Ranee Jayamaha, chairperson of HNB Assurance, a newer but fast growing insurance firm who is also an advisor to Sri Lanka's President said the splitting of general and life business is expected to weed out potentially non-viable firms.
"However, if the post segregation structure ends up with over 30 small sized companies instead of the 22 we had so far, the industry as a whole will be faced with sustainability Issues," she told shareholders in the annual report.
"Therefore, there is a clear need for a consolidation of the insurance industry similar to that of banking and other financial services.
"This may require an incentive based comprehensive plan to promote mergers and acquisitions and consolidation."
Sri Lanka's banks and finance companies are now being merged with some finance companies in particular running into difficulties.
The merged entities are expected to be larger and better capitalized. Fewer numbers in the future is expected to make it easier to regulate.
Jayamaha said the budget for 2014 had set out process to transfer of tax losses in life insurance to the newly split companies without an additional tax burden.
"While appreciating this effort, I am hopeful that the remaining issues on tax credits and stamp duty on property transfers will also be resolved in a similar manner," she said.
She said last year life insurance sector grew at 10 percent, higher than the 5 percent seen in 2012 but general insurance growth slowed to 9 percent from 15 percent.
HNB Assurance had grown its life revenues 34 percent and non-life 9 percent. The firm is part of Sri Lanka's Hatton National Bank group.