Future of Insurance Industry in Sri Lanka

An interview with Dilshan Perera – Chief Transformation Officer of HNB General Insurance Limited

1. How has digital technology changed the way insurance companies operate in Sri Lanka recently?

Digital technology has fundamentally reshaped how Sri Lankan insurance companies operate, moving from manual, paper-based systems to efficient, data-driven processes.

• Operational Efficiency: Insurers now leverage technologies like Robotic Process Automation (RPA) and Artificial Intelligence (AI) for back-office functions such as underwriting and claims processing. This leads to faster policy issuance (some instantly via auto-underwritten engines) and expedited claims settlement, often reduced to a single day in some cases.

• Customer Touchpoints: The shift is evident in the adoption of mobile apps and online portals for self-service, policy management, claims submission, and tracking. This provides customers with 24/7 accessibility and greater control.

• API-Based Ecosystems: There's a growing trend towards implementing Open API-based digital platforms to securely share data with partners (like banks for Bancassurance) and other third-party organizations. This fosters innovation and the creation of new, integrated business models.

• Data and Analytics: Advanced analytics are increasingly used to better understand customer behaviour, assess risks more accurately, and combat fraudulent claims.

2. What role does InsurTech play in Improving Customer Experience in the Sri Lankan insurance market?

InsurTech plays a pivotal role in bridging the gap between traditional offerings and modern customer expectations, significantly enhancing the overall experience in the Sri Lankan market.

• Simplified Access and Management: InsurTech platforms offer direct digital access to products, allowing customers to purchase policies online and manage them from a single, accessible location. This includes effortless viewing, updating, and renewal of policies.

• Personalization and Risk Assessment: By leveraging AI and data analysis, InsurTech allows insurers to move beyond basic demographics to understand individual customer needs and risk profiles, enabling the creation of more personalised and affordable policies.

• Seamless Claims Experience: Digital platforms streamline the historically cumbersome claims process. Customers can submit claims digitally, and the use of technologies like Optical Character Recognition (OCR) and Natural Language Processing (NLP) helps in the automatic extraction and validation of data, speeding up claim resolution.

• Enhanced Customer Service: The introduction of AI-powered chatbots and virtual assistants provides instant support, addressing complex customer queries and general information requests outside of business hours.

3. How are Sri Lankan insurers adapting to the growing demand for health and wellness related insurance products?

Sri Lankan insurers are actively adapting to the rising demand for health and wellness products by evolving their offerings from purely curative coverage to a preventative, holistic approach.

• Integrated Wellness Programs: Insurers are moving towards offering policies that are bundled with wellness programs, discounts on fitness services, and access to health advice. This encourages healthier lifestyles and aims to reduce future claims costs.

• Technology Integration: The use of wearable tech and health apps is being explored to offer dynamic pricing and incentives based on healthy behaviour. Data gathered helps in creating highly customised health covers.

• Micro-Insurance for Health: To expand penetration and cater to the lower-income segments, insurers are designing affordable, simplified micro-insurance products focused on covering specific health risks.

• Focus on Lifestyle Diseases: Given changing demographics and lifestyles, there is a clear product development focus on covers for critical illnesses and non-communicable diseases, which are a growing concern in the region.

4. How important is sustainability and ESG in shaping insurance practices in Sri Lanka?

Sustainability and ESG (Environmental, Social, Governance) are becoming non-negotiable elements in shaping Sri Lankan insurance practices, driven by both global trends and domestic challenges.

• Risk Management and Underwriting: Climate change (the E component) is leading to increased severity of catastrophic losses. Insurers must integrate climate-related risks into their underwriting models and investment strategies (e.g., divesting from carbon-intensive assets) to ensure long-term stability.

• Social Responsibility (S): The social aspect drives insurers to focus on financial inclusion by expanding reach to underserved rural communities, promoting financial literacy, and developing products that address societal needs, such as coverage for vulnerable populations.

• Governance (G): Strong governance, transparency, and ethical practices are crucial for rebuilding and maintaining customer trust and adhering to increasingly stringent regulatory requirements on conduct and disclosure. ESG reporting is also becoming a key expectation for investors and stakeholders.

5. What major regulatory changes are Sri Lankan insurers facing, and how do these affect their business strategies?

The Sri Lankan insurance sector has undergone several significant regulatory shifts aimed at enhancing stability, transparency, and governance, which directly influence business strategies.

• Risk-Based Capital (RBC) Regime: The mandatory adoption of the RBC regime requires insurers to maintain capital commensurate with the risks they undertake. This necessitates a stronger focus on risk management, robust solvency, and more thorough quantitative analyses and stress-testing scenarios.

• Segregation of Life and General Business: The compulsory segregation of composite companies into separate Life and General entities has forced firms to re-evaluate their operational structures, capital allocation, and market strategies for each distinct business line.

• Mandatory Public Listing: The requirement for insurers to list on the local stock exchange (with some exceptions) aims to improve transparency and adhere to stricter corporate governance standards.

• Adoption of IFRS Standards: The shift to IFRS (International Financial Reporting Standards), particularly IFRS 17, is a major change, demanding significant investment in IT systems and actuarial capabilities for financial reporting and product pricing.

