Insurance industry amendments to introduce new method to measuring risk appetite
View(s):By Duruthu Edirimuni Chandrasekera
Amendments to the Regulation of Insurance Industry Act (RII Act) which are due this year will feature a more scientific method of measuring an insurer’s risk appetite, which is the Risk Based Capital (RBC) method, an official said.
“The current supervisory system which is commonly known as the “Rules Based Supervisory System” is focused on establishing rules that scrutinize aspects such as the solvency margin,” Ramal Jasinghe, President of the Insurance Association of Sri Lanka (IASL), told the Business Times. He said that in the near future, the implementation of a risk sensitive measurement of an insurer’s risk appetite will be carried out.
It will contribute to strengthening the risk management system of insurance, he said. Mr. Jasinghe said that this process includes recognising the existence of the risk(s), undertaking an assessment of the risk(s) and developing strategies to manage and mitigate the identified risks. He also said that an effective risk-base approach will let life insurance companies and intermediaries to exercise reasonable business or portfolio management with respect to their policyholders. In March last year the Business Times reported that Insurance Board of Sri Lanka (IBSL) will bring in more regulation to the industry.
The Act now requires insurance firms to segregate their life and general sections into separate entities by 2015 and also they are required to go public by 2016. “The Act has permitted entities to function as institutional agents. So far they’ve only enabled them, but the criteria in which they should act was drafted and sent by the IBSL board to the industry for comments,” Mr. Jasinghe said.
He said that IASL is raising concerns with the IBSL regarding the National Insurance Trust Fund (NITF). “This is mainly to address the concern of the NITF as a reinsurer to obtain a retro cession (obtaining a reinsurance cover for the NITF) which would mitigate the financial burden on the Government in the case of a catastrophe such as the tsunami of 2004 and in the event of natural perils, which we have seen in recent times with the changes in weather patterns, and disasters arising as a result of these changes due to floods and earth slips.”
He further added, “We see great opportunity in the future and are on alert about the changes in the social environment in order to upgrade products for protection. Sri Lanka will soon have an ageing population only second to Japan which leaves us the responsibility to assist in addressing the issue of taking care of our senior citizens. The benefit of having an insurance policy in the absence of a social security safety net is vital.”
The industry along with the Insurance Ombudsman structure is also gearing up its efforts to increase awareness amongst the community at large, on the benefits of insurance and initiatives are underway to improve the GDP contribution of insurance premiums which stands at less than 2 per cent, at present, according to Mr. Jasinghe. “This effort is in the backdrop of the Central Bank’s target of reaching a per capita income of US$ 4000 by the year 2016. The industry is upbeat, that the demand for insurance as well as the sophistication of insurance products and services will be conducive for the significant growth in such an environment.”
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