Insurance industry has potential for growth

by Sanjeevi Jayasuriya

The insurance industry has the potential of growing to hitherto unforeseen heights with the economic boom that the country is now enjoying. However, the industry has to address a few key issues that is holding the entire process back.

The stumbling block facing the insurance industry today, is the people's inability to understand what is offered in the policy documents.

Especially in the case of health cover, people do not understand the fine print and when the claims do not meet the expected or implied returns it gives the person who has bought the policy a feeling of being let down. These incidents make people reluctant to buy insurance policies. An insurance policy is taken due to the benefits promised, when the promised benefits are not delivered people begin to distrust insurance policies. However, in other countries when a health cover is purchased all benefits promised are delivered.

However, in Sri Lanka there are many requirements that have to be met at the time the claim is being made. For instance the amount allowed as room charges is paid only on a specified basis which is not explained to the client at the time of buying the policy.

Further, as insurance is bought today by people who have disposable income, affordability by the public has become an issue. Though insurance is needed by all, the affordability factor has held growth in check.

An area that has not been fully addressed yet is Sri Lanka's ageing population. Though there is vast growth possibilities here the industry has yet not looked into this sector and come up with any satisfactory solution. As Sri Lanka has no real social security scheme, it is the ideal ground for insurance for the aged.

With the ageing population and the migration of youth, falling ill in the near future will tax the country's social benefits to the limit. This will be a key area for future development as the migrant population will invest more in insurance policies.

The insurance industry has the ability to grow with the increasing per capita income of citizens as money for insurance is paid for by the disposable income of the individual.

"The insurance sector is doing well in terms of growth and business volumes. The industry is ready to move with the expected economic development of the country. It is aligned to go forward with the per capita income of $ 4,000 to be achieved by 2015 where disposable income will increase. Long term insurance cover will be advantageous for the country's ageing population which is expected to be 25 percent of the total population in the near future," Sri Lanka Insurance Association President, Ramal Jasinghe told Sunday Observer Business.

The industry has great potential for growth. However, lack of awareness and understanding of the concept of insurance has hampered progress. Measures should be taken to increase the level of penetration while addressing the issues of affordability and the qualitative aspects of the policy, he said.

The health benefits offered through insurance will alleviate the burden on the government healthcare system and a comprehensive policy is the need of the hour.

The insurance industry is mainly driven by the quality of the settlement process and the industry should make concerted efforts to improve the service aspect.

According to the Insurance Association of Sri Lanka, the growth figures of insurance premia of all the insurance companies for the half year as at June 2012, is 22 percent for general insurance (non-life) and 25 percent for life. 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, during this period. This is a significant improvement from the year-on-year figures of 2011.

The industry has disbursed a total of over Rs.15.6 b in claims in the year 2010 , and the figures in 2011, would show a significant growth keeping in line with the positive growth of the industry.

In over 99 percent of the claims that reached the stage of legal action, the Courts have held with the insurance company. Claims reaching litigation are very small as most claims are amicably settled outside court. There is however an increasing trend in fraudulent claims being made on insurance companies.

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 the delays taking place in Courts, which is beyond our control, is a positive step towards efficiently disbursing claims.

Furthermore the Insurance Board of Sri Lanka (IBSL) also will have a larger role to play after the amendments to the Act regarding claims settlement. (Their purview was extended to non-life claims as well).

The efficiency of claims disbursement is a vital area of competition within the competitive insurance industry. Therefore, while individual companies may adopt their own claims management policy, industry players are aware of the factor of competition, with 22 companies in a limited market space.

Our advisors and intermediaries (insurance brokers) too, provide professional services to stakeholders keeping these competitive forces in mind.

With the positive action being taken by the industry and stakeholders, there cannot be an erosion of confidence among the public, but there could always be space for improvement with regard to service and most importantly educating the public on the terms and conditions of an insurance policy, to inform the conditions and circumstances upon which one could make a claim.

It must be stressed however that the industry is keen to maintain a clean and fraud-free environment, and hence will maintain high standards of integrity to safeguard interests of policyholders who make genuine claims.