- Says non-life business could slow due to govt.’s restrictions on motor vehicle imports
If there has been any growth in Sri Lanka’s life insurance business so far, that is mostly owed to its agency network that relies on human interaction for policy sales, but that very human interaction has now tuned in to a potential deterrent to generate new business in the world of social distancing putting a dampener on the sector’s growth in the near term, according to Fitch Ratings.
Sri Lanka’s life insurance uptake has typically been anaemic due to poor incomes—which make insurance less of a priority— employer sponsored insurance schemes, lack of trust on insurance providers and attitudes towards risk.
But the challenge caused by the pandemic could be the latest assault on the sector, which relied heavily on its team of insurance agents to sell policies.
“Fitch believes the fallout in economic activity due to the pandemic will hamper the industry’s new business growth. We expect new business generation for life insurance to be subdued over the near term as most insurers predominantly use agency networks that rely on human interaction for distribution,” the rating agency said in a recent note commenting on the sector.
However, the pandemic could also be a new trigger for life policies as people who may have never thought of insurance before could now be more inclined to think of it.
Life policies generally come with health protection policies.
Hence pandemic could allow the industry to come up with new products, which provide wider health coverage while introducing new ways to interact with potential policyholders using technology.
Meanwhile, commenting on the non-life business Fitch Ratings said, it could also slow in light of the government’s temporary restriction on the import of motor vehicles to control currency depreciation.
The government imposed import controls on personal vehicles since late March to stem the pressure on the currency, amid dwindling foreign exchange earnings due to virus related economic shutdowns globally.
While the profitability of the sector could come under pressure due to expected slowdown in business growth and the softer investment yields, the rating agency however said the pressure on profits could be, “ somewhat mitigated by lower claims from motor insurance lines due to fewer traffic accidents following restrictions on travel to contain the coronavirus spread.”
The insurance companies generate revenues from premium incomes from current and new policies and investment incomes, which are predominantly tied to government securities, of which the yields decline quite rapidly.