The insurance industry in Sri Lanka, as is the case with other economic sectors in the country, is poised to benefit from the ongoing economic recovery, Dr P Nandalal Weerasinghe, the governor of the Central Bank of Sri Lanka, has said.
He said this in his keynote address on 12 August 2024, the opening day of the Sri Lanka International Insurance Summit in Colombo. The theme of the summit, which ends today, is “Insurers' Role in Challenging Economic Dynamics”.
In his speech, Dr Weerasinghe outlined the economic recovery in Sri Lanka and the country’s significant progress on the debt restructuring front. He said, “Improved business conditions, low inflation, and low interest rates in conventional financial products are likely to boost demand for insurance services, on an overall basis.”
Insurance market "has not expanded sufficiently"
The central bank governor continued, “Although the insurance industry in Sri Lanka is smaller than in some peer economies, it has promising potential to expand. In 2023, the insurance sector contributed to 0.8% of the GDP. The insurance penetration of the country, which is calculated based on total premium as a percentage of GDP, has stood below 2% over the last decade.”
Comparing this with the higher insurance penetration rates in other countries, Dr Weerasinghe added, “This indicates that Sri Lanka's insurance industry, perhaps, has not expanded itself sufficiently.”
Roles insurance sector can play
He outlined the several areas in which the insurance sector in Sri Lanka can contribute to the economy.
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As long-term investors, insurance companies can make a notable contribution towards development financing, especially in the context of limited long-term financing available in Sri Lanka for SMEs and large-scale development projects.
- Given climate change, the insurance industry has to play a key role in safeguarding the exposed sectors of the economy as the key provider of emergency finance following natural disasters. Insurers have expertise in extreme risk pooling, which is critical in relation to the management and mitigation of the catastrophic effects that are likely to arise from climate change. Through these capabilities, they can accelerate reconstruction, reduce periods of lower output, minimise welfare losses, and prevent undue economic volatility during the occurrence of such events.
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With the push for agriculture modernisation and improving the commercial or export orientation of the agriculture sector and the concurrent vulnerabilities in the sector stemming from climate change, it seems there is a lacuna in the area of insurance products suited to the sector.
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With around 58% of the employed population working in the informal sector in 2023, there are significant concerns about their access to social insurance benefits. This underscores the need for the insurance sector to come up with suitable products to serve these sizable population segments.
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A rapidly ageing population due to demographic transition, escalating out-of-pocket health expenditure of middle- and high-income households, and rising prevalence of non-communicable diseases are also areas that the insurance industry will need to focus on.
Pointing out the huge potential of the insurance market, Dr Weerasinghe said, “At every juncture, there is an opportunity for the industry, ranging from the opening of a multi-million industry to when someone joins the workforce or even when a child is born. The opportunities are endless.”
Asia Insurance Review is the media partner of the Sri Lanka International Insurance Summit.