IFRS 17 to pivot SL’s insurance sector towards value over volume

Kunj Behari Maheshwari PIC BY NIMALSIRI EDIRISINGHE

By Nishel Fernando 

Sri Lanka’s insurance industry is on the cusp of a fundamental strategic shift that could potentially pivot its focus from a long-held obsession with the premium volume to a more sustainable model of value creation, driven by the upcoming adoption of the IFRS 17 accounting standard in 2026, according to a leading expert. 

WTW Head of Life Insurance for India and Sri Lanka Kunj Behari Maheshwari highlighted that for decades, the industry’s key performance indicator has been overwhelmingly singular, which is premiums.  “My regulator is asking me for premium information. The industry is saying, ‘I am number one because I have the highest premium.’ We are looking at insurance penetration, which is the measure of premium to GDP. The industry is all premium-focused,” he stated.

He presented his comments while addressing the recently held South Asian Actuarial Conference in Colombo. However, he challenged the validity of this metric, explaining that high premium figures can often be misleading. A single-premium product that essentially functions like a deposit account, he noted, inflates topline revenue without reflecting the genuine insurance risk or value. 

“If I am only writing premiums, that is nothing but a deposit on account ... that’s really a bank account. That’s not really an insurance product,” Maheshwari explained.

The introduction of IFRS 17, which Sri Lanka is set to adopt next year, is poised to dismantle this paradigm. However, only a few insurance firms in the country are prepared to adopt IFRS 17 next year, as of now. 

The new standard is expected to fundamentally change how revenue is recognised, forcing a more transparent and accurate reflection of an insurer’s financial health and the value it generates.

“What’s important to you from next year onward might even change. It might not be premium anymore,” Maheshwari predicted. 

“Under IFRS 17, it will be visible to all to see what is the value being generated in insurance contracts, both for the policyholder and for the shareholder.” Maheshwari elaborated that the new framework would mandate disclosures showing the lifetime benefits a policyholder receives for every Rs.100 of premium, alongside the expected value created for the insurance company. This transparency empowers actuaries to communicate the true bottom-line impact of their products to the management and board, moving beyond technical jargon to strategic business insights. Concepts such as ‘value of new business’ and ‘embedded value’, once confined to actuarial discussions, will become central to financial statements. Maheshwari also connected this accounting evolution to critical consumer issues such as inconsistent benefit illustrations and poor customer retention. He pointed out that conflicting illustrations confuse the policyholders and contribute to the industry’s high “persistency problem”, where a large percentage of customers lapse their policies within the first few years. “We need to bring in the awareness that not only it is important to buy insurance but also it is equally important to keep insurance,” he urged.  “Don’t just buy it, keep it.”