IRCSL Director General Damayanthi Fernando pic by nimalsiri edirisinghe

By Nuzla Rizkiya

 

The Insurance Regulatory Commission of Sri Lanka (IRCSL) yesterday announced plans to implement reforms aimed at strengthening the stability and resilience of the local insurance industry, as the sector grapples with economic challenges that have stalled its growth.

 

IRCSL Director General Damayanthi Fernando highlighted the decrease in purchasing power among the public since Covid as the topmost challenge affecting the local insurance industry. 

 

This in addition to the challenges posed by the limited number of economically active people in Sri Lanka and the uncertainty of interest rates in the local market. 

 

“Penetration levels have decreased from 1.3 percent in 2021 to 1.1 percent in 2023. Adding to this the economically active population in Sri Lanka is around 8.4 million (out of 22 million). 

 

“This is a situation that really impacts the insurance industry because we all know insurance is sold (in Sri Lanka), it’s not bought. So, it has become a task for the insurance industry to survive in these turbulent times,” Fernando said while addressing the Sri Lanka Insurance Summit 2024.

 

She further highlighted that for an industry that is heavily reliant on investment incomes, the uncertainty of interest rates poses a significant hurdle, as companies cannot forecast or plan out long-term strategies, positioning them at a stalemate. 

“In a downward interest rate environment, insurance companies will find it difficult to demonstrate profitability. If premium rates are increased in a decreased purchasing power environment, it will have a bigger negative impact on the industry,” Fernando lamented. 

However, in the face of these challenges, she shared that the IRCSL is gearing up to move forward with reforms aimed at enhancing the industry’s resilience, particularly targeting the improvement of market penetration levels of insurance products among the  general public. 

Key reforms include the revamping of insurance regulations in line with international principles, tightening Risk-Based Capital (RBC) requirements, and the introduction of a legal framework for the sale of micro-insurance products. 

“We will be issuing shortly directions or regulations in respect of companies to sell micro-insurance products to mobile and fixed-line operators. That’s an area where penetration can be improved. 

We will also issue revised guidelines on reinsurance placements, with tighter roles for consumer protection and emphasizing the brokers’ role in insurance placements that we will be issuing this month,” Fernando shared. 
Moreover, the IRSCL is also eyeing to draft a new legal framework that will allow companies to test innovative products on digital platforms, with plans to implement the project in the pipeline next year. 

Additionally, the regulatory committee is looking to broaden its focus on market conduct supervision, with plans to set up a new unit along with new staff recruitment to increase the commission’s engagements with regard to product reviews, promotional material and awareness creation.