Sri Lanka
has one of the fastest-growing economies in the South Asian region, increasing
by 6.4% in 2012, as compared to an average growth of 5.3% registered by other
economies in the region. The island country is strategically located on major
shipping routes which connect South Asia, the Far East and the Pacific with
America and Europe. The steady rise in economic activities following the end of
civil conflict in 2009 supported the growth of the insurance industry, with
insurance penetration rising to 1.2% in 2012. The Insurance Board of Sri Lanka
is the regulator of the insurance industry, and there were 22 registered
insurance companies in the country at the end of 2011. Several amendments were
made to insurance regulation in 2011 to align it with current global economic
conditions. Factors such as an increase in disposable income, rising awareness
, rise in exports and growing investments in construction and infrastructure
are expected to support the growth of the insurance industry over the next five
years.
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Insurance growth led by life
insurance
Growth in
the Sri Lankan insurance industry is primarily driven by the life insurance
segment, which overtook non-life insurance in 2010 to become the largest
segment in the industry with a share of 44.8% in 2011, an increase from 40% in
2007. Stable economic growth, an increase in disposable income and a rise in
demand for investment-linked products led to the growth. However, the share
declined to 43% in 2012 due to subdued economic growth. A low penetration rate
of 0.5% in 2012 will provide further potential for growth between now and 2017.
Non-life insurance records high
underwriting losses
The
non-life segment witnessed a weakening of underwriting performance between 2008
and 2012 as the segment’s combined ratio averaged at 118.8%. Combined ratios
greater than 100% signify a loss-making position and are due to increased
overhead expenditure and intense price competition in the segment which led to
comparatively slow growth. Companies are introducing a number of policy
options, tapping into the Bancassurance channel and embracing new technology to
cater to changing customer needs and gain market share.
Increase in life expectancy and
aging population will create demand for insurance products
According
to the World Bank, the average life expectancy of the Sri Lankan population
increased from 73.6 years in 2008 to 75.9 in 2012. There was also an increase
in the aging population, those aged 65 years and above, from 7.6% in 2007 to
11% in 2012. The increase in life expectancy, coupled with an aging population,
is expected to lead to an increase in demand for health insurance, pensions and
related products.
New regulations are expected to
result in industry consolidation
The
division of composite insurance business into two separate entities (life and
non-life business) by 2015 and an increase in the minimum capital requirements
from LKR100 million (US$0.76 million) to LKR500 million (US$3.81 million) for
both the life and non-life segments are expected to result in consolidation in
the industry. These regulations are expected to be challenging, particularly
for smaller companies who lack the scale to absorb the extra costs in order to
abide by the new regulations.
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