With the conclusion of Insurance Awareness Month, the Treasurer of the Insurance Association of Sri Lanka, Chandana Aluthgama, (who is from one of the leading bodies behind the organisation of the events, programs and activities in September), discussed his views on several aspects of the Insurance industry.
1. What is IFRS 17?
IFRS 17 is an International Financial Reporting Standard that was issued by the International Accounting Standards Board in May 2017. Under the IFRS 17 model, insurance contract liabilities will be generally calculated as the present value of future insurance cash flows.
The new insurance contracts standard, IFRS 17, aims to increase transparency and to reduce diversity when accounting for insurance contracts..
Ex: How does IFRS 17 define an insurance contract?
An insurance contract is a contract under which one party (the issuer), accepts “significant insurance risk” from another party – (the policyholder), and the issuer agrees to compensate the policyholder “in the face of a specified uncertain future event- (the insured event) that adversely affects the policyholder”.
2. What’s the current level of insurance penetration in the country?
Overall – 1.24% (Insurance Premium as a percentage of GDP)
Life – 0.54%
Non- Life – 0.70%
(This data is as at 2018 (IRCSL Annual Report)
3. Why do people not buy insurance, could affordability be one of the reasons, and what can the insurance industry do about it?
Price: One barrier to buying insurance is the price. Many consider it too expensive in the face of more pressing needs in their budget. Paying for the basics (e.g., housing, food, utilities) takes priority over life insurance.
Misunderstanding: Many people have incorrect information on what coverage would actually cost. Young adults assume a much higher price than those who are older.
That said, the costs tend to be only a couple of hundred dollars in difference in terms of life insurance.
Priorities: When faced with decisions about purchasing life insurance, many opt to save for retirement first. Others choose to prepare for a premature death, to plan for the funeral, or determine the disposition of their estate.
Culture: Culture plays a major role when it comes to decision making of a product such as insurance. People purchase insurance because they see it as a mandatory need in the face of any negative outcomes in life. Still a majority of the Sri Lankan society and family units are dependable on each other.
Demands: For many, thoughts of life insurance don’t enter their minds until after they’ve had kids, a time when every decision begins to be taken more seriously. However, the increased costs that come with having children may mean that life insurance again takes second place.
Difficulty: Limited understanding and pressing obligations leave people paralyzed, thus they make ‘no choice’. Trying to decide whether they should get term life insurance, permanent life insurance, or one of the numerous variations can leave them in a quandary
Distrust: Insurance companies do not enjoy a great reputation. This lack of trust has the potential to put people off the idea of acquiring life insurance.
Discomfort: When asked to think about ‘end of life planning’, many people choose to do nothing because such thoughts make them uncomfortable.
Good health: Those who are young tend to see themselves as healthier and more fit, and enjoy a sense of indestructibility, as death seems so far away.
They fail to realize that being young and healthy makes them more likely to get better life insurance.
No need: Some people won’t buy life insurance because they don’t have dependents.
4. What challenges come in the way of recruitment in the insurance industry and what solutions would you suggest ?
Selecting the right people in terms of attitude, knowledge, competency and capabilities.
Specializing in a specific area and narrowing down one’s approach when it comes to working in multi- discipline areas rather multi –tasking roles. (Underwriter vs Claims officer etc…
Solutions to counter the above drawbacks/challenges-
Closely work with academic institutions and universities in order to update and streamline the courses and academic qualifications, which should be aligned to modern industry practices.
Much more involvement and contribution towards career guidance.
Encourage open innovation culture within the industry.
Re-define the business structures in order to a attract talent pool.
5. What is the ideal methodology to follow in order to ensure employee retention?
Sustainable business succession plans, acceptance of Human Capital Development as a strategic approach, Encourage a performance driven culture, establish a code of conduct and ethical practices when it comes to headhunting.