• Says improved business conditions, low inflation and low interest rates in conventional financial products are likely to boost demand for insurance services
• Calls on insurance sector to play a vital role in fostering economic growth
• Stresses local insurers must stay ahead of curve

By Nishel Fernando

Sri Lanka’s insurance industry is poised to benefit from the ongoing recovery in economic activity, Central Bank Governor Dr. Nandalal Weerasinghe said, as improved business conditions, low inflation and low interest rates in conventional financial products are likely to boost demand for insurance services on an overall basis. 

However, he noted that the sector’s high exposure to government securities could have led to lower returns, due to the current low yields compared to those during the crisis period.

Speaking at Sri Lanka International Insurance Summit 2024, in Colombo last evening, Dr. Weerasinghe noted that while the insurance industry in Sri Lanka is smaller than in some peer economies, it has significant potential for growth. 

In 2023, the sector contributed 0.8 percent to GDP, with the penetration rates remaining below 2 percent over the past decade. In comparison, Hong Kong, Taiwan and South Korea have penetration rates above 10 percent, while Japan, Singapore, Thailand, Malaysia and India exceed 4 percent.

“This indicates that Sri Lanka’s insurance industry perhaps has not expanded sufficiently. As the economy progresses on its recovery path, the insurance sector will need to play a vital role in fostering economic growth,” Dr. Weerasinghe said.

He emphasised that the insurance industry could drive innovation by managing the risks associated with the new start-ups and technological advancements. 

Insurers also play a crucial role in lending, as the lenders are more likely to finance projects that are insured and in safeguarding vulnerable sectors by providing emergency finance following natural disasters.

Dr. Weerasinghe went on to highlight the need for the insurance sector to enhance its role in social protection, noting that in 2023, around 58 percent of Sri Lanka’s employed population worked in the informal sector, raising concerns about their access to social insurance benefits. 

“This underscores the need for the insurance sector to develop suitable products for these sizable population segments,” he said.

With a rapidly ageing population, rising out-of-pocket health expenses for middle and high-income households and the increasing prevalence of non-communicable diseases, Dr. Weerasinghe stressed that the insurance industry must address these challenges to ensure adequate coverage for the growing demographic, reducing reliance on the constrained fiscal sector.

Sri Lanka’s macroeconomic environment is expected to remain stable but uncertainties persist, both domestically and globally, due to the geopolitical risks, commodity price fluctuations and slow demand recovery in key economies, according to Dr. Weerasinghe. 

“Local insurers will need to stay ahead of the curve, protecting themselves while seeking opportunities through suitable risk-sharing mechanisms,” Dr. Weerasinghe advised.