Interview: R Renganathan
What actionable steps are required for Sri Lanka to improve its overall insurance penetration rate, which hovers around 1%?
R RENGANATHAN: At the end of 2017 the insurance penetration in Sri Lanka as a percentage of GDP stood at 1.24%. Of this, long-term insurance accounted for 0.54%, while the contribution from general insurance was 0.70%. The number of long-term policies in force as a percentage of the population at the end of 2017 increased to 14.31%, up slightly from the previous year’s figure of 14.19%. As a percentage of the labour force, long-term policies accounted for 35.51%, a marginal decrease from 37.62% in 2016.
We believe that the two principal reasons for the low levels of penetration are the inadequate awareness and understanding of life insurance, and the fact that continued pressure on disposable incomes compels certain market segments to give life insurance a lower priority. The issue of inadequate awareness of the importance of life insurance must be addressed by all players in the market, by not only stepping up their communications programmes, but also by fine-tuning them to clearly convey the correct messages.
The government recently declared September 1 National Insurance Day, and the Insurance Association of Sri Lanka has declared September as Life Insurance Awareness Month. All companies participate in this initiative. As part of this effort, different companies are allocated different areas in which they will carry out awareness programmes. We believe there is room for government agencies to support this effort further by actively advocating life insurance as a safety net, particularly in rural areas of the country.
As far as the second concern of shrinking disposable incomes is concerned, insurance companies will have to make life insurance more affordable. The first step towards achieving this will be to better tailor policies to match individual needs and payment capacities, rather than focusing on premium income alone. Second, it is important to develop more affordable cover for the middle-, and low-income segments.
Lastly, many policies lapse as a result of inefficiencies in insurance policy management, so this is another barrier to increasing penetration that must be overcome. The development of needs-based insurance products and the provision of more affordable offerings will both reduce the high percentage of lapsed policies, while also increasing market size.
As disposable incomes are squeezed by inflation and currency depreciation, how can the industry ensure insurance premiums remain affordable?
RENGANATHAN: Most Sri Lankans continue to consider life insurance policies an investment, and purchase life insurance in order to get a return on their investment, rather than looking at the long-term picture. The products in the market therefore consist of a combination of endowments and family protection units. It will be necessary to design products that have a lower endowment and a larger protection component, thereby reducing premiums.
Companies also need to ensure their product portfolios are diverse and ensure that products are designed in a way that caters to lower- or middle-income segments of the market. Additionally, proper training on effective, as well as ethical selling is a key aspect to ensure that customers pay exactly for what they need and do not overpay for benefits that are not required.
How do you assess the impact of measures to compel insurers to publicly list on the CSE?
RENGANATHAN: Life insurance companies that have a holding company listed on a recognised stock exchange are exempted from the requirement to be listed separately. However, the Insurance Regulatory Commission of Sri Lanka requires all insurance companies to comply with corporate governance principles. Compliance with these standards should help create a level playing field.
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