SL’s already low Insurance penetration likely to face further setback from pandemic

• Regulator’s data shows penetration inched up to 1.31% of GDP in 2019
• Number of life policies as a share of population rises to 16% from 15% 
• Number of life policies as a share of labour force at 42% and rising 

Sri Lanka’s insurance penetration, known for its extremely low levels by most standards, appears to be sticky as both long-term and general insurance businesses have made only insignificant gains in 2019, and the sector could face a further setback in making inroads as new coronavirus has clouded the prospects. 

However, the latest health scare could also open up new avenues for insurers to venture out and become more innovative, as the new normal demands more protection and coverage.

According to Insurance Regulatory Commission of Sri Lanka (IRCSL) data for 2019, insurance premiums as a percentage of the gross domestic product—a commonly used gauge measure, the penetration level in the country was 1.31 percent compared to 1.26 percent in 2018.

The disaggregated figures showed the long-term or life insurance business with 0.59 percent penetration level compared to 0.56 percent in 2018 and the general insurance business with 0.72 percent compared to 0.70 percent in 2018. “Over the last few years, consumer confidence on insurance and behavioural pattern to purchase insurance products have gradually increased due to increased public awareness and improved services & product developments introduced by insurance companies,” an insurance industry performance report for 2019, released by IRCSL yesterday said. 

Meanwhile, the number of life insurance policies in force as a percentage of total population was measured at 15.61 percent by the end- 2019, up from 14.76 percent in 2018. 

The number of life policies as a percentage of labour force has continued to rise, except in 2017 to 41.59 percent in 2019, “which demonstrates the fact that the sector as a whole continues to thrive,” IRCSL said. 

At the onset of the pandemic, insurers granted a three-month deferral period on premium payments on both general and life policyholders to prevent policy lapses. 

Then IRCSL suspended dividend payments to the shareholders of the insurance companies as a pre-emptive measure to minimise any potential near term impact on their capital levels due to disruptions to businesses by way of loss of premium income and thereby their earnings, according to Fitch Ratings.

While the economic toll of the coronavirus could inflict some pain on the sector, competition is also expected to intensify in the motor insurance sector due to protracted ban on vehicle imports. Motor insurance accounts for about 60 percent of non-life insurance gross premiums. 

Data showed that the total non-life premiums and premiums from motor insurance had fallen by 8 percent and 4 percent respectively, during the 1H20 compared to the same period last year. 

Fitch Ratings believes that this may prompt non-life insurers to expedite their expansion into non-motor business lines to counter the impact from lower motor insurance sales. 

“Some insurers already target to increase business exposure to non-motor lines, such as property, health and micro insurance classes. However, we believe that the expansion will only partly offset the premium loss from motor insurance,” the rating agency said.

According to IRCSL data, policies in force for marine, fire and miscellaneous have decreased by 3.55 percent, 5.65 percent and 18.89 percent respectively, while the health policies have surged by 40.37 percent in 2019 reflecting a trend that people are increasingly becoming conscious on better health and have been signing up for more health covers even before the pandemic.