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By M. Hakim Usoof
The aim of the life insurance industry in Sri Lanka should be to create a vibrant and sustainable insurance industry. This aim falls in line with the primary objective of the Insurance Board of Sri Lanka.
The Government has declared 1 September as National Insurance Day. That itself is a very encouraging gesture of the Government to recognise the contribution of the insurance industry to the national economy and to the welfare of society. Launch of ‘Suraksha’ insurance cover for school-going children is another welcome move by the Government.
Achievements reflect that the life insurance industry in Sri Lanka is still in the infant stage of the lifecycle, despite its growth momentum in recent times. The life insurance industry in Sri Lanka has generated Gross Written Premium (GWP) amounting to 63.5 Bn.in year 2016, reflecting a growth of 18.6% compared to 20.1% in the year 2015. The deceleration of the GWP was partly due to significantly high, premium income recorded during the previous year.
However, we cannot be complacent with the growth recorded. Insurance penetration (long term and general) in Sri Lanka, calculated based on total premium as a percentage of GDP has slightly increased to 1.2% in 2016 from 1.1% in 2015, mainly due to increase in total premium, but remain considerably low compared to peer countries in the Asian region. The low penetration can be attributed to the lack of awareness of the general public on insurance and its benefits, and inefficiencies in policy management.
The responsibility to develop the sector lies on the operators and insurance players. We need to educate and create awareness around the need for life insurance, pensions and protection, while providing high quality, transparent, consumer-focused products and services to our customers.
Supervisory and
regulatory development
The Insurance Board of Sri Lanka (IBSL) has adopted several regulatory measures to safeguard the interests of life insurance policyholders. Life insurance companies have been directed to grant policyholders a cooling-off period (free look period) of 21 days to examine the terms and conditions of the policy documents. This will provide the policyholder an opportunity to terminate the policy during the free look period and the insurer is liable to refund the initial deposits or premium paid by the prospective policyholder.
A set of guidelines on complaints handling by insurers and brokers has been issued in October 2016 with the objective of ensuring that processes are in place, for timely and fair handling of complaints by insurers and brokers. The IBSL too, under its overall objective of safeguarding the interests of policyholders, inquires into policyholders’ grievances in connection with insurance claims pertaining to insurance policies.
Prospects for long-term retirement savings/
pension plan
It is noteworthy that the average life expectancy in Sri Lanka has increased up to around 75 years. About three decades ago in the 1990s, it was 68-69 years, but with the improvements in medical facilities in the country, life expectancy is steadily increasing. However, the age of retirement remains the same at 55-60 years. Therefore, the number of years an individual lives without a monthly income, is also longer, leaving many retirees without a means of income to carry on with the lifestyles they are used to. This is where retirement savings becomes crucial.
Moreover, there is significant inflation to be reckoned with. The average household expenditure in Sri Lanka in the 1980s was close to Rs. 2,000. This year it is more than Rs. 30,000.This will surely increase in years to come, with a majority of Sri Lankans not having adequate income to fund their expenses, without a high earning. Hence, the need for a solid retirement fund is the need of the hour. There is a great untapped potential market, in the long-term retirement savings/pension plan policies.
Health insurance
Sri Lanka’s health care expenditure is borne by people, except those covered under health/critical illness insurance policies. This highlights a significant need to provide health insurance protection to Sri Lankans, so they can manage these expenses.
The other very critical factor of health management is ‘health inflation’. Data shows that in Sri Lanka’s health expenditure per capita has increased many folds in just three decades. This goes to prove that Sri Lankans need comprehensive, longer term health insurance solutions.
What factors will be necessary to develop the life insurance industry in Sri Lanka
Impact of the new Inland Revenue Act
The new Inland Revenue Act No.24 of 2017 which was passed at the Parliament of Sri Lanka on 7 September, which will become operative with effect from 1 April 2018, include several amendments to the existing tax law of the country, applicable on life insurance.
Some of the changes are listed below:
A re-visit will be necessary for the changes in the fiscal policy, as the players in the insurance industry are not comfortable with the changes brought about, in the new Inland Revenue Act.
How to cope up with the unidentified bank deposits
It so happens, in line with the low level of literacy in rural areas of Sri Lanka, when someone wants to pay the premium at a bank to a designated current account of a life insurance company, where he/she maintains his/her policy, he/she misquotes either the policy number, account number or name of the policyholder which ultimately missing the track of the payment to the correct policy number. This again is another factor, to damage the confidence in the Company, affecting the life insurance industry, which in fact has been originated due to the fault of the policyholder in filling the deposit slip.
The policyholders should be emphasised on the requirement to quote the vital information in the deposit slips when premium are paid at a bank branch.
It may also possible to send a customised pre-printed deposit slips to the policyholders with the pre-printed policy number and bank account number, with reminder notices of the premium payments, so that it is a matter of entering the amount to be deposited, date and signature.
Degree of corruption and integrity of the agency force
The link between the Insurer and the insured is the insurance agent. The insurance agents play not only the role to introduce life insurance policies to the prospective policyholders, but also the role of collecting the premium and accounting the premium to the relevant policy in the insurance company. This is the prevailing practice we witness in many Sri Lankan life insurance companies.
At this point, the integrity of the sales force is always, a critical factor, as when handling collections, isolated incidents of shady dealings are likely to crack the trust placed by the general public on insurance companies. It is high time to address as how to insulate this risk and ensure the confidence of the people on insurance companies are safeguarded. Not only the insurance players in the country, but also the regulatory authority is to address this issue and formulate a mechanism in the form of cushioning the impact of the risk.
It is not the existence of malpractices that lead to corruption in the insurance industry. Corruption will always be there in some form, in any industry not only in insurance industry. What is important is, how the insurance Companies control the degree of fraud taking place in the society as far as policyholders’ hard-earned income is concerned.
In conclusion, I wish to emphasise the life insurance industry in Sri Lanka has an important role of being eternally vigilant to ensure a corruption-free insurance industry in Sri Lanka, to safeguard the trust placed by the public in the life insurance industry in Sri Lanka.
[The writer, B.Com.(Special), FCA, is a Chartered Accountant, served in a reputed life insurance company in Sri Lanka.]
