PwC – Sri Lanka Insurance Report

Executive summary :

The numerous advancements that took place within the insurance industry during 2019 contributed towards the establishment of a more competitive, coherent, regulated and transparent environment for insurers operating in the country, showcasing a clear path towards growth given the low penetration levels of both general and life insurance businesses showing positive trends within the country. However, traditional insurance mainly provides for the financial impact of risk. Taking a look at the risks that came into light in 2019 and early 2020, it is evident that there will be more considerations given to the list of impacts related to risk.

Sri Lankan market developing fast 

Growth in both premiums and claims

Overall insurance sector grew its total asset base by 11.5% YoY in September 2019 with life insurers dominating the higher proportion of overall industry assets. Insurers continued to invest majority of their funds in government securities due to the lower risk involved and regulatory requirements, that contributed to a higher growth in asset base. Gross written premiums (GWPs) of the sector reflected a 9.2% growth in the first nine months of 2019 a decrease in comparison with the 13.2% growth of the corresponding period of 2018. The adverse weather conditions coupled with the Easter Bombings that occurred in 2019 led to a steep increase in claims incurred by general insurers.

Impact of regulation

IFRS17 has been making a buzz across the globe and has grasped the attention of insurers in Sri Lanka too. Latest development in terms of IFRS17 is the IASB’s decision to push the effective date further to 01st January 2023. This is expected to overcome many of the complications faced by insurers pertaining to implementation of the standards, availability of systems and drawbacks of the existing standard by introducing more refined accounting methodologies such as the General Measurement Model, which provides a comprehensive and cohesive approach to identify insurance contract liabilities.

The influence of the pandemic

The impact of COVID-19 will affect the short and long-term financial outlooks of insurers. The pandemic will not only reduce global growth but have an impact on equity and debt instrument pricing and also reduce insurable exposures due to negative impact on businesses. The industry must be prepared for large financial losses arising from bond and equity markets and loss events. Loss events could arise across a range of products like health, travel, event cancellation, business interruption, employer’s liability, income protection, key personnel or even minimum guarantees. This is an unprecedented phenomenon that continues to evolve and insurers should preserve their capital position for the long haul balancing it with protecting the insureds, even by limiting dividends and other distributions.

The gig economy, a product of our ongoing digital disruption era, is one of the biggest trends to affect the workforce in the last decade as it really took off in the global recession period between 2008 and 2009. Having said that, this was the sector most affected due to lockdown of cities resulting from COVID 19. There is a market opportunity for insurers in this sector if they’re innovative to capture the hearts and minds of the gig economy workers.

The role of insurtech

We expect insurers to continue growth amongst these challenges whilst pursuing new developments in the global arena. Use of insurtech to introduce innovative insurance products to the general public is expected to be one major development that the insurers will focus on, going forward. High mobile penetration would offer products for low- and middle-income segments at relatively low costs. Furthermore, focus on developing the micro insurance segment will support future growth.

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