6. Can you share how global insurance trends,such as the use of AI and Blockchain,are influencing the Sri Lankan market?

Global trends, especially AI (Artificial Intelligence) and Blockchain, are impacting the Sri Lankan market by offering avenues for operational transformation and enhanced security.

• AI for Efficiency and Insights: AI is no longer a future concept but is actively being implemented in areas like automated underwriting (for instant decisions), claims fraud detection (by analysing large datasets), and personalised customer interactions via machine learning algorithms.

• Blockchain for Trust and Transparency: While still in its nascent stage, Blockchain's potential is significant for creating a shared, immutable ledger across the insurance ecosystem (insurers, reinsurers, brokers). This can enable:

  • Easier and fairer claims processing through smart contracts.

  • Enhanced fraud management due to transparent transaction history.

  • Quicker customer onboarding via decentralized identity systems (reducing repeated KYC).

• Competitive Necessity: Local insurers are recognizing that adopting these technologies is a competitive necessity to improve efficiency and customer value proposition, rather than just an optional add-on.

  
  

7. How the Sri Lankan insurance industry coping with the impact of global economic uncertainties, such as trade tensions, and inflation?

The Sri Lankan insurance industry has faced significant headwinds from global economic uncertainties, high inflation, and trade tensions, demanding resilience and strategic adjustments.

• Inflationary Impact on Claims and Affordability: High domestic inflation has significantly increased claims costs in the General Insurance segment (especially motor and health) due to the rising price of spare parts, medical services, and replacement assets. Simultaneously, reduced disposable income has led to an increase in policy lapses and a shift in customer focus towards mandatory or basic covers.

• Investment Strategy Adjustments: The tight monetary policies adopted to counter inflation, which led to high interest rates, created an opportune investment environment for insurers to generate higher investment returns, easing the pressure from increased claims. This demands careful Asset-Liability Management (ALM) and diversified investment portfolios.

• Product Re-evaluation: Insurers are forced to re-evaluate their product pricing, benefits, and structures to remain both profitable and affordable for the consumer in a high-cost environment.

8. What are the challenges do Sri Lakan insurers face in expanding insurance penetration and customer trust?

Sri Lanka faces structural challenges that hinder the expansion of insurance penetration and the fostering of customer trust.

• Low Insurance Penetration: Sri Lanka's market penetration remains relatively low compared to regional peers. Key reasons include:

• Economic Instability and Affordability: High inflation and economic volatility directly impact consumer confidence and purchasing power.

• Low Financial Literacy: A lack of understanding about the true value and mechanism of insurance remains a barrier, often leading customers to favour traditional savings over pure protection products.

• Customer Trust Deficit: Trust is eroded by a perception of limited transparency and slow or complicated claims processes.

• Competition from Informal Networks: Insurers face competition from informal savings mechanisms and traditional social support networks that many segments of the population still rely on for financial protection.

• Market Sophistication: The market, while growing, is still dominated by basic products, indicating a need for greater product diversification to meet evolving customer needs.

9. How do you see the balance between traditional insurance agents and online policy sales evolving in Sri Lanka?

The industry is navigating a transformation in its distribution model, seeking a balance between the human-centric approach of traditional agents and the efficiency of online channels.

• The Evolving Agent Role: While direct sales have grown slowly due to product complexity, the traditional agent channel remains critical, especially for the life segment and complex general insurance products. The agent's role is evolving from a mere salesperson to a digital-enabled advisor who leverages technology (apps, digital tools) to provide advice, manage customer relationships, and streamline the application process.

• Growth of Direct/Online Sales: Online and direct channels (including Bancassurance) are gaining traction for simpler, standardized products like motor or travel insurance, offering customers 24/7 convenience and price transparency.

• Harmonious Coexistence (Phygital): The future lies in a "Phygital" model seamless blend of physical presence and digital capabilities. Technology supports the agent with leads and superior service tools, while the agent provides the necessary trust, explanation, and personalized service that complex insurance products often require. Insurers are focused on managing potential channel conflicts to ensure both models work synergistically.

10. From an international perspective, what are the lessons can Sri Lanka learn from the global insurance industry to enhance competitiveness?

To enhance competitiveness, Sri Lanka can draw crucial lessons from successful global insurance industries.

• Deepen Digital Integration (Ecosystem Thinking): Global leaders are moving beyond digitising single processes to building entire digital ecosystems that connect customers, partners, and service providers (e.g., integrating motor insurance with auto repair networks or health insurance with digital clinic services).

• Data-Driven Regulatory Approach: Advanced markets utilize a data-driven approach to regulation, which Sri Lanka is beginning to explore. This involves using advanced analytics for market conduct supervision and developing specific standards for data security and anti-money laundering controls.

• Focus on Microinsurance and Inclusive Models: Lessons from markets like India show that expanding access to insurance for underserved groups (rural, informal sector) requires simplified, community-based, and digitally distributed microinsurance products.

• Risk-Based Culture and Governance: A continuous focus on strengthening Risk-Based Capital (RBC) compliance and adopting international accounting and governance standards (like IFRS 17) is crucial for maintaining a resilient and trustworthy market that attracts international investment.