INSURANCE SECTOR
REVITALISE THE SAFETY NET
Mahen Gunarathna calls for an overhaul of the life insurance value chain
Q: How has the insurance sector adapted to the post-pandemic period and economic crisis?
A: The pandemic induced challenges over the past two years were exacerbated by the economic crisis that took root in 2022.
As a result, the life insurance sector experienced the crisis both negatively and positively.
One of the major adverse factors was the reduction in disposable incomes due to increased taxes amid a high inflationary environment. Therefore, life insurance was considered a nonessential item as people struggled to make ends meet.
In Sri Lanka, life insurance is still ‘sold’ rather than ‘sought.’ Furthermore, policy renewals were challenged by either lapsing or rearranging, which had a negative impact on the sector.
On a positive note however, the COVID-19 pandemic and subsequent economic crisis lent tailwinds to life insurance, which was aggravated by heightened economic uncertainty.
People began to realise how vulnerable they were without life insurance during the pandemic; and later, even while the economic crisis began to unfold and medical care costs started soaring.
These factors led to an increase in demand for health insurance as medical care and pharmaceutical costs rose by
as much as 40 percent at the end of last year.
Life insurance is increasingly being seen as an essential safety net. Overall, the sector has progressed well and entities in it have transformed their business models, which are underpinned by accelerated digitalisation drives.
Q: What are the main roadblocks to greater market penetration?
A: Life insurance remains under-penetrated. One of the main reasons for this is the lack of awareness and belief in its benefits, and how it can provide a safety net. There is also a lack of financial literacy and this undermines the importance placed on making sound financial decisions.
Furthermore, accessibility will continue to be an issue unless the sector changes its business model to service the eligible population. Currently, traditional agency distribution remains the primary method of sales. In addition, recruitment to the life insurance sector has been an uphill task.
Q: And what are the key strategies needed to drive the sector?
A: Awareness about life insurance should be raised and the process simplified by eliminating the jargon. It must be digitalised to encourage self-service since this will simplify the process and lead to increased accessibility.
Even though there are 27 insurance companies operating currently, the market has enough room to improve accessibility and increase growth.
There are around 44,000 sales agents in the sector, but that’s not enough to service the entire population.
Another key strategy is for businesses to target diverse income segments – especially the lower socioeconomic strata – to open up and expand the life insurance sector.
Q: Has technology played a role in popularising insurance – and are customers readily adopting it?
A: Digital platforms have democratised technology and life insurance is no longer only for the elite.
So yes, digitalisation is transforming the sector. The digital purchase of insurance is catching on, and businesses are investing in digitalisation and data analytics.
The increase in internet penetration to 53 percent of the population by January and social media users comprising 38 percent of the populace this year are supporting these trends. Moreover, online payments – which were about three percent in 2019 – increased to around six percent last year, indicating that people are adapting to digital processes.
We also see an upward trend in the acquisition and use of digital apps, and this helps businesses to stay relevant in relation to evolving customer behaviour. The sector needs to rethink the entire value chain of how insurance is delivered seamlessly to consumers and increase affordability by enhancing its digital capabilities.
Q: Is there potential in the health insurance market, in your assessment?
A: This market is growing due to a greater understanding of how health insurance can provide a financial safety net against healthcare inflation.
This is because the cost of medicines has spiked drastically and out-of-pocket medical expenses are unaffordable.
Since 83 percent of deaths in 2016 were due to noncommunicable diseases (NCDs), it has spurred the demand for health insurance, coupled with the fact that Sri Lanka’s population is greying.
In addition, extended lifespans make health insurance more attractive. The current average life expectancy is 76.8 years and it’s projected to rise to 88 by 2100!
Q: What’s the outlook for the sector for the rest of the year?
A: As a sector valued at Rs. 135 billion – and having recorded nine percent growth last year, in addition to a compound annual growth rate (CAGR) of 14 percent from 2017 to 2022 – the outlook for life insurance remains positive as businesses adapt to the evolving needs of customers.
New revenue streams are being added and unique partnerships formed to extend financial protection to more Sri Lankans.
I look forward to witnessing the evolution of the sector as it becomes a pillar of financial strength for the nation.
