The insurance penetration in Sri Lanka is 1.2% of its GDP in 2015 whereas those in Malaysia and Thailand are above 5% respectively, said Sri Widowati, Country Director, Sri Lanka Resident Mission, Asian Development Bank.
Speaking at the Insurance Day celebration on Friday as the Chief Guest she said that this is a critical issue in Sri Lanka because its insurance sector is still in a nascent stage.
“Against this backdrop, ADB has been supporting the Insurance Board of Sri Lanka to implement two initiatives under the ADB’s capital market program.”
This first initiative is establishing a formal dispute resolution panel in lieu of the existing informal Ombudsman scheme to enhance consumer protection. The second initiative is launching a comprehensive retail education program to improve people’s financial literacy and understanding of insurance.
“These two initiatives are aimed at making insurance products more credible and getting people familiarized with the concept of risk management. The importance of better risk management with insurance cannot be emphasized too much for Sri Lanka, where the population is aging rapidly and natural disasters, such as floods and drought, are common.”
The expansion of insurance market is critically important not only for developing financial sector but also for building a better “social safety net” system. To close, ADB would appreciate if insurance companies provide a strong support for successful implementation of the two ongoing initiatives by the Insurance Board and other ADB’s financial sector work.
As you may be aware, with robust growth over the last decade, Sri Lanka is now close to becoming an upper middle-income country. However, there are many challenges to maintain the momentum of rapid inclusive and sustainable growth.
Under its new country partnership strategy, ADB is supporting Sri Lanka’s transition to upper middle income status through many ways, including through financial and private sector development. First, ADB has supported SME sector development to diversify economic activities and enhance productivity across sectors.
ADB has been providing a $100 million line of credit to SMEs to encourage banks to lend to underserved SME segments, such as women entrepreneurs, new clients and SMEs located outside of Colombo.
“Capital market development has positive spillover effects on insurance business. As securities market get deeper and more liquid, risk-adjusted investment returns of insurance companies increases and their capital cost decreases.”
On the other hand, to develop capital markets, insurance sector needs to be expanded to ensure sufficient demand for securities.
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