Litigation rate below 5 percent in insurance industry

by Gamini WARUSHAMANA

As a result of intense competition in the insurance industry some companies have undercut the premium and have failed to pay the agreed insurance coverage to policy holders, said CEO of Ceylinco Insurance PLC, Ajith Gunawardena.

Healthy competition is essential for the growth and quality improvement of any industry. However, there is a price competition in the insurance industry, where some companies attempt to attract people who need insurance coverage but cannot afford to pay the premium set out by insurance companies.

“Insurance premium should be sufficient to cover the actual risk that is covered by the policy. Companies which issue undercutting premium, cannot pay the claims of policyholders and this unethical practice negatively affects the insurance industry,” Gunawardena said.

He denied recent reports that over 25 percent of court cases in the District Courts are cases filed by policy holders against insurance companies. He said that industry level litigation rate is below five percent and at Ceylinco, it is only 0.11 percent. “With our ‘On The Spot’ payment system we pay all general insurance claims at the spot where the incident had taken place. Therefore, there is no chance for defaulting. There are a few cases that go to Courts due to lapses on the part of policyholders”, he said.

The insurance industry in Sri Lanka grew fast after it was privatised in 1988. During the past 24 years the industry grew by 2,145 percent. Today insurance has penetrated all corners of the country covering different segments of society. People know about insurance and they want to invest in insurance, but the only problem is affordability. Under General Insurance, 70 percent of insurable properties in Sri Lanka are insured. All types of motor vehicles, large and small scale businesses, farmers, fishers, health, import and export trade come under general insurance.

There are people who need insurance but cannot afford it. Sri Lanka needs national health insurance from birth to death and national education insurance from grade 1 to university level. The demographic changes, developing private healthcare and education markets demand insurance coverage, he said.President of the Insurance Association of Sri Lanka, Ramal Jayasinghe said that recent reports of a 25 percent litigation rate cannot be accepted. He said that growth figures of insurance premium of all insurance companies for the half year as at June 2012, is 22 percent for General Insurance (Non Life) and 25 percent in Life Insurance.

These figures represent the confidence of the public with regard to insurance and member companies have shown double and in some cases, triple digit growth rates in terms of premium growth, within this period. This is a significant improvement from the year-on-year figures of 2011.

He said that the industry has disbursed over Rs.15.6 b in claims in 2010 and the figures for 2011 would show a significant growth keeping in line with the positive growth of the industry. In over 99 percent of the cases filed against insurance companies, the Courts have held in favour of the insurance company.

Claims reaching the litigation stage are small as most claims are amicably settled outside court. There is however an increasing trend in fraudulent claims.

The Insurance Ombudsman scheme, and initiatives taken by the Ombudsman, such as developing an alternative compensation scheme to settle third party motor claims out of courts, to avoid delays is a positive step towards efficiently disbursing claims.

The Insurance Board of Sri Lanka (IBSL) will also have a larger role to play after the amendments to the Act regarding claims settlement. Their purview has been extended to non-life claims. We as an Industry has welcomed those changes, Jayasinghe said. The efficiency of claims disbursement is a vital area of competition within the competitive insurance industry. Therefore, while each individual company may adopt their own claims, industry players are aware of competition among 22 companies within a limited market.