Calls for level-playing field to facilitate greater transparency
Leading insurance provider Janashakthi Insurance PLC has called on the government to remove the exemptions on public listing called on in the Insurance Industry (Amendment) Act No. 03 of 2011.
The Act had called on all insurance providers to segregate their Life and General insurance businesses by January 2015, and to list all entities on the Colombo Stock Exchange by January 2016.
Exempted were state-owned insurance businesses as well as foreign owned insurance companies which had already listed on foreign stock exchanges.
“Whilst this (Act) will facilitate greater transparency and investor protection as well as stability in the industry, it is our fervent hope that this policy would create a level-playing field by making the requirement mandatory across the board, i.e. also encompassing those insurers which are subsidiaries of international companies,” Janashakthi Insurance Chairman W. T. Ellawala said.
In an ongoing clash of policy viewpoints between giants, Policy Planning and Economic Affairs Deputy Minister Dr. Harsha de Silva had expressed a positive disposition towards listing state-owned insurance companies, while Finance Minister Ravi Karunanayake—under whose purview the entities are—is against it.
While Ellawala said that the new rules would eliminate potentially non-viable companies—which would find it hard to list on the stock exchange—the segregation would also clutter the market.
“The post segregated industry structure will result in more than 30 companies instead of the 22 that we have at present, the industry as a whole could be challenged by issues of sustainability,” he said.
He added that this would bring about a need for consolidation within the insurance industry through mergers and acquisitions, and said that Janashakthi is actively looking for amalgamation opportunities in both Life and General insurance businesses.
Ellawala noted that mergers are further required since the intense price competition created by the mandatory segregation will erode margins.
“Competition on price per se reflects short sightedness, resulting in underwriting risks, and is detrimental to the industry and its sustainability. If current level of price competition is further intensified in a post segregated environment, it would lead to a further erosion of margins,” he said.
If such a scenario arises, the industry would have to increasingly depend on managing investments, according to him.
However, Janashakthi Insurance Managing Director Prakash Schaffter said that the segregation that has taken place would allow insurance companies to increase their focus on each business, thus leading to greater profits.
Meanwhile, Ellawala said that increasing disposable income among the citizens would increase the demand for motor and housing insurance.
However, he noted that Sri Lanka’s life insurance penetration remains low at a premium to GDP ratio of just 0.48 percent, and would remain so, unless awareness of its benefits are informed to the public.