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| Sunday, 23 May 2004 |
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Insurance Brokers want revised fire tariff stopped Representatives of the Sri Lanka Insurance Brokers Association (SLIBA) and the Ceylon Chamber of Commerce are scheduled to meet Minister of Finance Dr Sarath Amunugama and make separate representations to stop the implementation of the revised fire tariff which is to be introduced with effect from June 1, 2004. President IBA Upali Wickremaratne said " We want to explain the situation to the Minister when we meet him on the 24th and request him to stop the implementation and look at it again." He said that in the event the revised fire tariffs being implemented it will result in fire tariff rates increasing between 50-300%. This would have a direct impact on the cost of living of the country and even the price of rice will increase as mill owners will have to pay a higher tariff. For example, a garment factory owner who pays Rs 12,000 per annum at present will have to pay Rs 73,000 once the revised system comes into place. He said as brokers we will get a high commission as the premium rates will increase and therefore we should be happy! But since we are virtually the watchdog on insurance on behalf of the consumer we know that consumers will find it difficult to go for insurance once the revised tariff rates are implemented. "In addition, this move will also result in insurance companies having to pay higher reinsurance whereby more foreign exchange will go out of the country. At the end of the day re-insurers will benefit," he said. At present insurers give additional extensions of covers with fire insurance at a much lower premium but under the new rates insurers will have no flexibility as the percentage to be charged on each cover is laid out by the Insurance Board of Sri Lanka (IBSL) and every insurer will have to adhere to it. He said that IBSL is trying to implement the tariff to stop "undercutting" but the ultimate beneficiary of undercutting is the consumer as they get better rates. The revised tarriff discriminates between the SME and large category enterprises because if the value of the insurance is more than Rs 500 million the owner can obtain insurance from a foreign country most probably at a lower rate while the SME sector will be the worst hit since their insurance will not exceed Rs 500 million. "In the event of this being implemented, the sector will not be able to attract any investors as our country is going against the global trend of de-tariffing, " Wickremaratne said. At present most insurers are engaged in writing business based on risk or market rates. This practice had made it difficult for some insurers to understand the process of proper assessment of a risk and also quantifying the risk. Globally the insurance industry is moving towards detariffing including India which liberalised the industry very recently. Meanwhile the chairman of the Tariff Committee appointed by IBSL S.I. Fernando in a release to the Sunday Observer states that the introduction of the revised Fire Tariff in place of the original Tariff which had been in existence for over 50 years, and the implementation of a New Tariff with effect from 1st June, 2004, is a welcome step in the right direction to discipline the market and create a level playing field for all insurers. Fire insurance was first introduced to Sri Lanka in 1923, by the then Ceylon Fire Insurance Association. A Tariff was introduced to cover all types of risks that were there at the time. Minor amendments to this Tariff were made in 1945, 1953 and 1954. In 1956 the Tariff was re-issued with amendments and it is this same Tariff that all insurance companies are expected to follow - which nevertheless is being violated. In 1964 the General Insurance in Sri Lanka was nationalized and the then Insurance Officers' Association of Ceylon was taken over by the Insurance Corporation of Sri Lanka (ISCL) with all their assets and personnel who were engaged in inspections, ratings etc. The Fire Department of the new Insurance Corporation established after the nationalisation, followed the same Tariff referred to above which remains un-revised to date. In 1980, the National Insurance Corporation (NIC) was set up with a new concept to work with eight principal agents in competition with the Insurance Corporation of Sri Lanka (ICSL). This system was working quite well and both corporations were adhering to the Tariff till 1986, when the insurance business was privatised. Consequent to the privatisation of insurance in Sri Lanka several new companies commenced business. Due to the high competition among these companies and the two State corporations every company was all out to grab each others' business at any cost for their survival by undercutting Tariff rates. This is the beginning of the ruining of the insurance industry. In the meantime, however, the Insurance Regulatory Board came into operation on 1 March, 2001, under the Regulation of Insurance Act No. 43, of 2000. The IBSL, after a survey of the industry and in consultation with the Insurance Association of Sri Lanka decided to review and revise the existing Fire Tariff. Accordingly, a committee was appointed to go into this matter and submit a New Tariff. This was very successfully carried out by the committee and was ready for implementation, and is now due to be implemented as from 1 June 2004. It is to be hoped that all those concerned in the Insurance Industry both insurers and customers would make use of the new set-up, to collectively work to uplift the industry which is on the verge of collapse. (sg) |
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