Despite the numerous adversities encountered during the recent past, with stresses of the macro-economic environment and extreme economic turmoil experienced by power cuts, shortage of basics, such as fuel, gas to list a few, the soaring cost of living, the insurance industry has been able to maintain modest growth, whilst enhancing policyholder confidence and protecting policyholder rights. Safeguarding consumers of the insurance industry remained the key priority for the regulator. IRCSL being the regulator of Sri Lanka’s insurance industry, established by the Regulation of Insurance Industry Act No. 43 of 2000 is responsible to develop, supervise and regulate the insurance industry.
The objective and responsibility of IRCSL is to ensure that insurance business in Sri Lanka is transacted with integrity in a professional and a prudent manner with a view to safeguarding the interests of policyholders and prospective policyholders.
All insurance companies, insurance brokers and loss adjusters as described in the Act and operating in Sri Lanka are under the regulatory purview of IRCSL.
Performance of Long-Term Insurance Business
The social and economic challenges that persisted throughout have imposed tremendous stress on the long-term insurance industry. The long-term insurance industry witnessed a slowdown in gross written premiums in 2022 compared to rebounding growth in gross written premiums in year 2021.
The growth rate of the long-term insurance industry fell to a single digit of 9.4%, recording LKR 136,271 million, whilst recording the lowest growth rate in the life insurance segment over the last five years. Life insurance market penetration recorded at 0. 6%, which is low compared to the regional peers. A lower life insurance penetration rate shows the potential for development with the right business models, customer value propositions and awareness.
The total number of long-term insurance policies in force was approximately 4 million and dropped by 4.1% in the year 2022. Continuing the previous year’s tendency, new life policies issued exhibited a significant drop of 28.5% amounting to 637,912. This demarcates the severe economic downturn that prevailed throughout the year, which pressurized and undermined the penetration of the insurance sector. The number of life insurance policies in force as a percentage of the total population and the number of life insurance policies in force as a percentage of the labour force, decreased to 18.7% and to 48.4% respectively when compared to 2021.
Claims incurred by long-term insurers in terms of value during the year 2022, amounted to LKR 61,642 million. The growth rate was recorded at 34.1%, which is the highest growth rate recorded for the past five years.
Performance of General Insurance Business
Despite the challenges faced, the general insurance industry exhibited resilience and achieved noteworthy expansion in the year 2022 and presented a remarkable improvement, recording a growth rate of 11.9% and premium income of LKR 121,829 million, which resulted in the highest Gross Written Premium attained in the past five years.
Despite the challenges faced, the general insurance industry exhibited resilience and achieved noteworthy expansion in the year 2022 and presented a remarkable improvement, recording a growth rate of 11.9% and premium income of LKR 121,829 million, which resulted in the highest Gross Written Premium attained in the past five years.
The general insurance industry, which heavily relies on motor insurance business, faced significant challenges due to the imposed import restrictions on motor vehicles. This decision created significant setbacks for an industry that is heavily reliant on motor premiums as a major source of revenue. However, the motor segment exhibited an impressive growth of 7.2% in 2022, which was a remarkable turnaround from the negative growth observed in the previous two years. This growth can be attributed to the increase in premiums coupled with the rise in motor vehicle values. The total number of policies in force at the end of the year 2022 amounted to approximately 6.3 million. This reflects a decrease of about 200,000 policies compared to the previous year, 2021.
In 2022, the general insurance industry witnessed a significant increase in total net claims, reaching LKR 60,172 million (excluding SRCC & T). This indicates a substantial surge of 24.7% compared to the amount of LKR 48,239 million reported in 2021. Among the various segments, motor insurance and health insurance accounted for the highest net claims incurred from the total.
As a consequence of civil riots and protests that occurred during the middle of the year, the SRCC & T segment recorded the highest net claims in 2022 amounting to LKR 1,320 million.
The claims of the general insurance sector have witnessed a surge due to multiple factors such as, increase in costs for repairs and replacements resulting from high inflationary conditions, unforeseen riot claims arising from protests have added to the financial burden faced by insurers, the recent lift of pandemic restrictions has resulted in an upswing in mobility, leading to a rise in accidents and subsequent insurance claims. The net claims ratio (excluding SRCC & T) for the year 2022 stood at 67.9% as a result of high net claims ratio of motor by 58.7% and health by 107.1% classes.
Performance of Insurance Brokers
Insurance brokering companies have made a considerable contribution to the Gross Written Premium of both the long-term insurance business and general insurance business.
As insurance intermediaries, these companies collectively generated a Gross Written Premium of LKR 40,872 million, which includes contributions from long-term insurance business and general insurance business of LKR 4,013 million and LKR 36,859 million respectively.
Profitability of Insurance Industry
The profitability of the insurance industry in Sri Lanka unveiled a moderate growth of 16.4% by reporting LKR 53,990 million profitability for the year 2022. Despite the growth reported in the preceding year, the profitability of the long term insurance business declined from LKR 27,360 million to LKR 24,836 million in 2022. Recovering from the reduced profitability exhibited in the last year, the general insurance business demonstrated a remarkable yearover-year profit growth of 43.2% in 2022 which was largely influenced by promising expansion in overall premium income and noteworthy foreign exchange gains reported by several general insurers which emerged from foreign currency denominated investments.
Future outlook
The regulatory framework for the insurance industry in Sri Lanka is crystallized by a strong focus on protecting policyholders in a way that is safe, stable, and beneficial to policyholders and promoting the growth and development of the industry. Future regulatory reforms and initiatives will strive to further strengthen the regulatory framework whilst encouraging industry innovation and digitization.
While it remains difficult to predict how the situation will evolve given the uncertainties surrounding the economy, we, at IRCSL are optimistic about the recovery of the economy with potential improvements in the overall economy, including enhanced foreign currency reserves, improved liquidity, as well as higher inward remittances and tourism incomes, Sri Lanka could look forward to positive years ahead, paving the way for future growth and development.
Therefore, insurance industry must seize opportunities that will allow it to sustain growth whilst reviewing business models to stay viable and facilitate the insurance market's long-term growth. Insurers will need to adopt a customer centric approach and offer innovative and flexible products that meet the evolving needs of customers. With the increased use of technology, insurers will need to embrace digital transformation and develop a strong online presence to remain competitive.
Furthermore, insurers will need to focus on improving customer experience through efficient claims processing and personalized service delivery.
Looking forward to the years ahead, IRCSL will continue to focus on the following key initiatives in line with international best practices:
- Reforms to Insurance Regulatory Act with wider powers in line with Insurance Core Principles of the International Association of Insurance Supervisors.
- Reforms on Risk Based Capital framework in line with developing needs. αReforms on claims management requirements to ensure that consumers are treated fairly and timely.
- Reforms on digital transformation. αPromote consumer education through awareness campaigns to flourish and inspire confidence among the general public.
- Initiate a robust market conduct supervisory framework which will require insurance companies and intermediaries to treat customers fairly and in a timely manner.
- Focus on enhanced supervision on Anti Money Laundering and Countering of Finance Terrorism requirements. Promote Inclusive Insurance and contribute to Sustainable Development Goals.
