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Sri Lanka Insurance Market Brief History and Development of Insurance 
Image: Coat of Arms of Sri Lanka Prior to Nationalisation the Insurance sector comprised largely of several Foreign Companies: Sun Life Insurance Office Ltd, Royal Assurance, New India Assurance Co Ltd, and the Ocean Accident and Guarantee Corporation Ltd, were few of the many with Edward Lumley underwriting business for Lloyd’s of London. The primary entrants to Insurance business in Sri Lanka were the Agency Houses which managed the plantations and were acting as Agents of Overseas Insurers handling mainly their in-house plantation business. In the early part of the 20th century, Life Insurance companies too were established. It is only after the passing of the Companies Act of 1938, that Sri Lankan Insurance Companies were established. Ceylon Insurance Company Ltd, was the first Sri Lankan Insurance Company to be established followed by other Companies like Colombo Assurance, Lanka Life etc, who endeavoured to serve the needs of the local populace. The indigenous community became more aware of Insurance only after the enactment of the Motor Traffic Act in 1938, which made Third Party Insurance compulsory. However, there was no specific legislative framework to authorise, supervise or control the Insurance business in Sri Lanka at that time. The Insurance Industry was nationalised in line with the socialist economic policies of the then socialist Government in Sri Lanka. At the time of Nationalisation in 1961 there were more than 60 local and foreign Insurance companies and Agency houses. With the promulgation of the Insurance Corporation Act, No. 2 of 1961, the Insurance Corporation of Sri Lanka (ICSL) was established in 1961 as the sole insurer authorised to transact Life Insurance business in Sri Lanka. Shortly thereafter with the enactment of the Control of Insurance Act No. 25 of 1962, the intention of the State to regulate and control the activities of Insurance Companies in the best interest and protection of the insurance public were made very clear. Two years later in 1964, General Insurance too was nationalised as provided in the Finance Act of 1963 and Insurance Corporation of Sri Lanka was authorised to be the sole Insurer to transact both Life and General Insurance business in Sri Lanka. The Insurance Corporation of Sri Lanka which was initially incorporated to underwrite Life Insurance enjoyed monopoly status from 1964 in all classes of Insurance. In 1979, the Insurance (special Provisions) Act, No. 22, was enacted providing for the establishment of Independent Corporations to carry on the business of any type/class of Insurance. Thus, in 1980 another State Insurer, the National Insurance Corporation (NIC) was incorporated with the objective of creating competition after about 18 years of monopoly by the Insurance Corporation of Sri Lanka. However, State Monopoly still continued. The NIC structure provided for eight Principal Agents, seven of whom were from the Private Sector and were selected on the basis of prior experience in the Industry. These Principal Agents were functioning as underwriters for the National Insurance Corporation in a controlled environment. They were authorised to underwrite and settle claims on behalf of NIC up to limits specified in their respective agreements. Whilst ICSL acquired business through its network of branches island-wide and a large number of Agents, NIC acquired business through its Principal Agents who in turn had their own network of Branches and Agents. The state realised that competition even though between two State Organisations had its overall benefits by way of improved service and speedier settlement of claims etc, however, the level of Insurance penetration especially Life continued to be low. Consequent to the 1983 civil disturbance which resulted in losses of catastrophic proportions (about Rs. 1,600 million), the local State Insurers found themselves in an unenviable position of being denied Reinsurance protection in respect of Strike, Riot and Civil Commotion (SR and CC) by their Reinsurers from 1st January 1985 in certain classes of business. As a result of this situation, the Government of Sri Lanka established a Fund known as the SR and CC Fund in 1987 to meet claims on Insurance policies extended to include cover against SR and CC, in those classes specified by the Fund. The Fund’s protection is provided to both State and Private Insurers. As the risk of terrorism was not covered under Standard policies and in response to public appeal made during the turbulent period 1988/89, the Government of Sri Lanka in 1989 decided to extend the scope of the SR and CC Fund to include damage/loss caused by acts of Terrorism/Subversion and the Fund was renamed as the “Government Fund for Strike, Riot and Civil Commotion and Terrorism”. In 1986, the Control of Insurance Act, No. 25 of 1962 was amended opening the doors for the Private sector to venture into the field of Insurance as Insurers. The control of Insurance (Amendment) Act, No. 42 of 1986 permitted Public companies too to carry on Insurance business in Sri Lanka. Thus, private Insurance Companies were allowed to