Sri Lanka to tighten capital requirements for insurers

The sector heavily relies on investment income, which challenges profitability.

The Insurance Regulatory Commission of Sri Lanka (IRCSL) announced a series of reforms to aid the industry amidst its falling penetration rate of 1.3% in 2021 to 1.1% in 2023, reported the Daily Mirror.

IRCSL Director General Damayanthi Fernando identified declining purchasing power since COVID-19, a limited economically active population, and uncertain interest rates as key issues impacting the industry. 

Fernando emphasised that the insurance sector, which relies heavily on investment income, struggles with profitability amidst fluctuating interest rates and decreasing consumer purchasing power.

The IRCSL plans to implement several reforms. These include updating insurance regulations to align with international standards, tightening Risk-Based Capital (RBC) requirements, and creating a legal framework for micro-insurance products. 

Fernando announced that the IRCSL will soon issue guidelines for selling micro-insurance products through mobile and fixed-line operators to enhance market penetration. 

Revised guidelines on reinsurance placements and consumer protection will also be released. Additionally, a new legal framework will be drafted to allow companies to test innovative digital insurance products, with implementation expected next year.

The IRCSL also plans to improve market conduct supervision by establishing a new unit and hiring additional staff to enhance oversight of product reviews, promotional materials, and public awareness efforts.