Sri Lanka Insurance aims high...
State-owned insurance giant, Sri Lanka Insurance recently launched a new corporate logo and announced a three-year strategic plan to regain market leadership in Sri Lanka’s insurance sphere. In this backdrop, Mirror Business sat with the newly appointed Sri Lanka Insurance CEO Chandana Aluthgama to find out more about the strategic plan and obtain insights about the challenges and opportunities Sri Lanka’s insurance industry is faced with in the foreseeable future. Following are the excerpts from the interview. Sri Lanka Insurance recently announced a three-year strategic plan along with the new brand logo. What is this all about?
Basically what we are planning to do is we want to align all our departments and service offering to our customers along with the new brand image change. I would look at it as an opportunity—to change ourselves to be on par with the rest of the market as well as may be benchmarking some of the international practices.
We have signed up with MTI Consulting to do a three-year strategic plan. They have been instrumental in working successfully with a few SOES. In our 56-year history, we have not been a typical state-owned organisation, which are known for making humongous losses and being a burden to the Treasury as well as to the public. Sri Lanka Insurance is still making operating profits and if you look at the funds under management, we have the largest life insurance fund in the country and we have paid Rs.35 billion in claims.
But when we think of the future, we felt that we need to tweak ourselves a little bit to be in line with the best practices and what the customer wants. A lot of things have changed in the industry as well as in the market and that is why the three-year strategic plan. But I don’t think we have to break everything and rebuild.
What are the key areas identified under this strategic plan?
There are a few areas we need to improve if you look at it from the surface. The sales side—we need to do a huge revamp. We have strong intermediaries, mainly driven by agencies. I don’t think that should be changed. In fact, they should be further strengthened. It is amazing to see sometimes, like in some of the European companies, where an agent transfers the agency to his children and the agency continues within the family. We would like to further assist them with technology—tabs, quotation systems, etc.—to increase their productivity.
A thorough relook at our branches and their service offerings is also very important. A lot of change is required in this area and we are addressing them now even before the strategic plan is implemented.
If you look at the technology side, we need to get our core systems aligned. Actually we are in the process of making an RFP on that. We have a tall ambition of at least selecting two suppliers very soon. If you look at our life products, we need little changes to our product offerings to be in line with the market. We have already addressed a few and we are working on several other changes and a few new products as well.
In the general insurance landscape, we are more or less offering a generic product. What we mainly want is to improve our services side when it comes to general insurance products. If I may just give you an example, we have this product offering called ‘Bee Express’, through which we settle claims immediately and we have increased the claim limit to Rs.75,000 under this. These are some of the things we are trying to do immediately, even before the implementation of the strategic plan.
At the launch of your new brand image campaign, a couple of months ago, you had mentioned that you wanted to increase your branch network…
Yes, we actually love to have our branch network reaching at least 225 branches. Eventually we are going to go there. Currently, we have about 150 branches and we have planned a few more branches in the coming months. And also, we want our branch network upgraded and our marketing department is working on that. This will make sure that all our branches will have one identity and similar standards.
But expanding branch network is a very capital-intensive exercise. Can’t you employ the new technology to reach out, which is relatively cheap, instead of following the oldschool brick and mortar model?
Well, we certainly want to adopt new technology into our business. But being a stateowned enterprise, I believe we need to reach far corners of the country because we touch the heartbeats of the locals. On paper, if you look at the statistics, going fully or even partially digital makes a lot of sense. But in reality, unfortunately, it is not the case.
Yes, I know expanding your branch network is a costly affair. But what we have done is we have given a breakeven strategy before we go and open a branch. Sometimes back, it took three to eight years for a branch to breakeven. But now we have a process running. The day we open the branch, we generally try and hit the breakeven point. That doesn’t mean that we have recovered the money. But for us to recover the money, we know this much of business we need to generate in a month. At the same time, we are employing news technology, specially to train our staff. For example, we recently had a training programme for our staff in Jaffna from Colombo via video conferencing and it was a huge hit.
But to take our sales offering completely online is not pragmatic thing to do at this juncture. Particularly with life insurance, a customer is entering into an agreement that will extend for 15 or 20 years. So, when you are entering into an agreement like that people like to see somebody before buying. But with the millennials, things could change in the future.
What are the key challenges you see for the industry in the foreseeable future?
I would say the single biggest challenge would be IFRS 17. It will change the entire business dynamics and how we do business.
The other biggest challenge is how we increase the insurance penetration. Only 32 percent of the working population is insured and only about 10 percent of the entire population who have or know about insurance. If you take many other countries, you will have almost all the working population having some form of insurance.
But we are proud to say that we have been able to touch at least 50 percent of the population of this country through insurance because we run this scheme called Suraksha with the Education Ministry, where 4.5 million kids are covered in that. With their parents we cover at least 10 million people—half of the population.
We give a cover of Rs.200,000 for a school kid, going up to the age of 19 on hospitalization, medical reimbursement, etc. If a death of a parent takes place, there is a cover for that as well. This insurance scheme is very easy to operate. If a kid is hospitalized, what you need to do is get the bills and with the endorsement of the principal send them to the closest branch and the claim will be immediately paid.
You touched on insurance penetration. Life insurance penetration still remains appallingly low in Sri Lanka. Why is that?
As I see it, one of the key issues here could be the discretionary income. But having said that, look at the people we know. Ask them whether you have a life policy? Most of them would say that they don’t and they can’t afford it. But if you look at their buying patterns, most of the times you can see they overspend on unnecessary things. If they really want they certainly can invest in an insurance policy. I think there is a cultural aspect to this as well. We never think about falling sick until we do. This is where education can play a major role.
Another reason I can think of is the bad impression created by some of the private companies that operated in the Sri Lankan insurance sphere in 1960s up to 1970s. People have this impression that insurance companies are there not to really help them but to pack up and go at a time of need. But I can tell with responsibility, being a state-owned organisation, I don’t think there is any claim we have neglected, unless otherwise there is a reason. We have a panel, where we discuss all these claims that don’t fall within the purview of the policy. I have seen the panel has been very generous in making some of these payments because we can afford to do that.
You mentioned about IFRS 17. Can you please elaborate a little bit more on the implications of it on the insurance industry?
Well, in short, we will have to be geared with systems. For example, if you take a life insurance premium, the investment component and the life cover component should be separated. For that you need to have sophisticated systems. Also, certain products that you are offering today, might not be profitable when IFRS 17 comes into play due to the way you have to account for them. With the new accounting standards, we may start a profit and loss account with profitability and not necessarily with turnover. The challenge is to apprise ourselves about IFRS 17. This was something that was brewing for some time and by 2021, we need to have it in place.
The insurance industry is of the opinion that the new Inland Revenue Act has some negative implications, particularly to the life insurance segment. Do you share this sentiment?
The Insurance Association of Sri Lanka, which is the industry body, has communicated the industry concerns, stemming from the new Inland Revenue Act, to the relevant authorities. I can confidently say we are a handsome contributor to the government in terms of taxes.
Ask them whether you have a life policy? Most of them would say that they don’t and they can’t afford it. But if you look at their buying patterns, most of the times you can see they overspend on unnecessary things. If they really want they certainly can invest in an insurance policy. I think there is a cultural aspect to this as well. We never think about falling sick until we do. This is where education can play a major role
What is the current status of Grand Hyatt, of which Sri Lanka Insurance is the largest shareholder?
Well, the decision is to sell Grand Hyatt. The government has appointed a certain party to handle that sale. Very soon I think the prospectus will be out.