'Move to increase capital of insurance companies a grave concern'
The government is planning to increase the capital of insurance
companies in stages. This is a grave concern for the industry.
At present for each class of insurance the capital requirement is Rs.
100 million and by 2012 the government plans to increase it to Rs. 1
billion for each class.
A few companies are planning to wind up or merge with other Insurance
companies as they cannot fulfil the requirement alone, said CEO Lanka
Orix Insurance Brokers Ltd and Council Member Sri Lanka Insurance
Institute and Sri Lanka Insurance Brokers Association Sanjiv
The insurance sector was liberalised in 1987 and now there are 14
players while there are 100,000 employed directly and indirectly. He
said that the government is taking this measure to make the insurance
companies financially sound.
To check the financial soundness they don't have to increase the
capital but they can do it by checking the solvency margins at any time.
He said that this move will make it more difficult to attract
investors to this sector. Keerthiratne said that in 2005 the whole
industry was valued at Rs. 16 billion.
So how can the government expect stakeholders of such a small
industry to fulfil such big capital requirements?.
At present there are 50 brokers and each broker's capital requirement
is Rs. 500,000. It will be increased to Rs. 10 million per class by
2012. Brokers now have 25% of the market share and if this requirement
is effected small players will get wiped out.
The Insurance Board of Sri Lanka (IBSL) issued a 60-day premium
warranty and under this system if the money is not paid within 60 days
the policy gets cancelled. We the industry welcome it. But like tariff
it is already being violated.
Expressing his views on the recent budget proposal to make it
mandatory for 50% of reinsurance business of all insurance companies to
be done with the National Insurance Trust Fund (NITF), he said, that it
is better to continue in the present manner rather than change to a new
In the event we do 50% reinsurance with a national reinsurer and the
balance goes to international reinsurers there won't be anything for
them and they will not like it. We have to maintain their goodwill and
therefore it is better for us to reinsure with international reinsurers
as they will be there for us in time of need.
Keerthiratne said that the industry doesn't need a professional
academy supported by the government as the professional requirements are
already being fulfilled by the Sri Lanka Insurance Institute.
It is only a waste of resources. Co insurance is a positive sign
where we also address the issue of reinsurance.
It is where the insurance money is circulated within the country but
there is a risk of duplication since both companies might show it as
their gross written premium and it affects the industry figure.