Consolidation exercise should be extended to insurance sector as well: IASL
Consolidation of Sri Lanka’s banking and finance sectors may have to be extended into the insurance sector in order to grow the industry to meet the demands of i mproved economic conditions, according to Insurance Association of Sri Lanka (IASL) President Prakash Schaffter.
“There are lessons for the insurance industry to learn from what is currently going on in the banking sector. I believe that it will be better to take steps now rather than go further down the line and be forced to try and consolidate a fractured industry,” Schaffter warned.
Speaking at a panel discussion on the Central Bank of Sri Lanka’s (CBSL) Roadmap 2014, organised by the Daily FT, Schaffter noted that economic growth has led to new opportunities for all sectors, including insurance.
However, he went on to draw attention to the country’s ageing population, which in combination with changing social dynamics and anticipated low interest rates, is likely to prove challenging for retirees living on interest income.
“With interest rates staying low, there is a chance that rates will be driven up for the end-customer. We are also seeing a breakdown in the extended family system and we lack a social security net. Therefore, we must look to develop new products and earn better interest rates.”
Sri Lanka’s insurance industry, much like the banking and finance sector, is largely controlled by six companies out of nearly 20 in the field, which maintain approximately 85 percent of market share, while the remaining 15 percent is controlled by smaller players.
Commenting on the dominant role of the state-sector insurance, Schaffter said, “One of the drawbacks that has been complained about is that the insurance sector is largely restricted to the state sector and so it would be good to open this up to the private sector as well.”
Nevertheless, he expressed a positive outlook for the industry adding that Sri Lanka was still on a much better trajectory given prevalent post-war growth and improving standards of living.
Our country and its people are undoubtedly better off now than they were a decade ago. Consumption patterns have also changed, the portion of people whose basic needs are met is far greater than it was 10 years ago. This means there is a surplus of money available, which us, insurers, can tap into in future,” Schaffter said.