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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Insurance sector overcrowded

Insurance sector overcrowded

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1Insurance sector overcrowded Empty Insurance sector overcrowded Thu Nov 22, 2012 2:42 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Sustenance of the insurance industry remains dubious, following the intense price competition that is prevalent in an overcrowded market, which is found eroding the underwritten profits of insurers, a veteran insurer in the country said.

“The tendency to lower premium rates to remain competitive is uneconomical. It’s currently a serious problem that needs resolving. In India, you get about 55 insurance companies for a billion people. In Sri Lanka, you get 21 companies for 20 million people. It’s like one company for one million people here. It’s too much,” Janashakthi Insurance Deputy Chairman Chandra Schaffter said.

Confirming Schaffter’s apprehension, an independent insurance analyst Mirror Business talked to stressed the necessity of an enhanced regulatory framework – especially in the motor segment- for the sustainability of the industry.

However, tightened regulations, taut macroeconomic conditions and lower disposable incomes have compounded the burden on Sri Lankan insurers, which subsequently compels them to ensue creative avenues of growth.

“A tightened regulatory framework, coupled with increasing competition has squeezed underwriting profitability,” Schaffter elucidated.

Tightened regulation was characterized by stringent accounting standards, augmented minimum capital requirements, compulsory listing of insurance companies and separation of Life and General businesses by 2015.

The Insurance Board of Sri Lanka, which was responsible for these impositions, claimed that it will improve transparency, corporate governance and facilitate greater avenues for raising capital in the future.

“I really don’t know how every company can fall in line with these deadlines; we need a miracle,” a sceptical Schaffter added.

These regulations however, do seem to employ pressure on the overcrowded industry, with a rationale of cringing the market.

The industry veteran also expressed his views on lower economic growth and disposable incomes. As these two are inextricably linked with the insurance industry, new business is protracted.

“People don’t have money in their pockets to live, so most people don’t look at Life insurance as a necessity. People insure mostly when they have to, by law, like for vehicles,” Schaffter said.

The sustainability of the motor and construction segments is under heavy scrutiny, as the former is subject to negative macroeconomic conditions, while the latter is dominated by the state insurance company that ultimately crowds out private players.

“What a difficult life we lead. Private investment is virtually crowded out, leaving little avenues for private insurers to have underwriting business. I hope we have reached a level where the rates have stabilised that sanity has prevailed,” Schaffter concluded.
http://www.dailymirror.lk/business/other/23673-insurance-sector-overcrowded-.html

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