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Q: How would you assess the recent performance
of the insurance industry?
A: The
industry is completely privatised now and is growing at around 20 per
cent. We are performing very well because this is an industry with low
penetration. When you compare ours with the insurance industry of a
developed country, we are nowhere near reaching our true potential.
In an East-Asian country such as
Singapore or Malaysia, insurance penetration is more than 80 per cent. In
Sri Lanka, there is only 10 per cent penetration in life insurance and
around 15 per cent in general.
Q: What is the reason for such low penetration?
A:
Obviously, the lack of insurance awareness. Large companies insure. But in
suburban or village areas, shops and small businesses don’t necessarily
insure because they don’t perceive insurance as a necessity. This is an
awareness that comes about with development. In a developed country, most
insurance requirements are compulsory. Here, the legal framework is not
that strict as yet.
Q: How can the industry increase awareness about
insurance?
A: We
have a regulator, the Insurance Board of Sri Lanka (IBSL), which has
become more active recently and has done a good job in the last two to
three years. IBSL has a role to play in raising insurance awareness.
Insurance companies also have a role to play, particularly the market
leaders.
Q: Does the industry spend heavily on
advertising?
A: Yes,
the industry is a relatively high spender because it is competitive. There
are 16 players in the market. Everybody wants to grab a share of the
potential market, so there is much marketing activity.
Q: Are there unfair marketing practices due to
high competition?
A: There
are always disagreements over what the ethical practice should be. A
recent debate in the industry, in which even the IBSL got involved, was to
do with advertising ethics. Ethics is not something you can enforce. The
advertising industry as a whole has to agree.
The Insurance Act has a very simple
guideline, which asserts that one cannot mislead the public. The question,
then, is whether or not some companies mislead the public. It’s an ongoing
discussion and we have voiced our concerns. A few companies have taken it
up with the regulator, too. To my understanding, the regulator has already
taken the initiative to write to some of these errant companies, advising
them to be cautious.
Q: What do you mean by misleading advertising?
A: You
make a claim that’s not correct. For example, if I say I can do something
for you, but I don’t actually do it for you. Sometimes, I promise to do
what can’t be done. I don’t want go into details because I’ll be stepping
on somebody’s toes; but if you look around, you will understand what I am
saying. If a company claims that it can do something for you and that only
it can do so, you may wonder why it is the only one, right?
Q: Some customers complain that they have been
led to believe that insurance schemes are savings schemes. How would you
react to this?
A: That
is the truth and that is how it should be communicated. Insurance is a
saving, as well. It has two components – protection and investment.
The two are combined. You promote insurance, highlighting the need for
protection. At the same time, if nothing untoward happens, there’s a
return on the policy-holder’s investment, which is better than what he or
she would otherwise have derived.
Q: But aren’t the returns less than what one
would obtain from other investment schemes?
A: I
would argue that it varies from product to product. Some insurance
products offer much better returns than investments through
financial-services companies. Certain products may not offer a high rate
of return on investments because they place more emphasis on the
protection aspect. The company would usually ask potential policy-holders
whether they want more weight on protection or investment.
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Almost everybody has health-care
insurance in developed countries. This
is not the case in Sri Lanka, where this
is a product with very low penetration. |
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Q: That sounds good on paper, but isn’t it true
that insurance agents don’t usually offer such detailed advice?
A: We
are quite concerned about this. The expertise of our insurance advisors is
not comparable with the expertise of those in the developed world. This is
because, for a long time, not much effort has gone into increasing their
awareness of products. What happens, more often than not, is that they
know a few products well and they sell those.
The industry is now trying to take
insurance advisors to a different level, so they will pursue needs-based
selling. With needs-based selling, the agent has to first ask the customer
what he or she wants – not merely sell what is available. I think this is
already happening to some extent. Meanwhile, some of us are educating
people through advertising on what questions to ask an insurance advisor.
Q: How does the ‘lapsation rate’ impact on the
industry?
A: At
the last conference of the National Forum of Life Insurance Advisors,
IBSL’s Director-General said that Sri Lanka’s average lapsation rate is 45
per cent. It leaves a bad impression in the market because of the bad
experiences of policy-holders.
The
interviewee is the Chief Executive Officer of Sri Lanka Insurance.
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