COVID-19 becomes blessing in disguise for life insurance sector

• First Capital forecasts premiums to grow at 18% per annum during 2021 through 2023 

The pandemic turned out to be a blessing in disguise for life insurers in Sri Lanka who have been grappling for years with low penetration levels compared to the regional peers as people became more conscious of their health amid the increased risk to their lives brought about by the fast-spreading virus. 

Sri Lanka’s insurance industry emerged stronger during 2020 despite the pandemic induced challenges, and the life insurers did particularly well as they delivered their best performance in recent times in areas of gross written premiums growth, assets and capital, the data showed. 

The data for 2020 showed that the gross written premiums of the life insurance or long-term insurance sector grew 16 percent while the growth in the premiums in the general insurance decelerated to 4.2 percent, reflecting more people are drawing into life insurance in the post pandemic era. 

Further, the total assets in the composite industry grew by a robust 14.6 percent in 2020 to reach Rs.790.1 billion, with long term insurance gaining by 16.1 percent to Rs.563.9 billion in assets while the general insurance gaining by 11.0 percent to Rs.226.2 billion. 

Meanwhile, the share of the long term insurance sub-sector grew from 70.4 percent to 71.4 percent between 2019 and 2020 while the general insurance sub-sector slipped to 28.6 percent from 29.6 percent in 2019 as the latter’s growth decelerated due to the import ban on motor vehicles.

However, life insurance penetration in Sri Lanka measured by life premiums as a percentage of the Gross Domestic Product (GDP) stands woefully low at below 0.5 percent compared to nearly 3.5 percent in Malaysia and just shy of 2.5 percent in Thailand.  

“The pandemic to make more people to reconsider health insurance needs coupled with life insurance resulting in increased awareness that augur well with low penetration in Sri Lanka,” First Capital Research said in a report on the sector.  The pandemic induced demand for more life and health protection will receive further impetus from the estimated growth of the Sri Lankan economy from 2021, which will elevate more people from low income to middle and higher income brackets who will in default require more life protection as they become more aware and conscious of their health and retirement protection. 

First Capital Research estimates that the Sri Lanka economy would grow  3.2 percent and 3.8 percent in 2021 and 2022 after it shrank 3.6 percent in 2020 due to the pandemic. There is a strong positive correlation between the life insurance gross written premiums and real GDP growth as rising per-capita income drives life insurance penetration.  “We expect a recovery in GDP growth in 2021E and 2022E providing a strong impetus for life Insurance Industry,” the research house said. 

Further the rising incidence of non-communicable diseases and related deaths, which currently account for 83 percent of total deaths in Sri Lanka, is also expected to provide further momentum for the people to subscribe for heath and life covers.  As a result, First Capital Research forecasts the growth in life insurance sector gross written premiums to accelerate to 18 percent every year from 2021 through 2023, from 15 percent seen during 2014 through 2020.