Features

Economic transition presents insurance players opportunity

18 Jun 2014 - {{hitsCtrl.values.hits}}

he period of transition Sri Lanka’s economy is currently in where low interest rates and single digit inflation is factoring in, presents the country’s insurance industry immense opportunity to grow their business and introduce new products, Central Bank Governor Ajith Nivard Cabraal said.

Addressing a forum organized by Citibank on pensions yesterday, Cabraal noted that due to the low policy interest regime now prevailing, many people specially, those who depend on interest income on their savings—may feel their income levels getting affected.

“Of course with high interest rates and high inflation that would have happened anyway, if not much worse. Because even if there were high interest rates in the past, with the very high inflation, we had their life styles could have been eroded in the longer term.

“Therefore this can be looked at as a threat and also as an opportunity. The opportunity is for the insurance industry to come up with certain products which will be attractive to this group of people,” Cabraal noted.

The Central Bank slashed policy rates by 125 basis points between December 2012 and October last year to boost economic growth.

This year, while renaming the reverse repurchase rate as Standing Lending Facility Rate, the Central Bank cut the rate by 50 basis points. Currently the Standing Deposit Facility Rate (SDFR) remains at 6.5 percent and the Standing Lending Facility Rate (SLFR) at 8 percent.

Despite the motive behind slashing the interest rate is to encourage more credit, the credit growth kept falling amid savings interest rate also declined significantly, impacting those depending on interest income from savings.

“In order to provide the background for that opportunity, we have also the Public Debt Department providing longer term bonds giving insurance companies the opportunity to make their investments.

Segregation, a “good thing”

Governor Ajith Nivard Cabraal sees consolidation in Sri Lanka’s insurance industry following the segregation of the operations of composite insurers into Life and General by 2015.

“This is already happening in the financial sector where non-banking financial institutions are encouraged to merge. Similarly, policies in insurance may be on the cards,” Cabraal noted.

“I like to see bigger and more stable insurance companies.

People will be more discerning as they will not only evaluate the insurance products but also will look at the person who is offering them,” he added.

Cabraal further identified the segregation as a “good thing” that can grow the country’s insurance market and encourage consolidation.

Features

Economic transition presents insurance players opportunity

Segregation, a “good thing”

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