Lanka’s insurance industry will also see consolidation
Some nine Sri Lankan insurance firms have segregated in a process which will see them undergo a comparable consolidation to that of the finance sector, industry experts say.
“Already these companies have split into two entities which will see their life and general segments functioning as separate businesses,” an industry expert said.
The new regulatory measureshave been imposed to exempt risks of one business from another, he added. In terms of the provisions of the Regulation of Insurance Industry (Amendment) Act No. 03 of 2011 composite insurance companies are required to segregate its long term insurance business and general insurance business into two separate companies by February 2015. “The regulations in February 2015 are to increase the risk based capital (RBC) to Rs 500 million per class of business – Life and Non Life Insurance business,” the expert added. One of the key steps taken towards splitting by the companies, he said, was that their sales, claims and underwriting functions which have been managed separately to a large extent were further segregated.
In doing so, companies will be required to comply with all relevant laws, including the requirements stated in the Companies Act No. 07 of 2007, according to rules set by the Insurance Board of Sri Lanka (IBSL). “This essentially means that there will be two separate director boards,” an industry analyst said.
Some insurance firms said that the structure for the split with Life and the Non Life Insurance (general) businesses will shrink the asset base of these firms. “Therefore not all firms would want to stay in this business or some may want to focus only on either life or general insurance. With this segregation, some firms may be sold or merged as they may be too small after the split happens,” an insurance company CEO told the Business Times.
Sri Lanka’s insurance industry comprises 21 companies at the end of 2013 of which 12 companies engage in composite insurance (Life and Non Life), and six transact only Non- Life. These companies carry out specialist life business. Despite the presence of so many entities, the penetration of life insurance still stands at a mere 12.1 per cent of the population, and at 29.1 per cent of the working population.