Rising claim ratios squeeze insurance margins

 Pic by Pradeep Pathirana

•  Highlights urgent need for healthcare synergies

• Insurance profit margins have contracted significantly, dropping from approximately 3.5% in 2021 to a mere 1.8% today
• Claim ratios are currently hovering near or exceeding the 100% mark, largely driven by the rising costs of medicine and hospital administration
• Industry experts advocate for a shift away from purely transactional interactions toward strategic, data-driven integrations

By Nishel Fernando 

The Sri Lankan insurance sector is grappling with heavily squeezed profit margins and soaring claim ratios, prompting urgent calls for deeper structural synergies with the private healthcare system. 

Industry leaders came on to one platform this week to shed light on the financial friction between medical insurers and private hospitals. 

Speaking at the inaugural Healthcare Leadership Summit 2026 held in Colombo this week, senior industry representatives noted that while the two sectors remain deeply mutually dependent, escalating healthcare costs are forcing a reevaluation of their traditionally transactional relationship. As private hospitals invest heavily in digital infrastructure, advanced medical technology, and highly skilled labor, the resulting overheads have severely impacted the profitability of medical insurance products.

Highlighting the severity of the situation, LOLC Life Assurance Limited Executive Director and former Insurance Association of Sri Lanka President Chandana Aluthgama revealed that insurance profit margins have contracted significantly, dropping from approximately 3.5 percent in 2021 to a mere 1.8 percent today. Claim ratios are currently hovering near or exceeding the 100 percent mark, largely driven by the rising costs of medicine and hospital administration. 

Aluthgama pointed out that without the private healthcare sector, the insurance industry would not be able to offer comprehensive medical covers beyond traditional per-day hospital cash products. However, this dependency is coupled with deep industry skepticism, as insurers struggle to balance the marketing benefits of comprehensive health policies with the financial reality of unsustainable claim expenses.

To navigate these headwinds, experts at the summit advocated for a shift away from purely transactional interactions toward strategic, data-driven integrations. One proposed solution is the shared use of detailed disease classifications to better understand hospital billing and treatment protocols. By fostering a mutual understanding of each other’s operational pain points, both sectors can capitalize on the projected growth in the region, where medical insurance penetration is expected to leap above the 10 percent mark. Bridging the knowledge gap between insurers and healthcare providers is now viewed as a critical step in maintaining the viability of health insurance as a safety net for the public.

Parallel to the insurance dialogue, the summit also explored how private hospitals can streamline their own operations to ensure sustainable growth and quality care, which indirectly supports a more predictable insurance landscape. Sunrise Group of Hospitals Founder Dr. Hafeez Rahman Padiyath emphasized that as healthcare institutions scale, rigorous standardization and teamwork become non-negotiable. Implementing strict standard operating procedures and clinical pathways ensures that patient outcomes and treatment protocols remain consistent, regardless of which physician is handling the case. Establishing clear organisational structures and job descriptions early on prevents smaller hospitals from developing restrictive cultures that hinder efficient scaling and cost management in the future.

The necessity of collaboration was further underscored by reflecting on recent national health crises. UN OPS Health Advisor for South Asia and former Health Ministry Director Dr. Hamdani Anver drew parallels to Sri Lanka’s Covid response, where the public and private sectors successfully united under a common goal. That period demonstrated that setting aside operational differences and focusing on integrity, communication, and teamwork can yield remarkable systematic resilience. 

As the healthcare and insurance sectors face their current financial and operational hurdles, adopting this same blueprint of unified goal-setting will be essential to building a sustainable and profitable future for the entire medical ecosystem.