insurance companies to provide appropriate products and solutions to Sri Lankans.
Furthermore, Banerjee sees the possibility of greater innovation as the sector comprises 14 players today. He says that overall, the insurance sector is well diversified in terms of products. However, he laments the lack of awareness about life insurance and feels it is imperative to create positive sentiment.
OVERLOOKED ASPECTS There are many reasons for life insurance being important. But looking at this from a broader socioeconomic perspective, life insurance is a long-term business model whereby insurers invest premiums in government securities.
“Therefore, life insurance is an important means of collecting household savings and channelling them towards building the country’s infrastructure,” explains Banerjee, adding: “Insurers create opportunities to bring funds into the country for development.”
He continues: “As a sector, we have a responsibility to create awareness and educate the public on the need for insurance. Asia is ageing rapidly and so is Sri Lanka. It is important to note that the West became rich before its population started ageing whereas Asia’s population is growing old before the region becomes rich.”
“In any Western country, it takes around 70 years for the share of the population over 60 to move from 10 to 20 percent. Asia is taking only 35 years and ageing much faster as a result! This creates an opportunity for long-term care and pension needs,” he declares.
AGEING POPULATION Banerjee’s opinion is that retirement solutions will rise in importance due to increased life expectancy, which is now at 75 years compared to 69 years about 15 years ago. “As a result, people will live much longer in retirement without a regular income and potentially insufficient savings to support their longer lifespans. This poses a serious challenge for individuals,” he notes.
Non-communicable diseases have recorded a steep rise in recent years with a majority of deaths being attributed to them. This realisation has triggered a demand for health insurance cover, which is a key avenue for growth. Despite medical advancements, the cost of healthcare has risen by leaps and bounds. Per capita household expenditure on health in Sri Lanka was US$ 25 in 1995 whereas today, it has more than quadrupled to 110 dollars.
“Approximately 42 percent of all healthcare expenditure – amounting to 250-300 billion rupees every year – is out of pocket and not funded by insurance or the government. Insurance can step in here and create a safety net,” Banerjee states.
He opines that affordability should not be a hindrance to an economy that produces a per capita GDP of US$ 4,000 dollars: “Income protection is needed for everyone who earns. We have some customers paying Rs. 30,000 rupees while others pay millions of rupees in premiums every year.”
“So the breadth of products is there but we need to invest in educating consumers in an appropriate manner – not by creating a sense of fear but putting all the facts on the table,” he urges.
WELL OILED REGULATIONS In the last couple of years, the sector has had to comply with various regulations aimed at strengthening it.
The risk based capital (RBC) regime is focussed on managing an insurance company’s balance sheet. As Banerjee notes, the RBC regime is “a methodology to ascertain or manage the solvency of life insurance companies.”
“If you look at the life insurance business, our liabilities are pretty long-term. So given the nature of this liability, it is important that the balance sheet of insurers be robust. We consider it to be a very progressive move by the regulator and in the longer term, this would strengthen the sector’s balance sheet, which will support sustainable life insurance business growth,” he maintains.
Banerjee explains that “as operators, our desire from regulators is a partnership like I’ve seen in various underdeveloped and developed markets. In a country framework, you need a partnership to discuss and jointly develop the sector. Regulators will impose rules and regulations they deem appropriate for the sector. In this context, the level of dialogue with the insurance sector by the regulator in Sri Lanka is noteworthy.”
TECHNOLOGY DRIVE Looking ahead, Banerjee believes that the No. 1 priority should be to increase insurance penetration: “Health, pension and long-term income replacement products will emerge stronger. Another shift in the sector centres on the need for companies to adapt to behavioural aspects of consumerism.”
“The advent of technology has created opportunities while consumer expectations have evolved. We need to make the shift and embrace this technological landscape, using it as a platform to educate, sell and engage in post-sales service. Rapid adoption of the internet and smartphones is also creating an opportunity for the sector to respond to,” he observes.
In its insurance sector report in March, LOLC Securities projected life insurance to achieve a GWP compound annual growth rate of 21 percent for the next three years – mainly due to the fact that life insurance is hugely underpenetrated compared to peer nations. This offers strong upside potential, it notes.
Sri Lanka’s demographics provide the impetus for life insurance to grow exponentially. And the country’s economic growth presents a strong empirical case for rapid growth in life insurance. The report projects the insurance sector to grow to Rs. 115 billion in GWP by 2019 compared to 53 billion rupees in 2015.