Insurance industry gets further tailwind from mortgage protection policies

• Demand for DTA policies up as people refinance existing loans to benefit from low interest rates 
• As a result long-term insurance industry GWP rose 16% in 2020 to Rs.102.9bn
• Growth further accelerated in 1Q21 to 34.1% to Rs.29.2bn

As people took more loans to make the most out of the ultra low interest rates in town, it obviously helped the bottom lines of banks as seen from their solid earnings reports. It also lifted another industry, which is insurance. 

As people took more loans and refinanced their existing loans to take advantage of low interest rates, it generated demand for mortgage protection policies, also known as Decreasing Term Assurances (DTA), which are often purchased to provide protection to personal assets under lien for the mortgage loan. 

This increasing number of DTA policies, as a result did add a tailwind to long-term insurance premium growth in 2020 and through 2021, which fared well in comparison to the general insurance business, predominantly due to the ban on vehicle imports and the dampened demand for non-vehicle policy classes such as fire as business and personal incomes waned in response to the pandemic-induced economic restrictions. 

“Premium generated from DTA/mortgage protection policies saw a considerable rise during the year due to increased loan grants by the banking and financial institutions, supported by monetary policy relaxation measures of Central Bank,” the Insurance Regulatory Commission of Sri Lanka (IRCSL) said. 

Sri Lanka’s long-term insurance business became an outlier among the rest due to its robust performance in the top line due to both the increasing demand for life protection in the pandemic’s aftermath and the said growth in DTA policies. 

As a result, the long-term insurance industry gross written premiums rose by a robust 16 percent in 2020 to Rs.102.9 billion before accelerating 34.1 percent in the first quarter in 2021, according to the latest data made available by the insurance sector regulator. 

As a result, the long-term insurance gross written premiums collected during the first three months of 2021 was at Rs.29.2 billion compared to Rs.21.7 billion in the same period in 2020. 

Meanwhile, the non-life or general insurance sector gross written premiums, which recorded a decline of 2.2 percent to Rs.107.7 billion in 2020, slipped slightly during the first three months of 2021 compared to the year earlier period. 

The general insurance industry premiums in the first quarter of 2021 was at Rs.28.3 billion compared to Rs.28.5 billion in the corresponding quarter of 2020 as motor premiums and health premiums fell from their year earlier levels. 

However, the other categories such fire, marine etc. did well over their previous year levels, as business and personal incomes recovered briefly in the first three months of 2021.