Nihal Senaratne, FCMI, ACII, AIII, Chairman, SENARATNE INSURANCE BROKERS (PVT) LTD. SRI LANKA
In 1961 – 64 both general and life insurance in Sri Lanka were nationalized by an ultra-socialist Government in power at the time, absorbing the business of over 50 foreign based companies, coupled with 02 local companies which were operating at the time. The apparent objective behind this move was largely to utilize the profits arising from this sector for the country’s development purposes as well as to stem the outflow of foreign currency by way of profits to overseas Underwriters. However, this laudable objective did not materialize anywhere near the extent anticipated. Besides with one party entitled to the “big stick”, so to say, with no recourse for review of poor decisions available to clients, there was considerable agitation amongst the people, generally. The headway made by this monopolistic giant left much to be desired as, political interference coupled with questionable Management decisions impeded any meaningful progress, and was more like a “the wild horse meandering in the wilderness without finding a path to freedom”. This path fortunately opened up when a right wing Government which came into power liberalized the insurance industry from 01st January, 1988 – the first country in the world to effect such a reversal !
To provide some idea of the performance, in both the General sector, as well as, the Life sector, the following are the comparative GDP in 1987 as against 2014.
General (Rs. Million) 1313 55,262
Life (Rs. Million) 300 44,610
During 2014, there were a total of 20 Insurers operating in the country including 3 Government owned companies, and of these 15, were composite companies, whilst the balance 5 were involved in Long Term assurance only. As of further interest, the following are the Life and General GDP growth rates for the 3 years ended 2014.
GWP GDP Growth Rate
2012 Rs. 87 Million 6.3%
2013 Rs. 95 Million 7.2%
2014 Rs. 100 Million 7.4%
The non-life sector is heavily dependent on Re-insurance and, in the case of property, this is currently as much as around 80% of the GWP. It is therefore, not surprising that, it is now mandatory for 30% of overseas Re-insurance to be first offered to the Government owned National Insurance Trust Fund. It is time that, the private sector Insurers made a sustained effort to secure increased retentions and indulge more in co-insurance locally to stem, to some extent, the outflow of much needed foreign currency. It is of interest to quote here, the words of Winston Churchill, who said:
“Some regard private enterprise as if it was a predatory Tiger to be shot. Others look upon it as a Cow that they can be milked but only a handful see it for what it really is – the strong horse that pulls a whole cart”
Market development must grow hand in hand with speedy claim resolution but, Brokers as well as clients regularly experience “stutters” in the process of claim settlement, in more ways than one. The appointment of an Ombudsman in 2005 was welcome but this in itself is inadequate. What is required is an overall change of attitude amongst Insurers not to rely too much on the small print but to display more goodwill towards settlement of legitimate claims in a transparent manner.
Turning now to the Regulation of the industry, the burning question is whether the Regulator be there to smother or mother the Institutions under his or her supervision. Obviously a Regulator should not be cast in the mould of a Policeman but, more so as a facilitator for market development. Needless to say, a legal framework should be in place to protect the interests of Policy Holders and self-regulation aggressively encouraged amongst Insurers and Intermediaries alike, to reduce the burden on the Regulator. These days, many countries are turning more and more towards de-regulating, to an appreciable extent, the financial services sector. Whilst not advocating a laissez faire situation in the insurance sector, there must be market development first and thereafter regulation and, not the other way round, as generally happens in developing countries. In other words, market development is a powerful vehicle for self-regulation.
In lighter vein, it is of interest to quote from the father of the laissez faire economy – Italian priest – father Vincent Mc Nabb (1868-1943) whose melodious rant said: “Some men wrest a living on nature, this is called Work; some men wrest a living on those who wrest a living on nature; this is called Trade; some men wrest a living on those who wrest a living on those who wrest a living on trade; this is called Finance.”