Sri Lanka’s insurance sector is under the spotlight as Fitch Ratings deems its regulatory environment to be “developing with limited transparency.” The Insurance Regulatory Commission of Sri Lanka, which oversees domestic insurers, has taken steps to strengthen the sector. In 2015, a risk-based capital (RBC) regime was introduced and fully implemented by insurers in 2016, mandating a minimum RBC ratio of 120% and corrective plans for those below 160%. Additionally, the segregation of life and non-life businesses and a listing requirement on the local stock exchange (with exemptions) have been enforced to enhance transparency.
The country’s insurance market, however, lags in Asia with one of the lowest penetration rates. It is marked by a lack of sophistication, as basic products prevail in both life and non-life segments. In the non-life arena, motor insurance, though dominant with over half of premiums, has seen insurers diversify due to vehicle import restrictions. Health and miscellaneous insurance, as well as fire, property, and SME insurance, are growing, spurred by construction and business expansion.
In the life insurance sector, traditional whole-life and endowment policies with investment features hold sway. While pure protection policies are slowly gaining ground, they still trail behind other Asian markets, hampered by limited local demand. Overall, Sri Lanka’s insurance sector faces challenges in both regulation and market development as it strives to catch up with regional peers.
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