underwrite Insurance after almost 25 years of State dominance. Initially, three Companies obtained licences in terms of the amended legislation and commenced Insurance operations in competition with the two State Corporations in 1988. Simultaneously, a totally new concept (at least as far as the Local Industry was concerned) was introduced vis-à-vis the introduction of the Broker Intermediary. In 1993, both state Insurers were converted to Limited liability Companies. ICSL changed its name to Sri Lanka Insurance Corporation Ltd, and NIC to National Insurance Corporation Ltd. Between 1994 – 1999 a further four Insurance companies were registered under the Controller of Insurance Act namely; Janashakthi Insurance Co Ltd, Cooperative Insurance Co Ltd, Asian Alliance Insurance PLC and Hayleys AIG Co Ltd. In the year 2000, Regulation of Insurance Industry, an act – No. 43 of 2000 was enacted by repealing the previous Controller of Insurance Act No. 25 of 1962. This act made provision for establishment of an Insurance Board for purpose of developing, supervising and regulating the Insurance Industry. The Insurance Industry which was protected from equity participation by individuals/bodies outside Sri Lanka in the past, has been opened for direct equity participation since March 2000. As at March 2001, there were nine authorised Insurers registered to underwrite Life and or General Insurance business in Sri Lanka and by the end of 2007 it increased to fifteen Registered Insurance Companies. The number of Registered Insurance Brokers as at end 2007 is 57. In addition to the above, quite a large number of agents are attached to the respective Insurance/Broking Companies. In the year 2006, the Government established the National Insurance Trust Fund (NITF) under the National Insurance Trust Fund Act No. 28 of 2006 to provide benefit and insurance schemes for the different segments of society including public officers, farmers, fishermen and Samurdhi beneficiaries. In 2007, the NITF commenced implementing the following insurance and benefit schemes:
Out of the schemes indicated above, the most significant one was the introduction of Reinsurance scheme, wherein it was mandatory that 20% of the proportional and non-proportional treaties of all insurance companies have to be ceded to the NITF for the following classes of Insurance:
Apart from the Insurance Companies, Intermediaries and Agents, there are other various Institutions and Bodies indicated below, which are actively involved in the Insurance Industry of Sri Lanka.
Insurance business is divided into General and Long Term Insurance in Sri Lanka and the local legislation lays down rules relating to the transaction of both categories of Insurance separately. Size of the Industry Premium IncomeThe total overall gross written premium from long term insurance business and general insurance business in the year 2006 amounted to Rs 43,035 million (2005: Rs 37,224 million) with a growth rate of 15.61% indicating a decline compared with the previous year’s growth rate of 25.94%. General Insurance business with a premium income of Rs 25,931 million (2005: Rs 22,410 million) contributed 60.26% (2005: 60.20%) of the total gross premium written, while gross written premium contribution from long term insurance was Rs. 17,104 million (2005: Rs 14,814 million) which accounts for 39.74% (2005: 39.80%). Accordingly the contribution from general insurance business for the last two years has been higher than long term insurance business. Insurance sector has contributed 1.54% to the Gross Domestic Product (GDP) for the year. Whilst previous year’s contribution was 1.58%.
Source: IBSL ANNUAL REPORT 2006 Long Term Insurance Long term insurance business with a premium income of Rs 17,104 million shows a growth rate of 15.5% in the year 2006 when compared with the previous year’s growth rate of 18.3% with a gross written premium of Rs 14,814 million.
Source: IBSL ANNUAL REPORT 2006 General Insurance Business General Insurance business with a gross written premium income of Rs 25,930 million (2005: 22,410 million) in the year 2006 showed a growth rate of 15.7% which reflects a decline in the growth rate when compared with the previous year’s growth rate of 31.5%.
Source: IBSL ANNUAL REPORT 2006
In preparing this Spotlight article we have received invaluable assistance from Delmege Insurance Brokers (Pvt), Ltd, Colombo (www.delmege.com) for which we are grateful. If you would like Worldwide Risk Solutions to conduct an economic, business and insurance survey of any international markets please contact us – Details below. Worldwide Risk Solutions has access to a wide client base of internationally oriented organisations. Why not utilise this knowledge and experience? We can conduct a swift appraisal of your global activities or answer any questions you may have about international developments. Call +44 (0)1444 450 919 or send us an e-mail and we will respond immediately. And should you be passing through London, please let us know. For more information about any of the items discussed in the current or previous issues of WoRdS, please see our Contact Details George Worsley, Director |
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