As all other industries, the insurance industry too shows a decline for the remainder of 2020 due to the COVID-19 pandemic. Globally, life premiums are expected to contract by 6%, with saving products coming down.
“In general insurance, travel and trade related lines are expected to suffer most and is predicted to contract by 0.1%. A challenging economic environment for insurers will result due to low interest rates, stagnant growth and the increasing likelihood of a global recession,” said The Chairman of the Insurance Regulatory Commission of Sri Lanka, (CIRCSL) President’s Counsel Razik Zarook .
However, it has been predicted that reinsurance prices for General Insurance Businesses is set to rise by at least 5%.
Here the Chairman CIRCSL, Razik Zarook shares his insights on how the insurance industry is evolving both in the local and global arenas, in view of the Insurance Month commemorated in September.
Q: How do you see both the life and general insurance landscape at present in Sri Lanka, as opposed to the global arena?
A: Despite the temporary limitation, demographic shifts around the globe create both risks and opportunities for insurance companies. At the same time, customer expectation, especially around digital channels and bespoke experiences is and will continue to increase. As a response to this, technological invasion is taking place across the entire value chain.
The impact of COVID-19 resonates in the local industry as well, in both short and long term, reducing insurable exposures due to negative impact on businesses. The industry should be prepared for significant financial losses arising as a result of negative impacts on various covers such as health, travel, event cancellations, business interruption, employer liability, income protection etc. Although the local insurance industry has no mortalities and healthcare costs due to COVID-19, recent import controls such as on vehicle imports will affect negatively because motor is the largest contributing segment to general insurance. However, we see signs of the local industry recovering much more quickly than expected.
Q: What trends do you see in the industry since post COVID Lockdown?
A: Insurance companies that have invested in digital technology products and services will definitely have an advantage in navigating at present. As work from home has become part of the employee structure operational models and workforce allocations will have to align to suit the current situation. In addition, new segments, such as cyber risk insurance might become more popular, pushing for generating new ideas and products, and deviating from the conventional product types.
In contrast, there can arise an increase in lapsed policies, as well as concerns regarding the future of insurance policies and premium payments by customers. The digitalization should have necessary checks and balances to countervail the risk of fraud. Therefore, business continuity planning should take this into serious consideration.
Q: How do you think declaring an Insurance Awareness Month will help the pandemic hit insurance industry performance?
A: We will witness an unprecedented change in the foreseeable future as people slowly get accustomed to an environment where they coexist with COVID-19 until a proper vaccine is found to cure the illness. In the wake of the COVID-19 outbreak, insurance has become one of the most important financial tools to have in place for the worst times because people are increasingly aware of health and protection. The declaration of the insurance awareness month is the best platform to raise awareness on insurance at this juncture. The industry should take up the challenge.
Q: Has there been any new developments in terms of regulation since you took office?
A: There have been several directives issued by the IRCSL recently. Direction No. 21 has been issued in respect of changing Agency Codes. In addition, in keeping with the National Language policy, Circular No. 43 directed that Insurance Policies be available in all three languages, Sinhala, Tamil and English to ensure comprehension of policy terms and conditions by the relevant policyholder. Circular No. 42 was added requiring insurance companies to refrain from obtaining loss adjusting services from unlicensed Loss Adjustors.
The IRCSL also made a special announcement to provide relief measures to insurance policyholders extending the premium payment period in view of the COVID 19 pandemic. We also called for a suspension of dividend payments to shareholders of insurance companies with a view to minimize any potential near-term impact on the capital levels of insurance companies as a result of disruptions to their businesses by way of losses of premium income and thereby earnings of insurers.
Q: In your opinion, how has the insurance customer benefited in terms of the services and the product offering in the market?
A: Many aspects of the modern society and economy could not function without insurance as insurance provides a safety net over the unforeseen events and enable individuals and businesses to carry on their daily activities as usual. Buying an insurance policy for a smaller, known premium provides the safety net for a possibility of a larger, potentially unaffordable loss, bringing peace of mind and security. The customers will be benefited, their needs will be fulfilled and confidence level will be boosted with more emphasis on paying policy benefits to the insureds.
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