INSURANCE SECTOR
Compiled by Yamini Sequeira
THE PRECIOUS SAFETY NET
Chanaka Liyanage stresses the importance of insurance cover amid crises
Q: Could you shed some light on the impact of the economic crisis on Sri Lanka’s insurance sector? And how has it responded?
A: The local insurance sector remained strong in 2022/23 despite the economic crisis and pandemic a year earlier, largely due to digitalisation. As a result, gross written premiums grew by 9.2 percent by 31 December 2022, reaching a record Rs. 136 billion.
Presently, there are 27 insurance companies operating in Sri Lanka, the majority of which are performing well. Leading life and general insurance firms have declared uninterrupted annual bonuses and dividends as well.
Overall growth exhibited a comparatively slower trajectory compared to the robust trends over the past five years. This can be attributed to a substantial reduction in people’s disposable incomes.
An emerging trend reveals that people are increasingly realising the importance of life insurance, driven by firsthand experiences of substantial increases in healthcare expenses over the past few years.
Meanwhile, the sales force has been able to maintain growth due to the shift to digitalisation.
Electronic signatures have enabled customers to sign up for insurance policies remotely. And payments to companies are facilitated digitally, eliminating the need to make physical contact with salespeople for payments – this enhances customer confidence.
Q: And has a new business model emerged in the insurance sector in response to these extremely challenging times?
A: The shift to digital communication makes it convenient for customers and agents to connect more frequently, strengthening their ties further.
However, given that insurance is a people driven business, the sales force is maintained as a vital arm of the business model as they continue to foster and nurture relationships with customers. The functions of agents are critical as they bring in between 80 and 85 percent of business.
As insurance is a long-term investment, many customers prefer in-person interactions with salespersons or digital contact. Therefore, human interaction will continue as the dominant force alongside the speed, ease and convenience that digitalisation offers.
Q: What are the chief roadblocks to greater penetration in life and general insurance?
A: In terms of life insurance, there’s a perception that as long as health insurance is covered by the employer, an individual need not invest in long-term life and health insurance.
Unfortunately, the onset of retirement brings with it the possibility of higher premiums or even the unavailability of a policy due to age or related health concerns. The sales force faces challenges in advising people between the ages of 25 and 45 to purchase insurance policies that will benefit them at a later stage in life.
Today however, many seem to be realising the need for a backup plan in the event of a major crisis.
Another challenge is that the move to digital is mainly in the Western Province, and urban and suburban areas. However, there are positive signs in certain rural areas as people are gradually shifting towards digital methods vis-à-vis insurance.
Q: In your assessment, what are the prospects for growing the insurance segment? And which areas hold the most promise?
A: There’s huge potential when it comes to the health insurance segment – one reason being Sri Lanka’s ageing population.
According to the WHO, 25 percent of the country’s population will be 65 and above by 2040. In addition, life expectancy in the island grew from 71 years in 2011 to 76.4 years in 2021, which will increase the demand for health insurance.
However, the government is facing difficulties in terms of the healthcare sector. We’ve also noticed that the demand for pensions and protection has increased.
Increasing awareness of the benefits of life insurance has fuelled growth in the life insurance segment.
During retirement (typically between the ages of 60 and 80), most people find themselves dependent due to the absence of a regular income.
Ironically, it’s during this period that the rewards of investments and health insurance should be enjoyed. These resources can help people attain financial independence without becoming a burden on their loved ones.
When it comes to general insurance, people readily opt to insure properties and vehicles, primarily due to the increasing repair costs following accidents. As a result, customers prioritise timely renewals of property and vehicle insurance to circumvent the burden of substantial expenses in the event of an accident.
This mentality should be extended to health and life insurance cover as well.
Another crucial consideration is the education of children.
Many families are sending their children overseas for higher education and insurance plays a vital role in protecting their future. In the event that the primary earner faces an unfortunate incident, insurance provides a safety net for a child’s education.
The goal of the insurance sector is for people to lead healthier lives and assist them in preparing for emergencies. Insurance could be considered the perfect solution, covering protection, health and savings all in one.
