Dr. Sarath Amunugama, Hon. Minister of Public Administration and Home Affairs and the deputy Minister of Finance and Planning,

Officials of the Federation of Afro-Asian Insurers & Reinsurers, officials of the Insurance Association of Sri Lanka, distinguished guests, speakers, delegates, ladies and gentlemen,

Good Morning!

First of all, on behalf of all of us here in Sri Lanka, I would like to express my heartfelt gratitude to all the officials of the Federation of Afro-Asian Insurers & Reinsurers. Thank you for having had the confidence to select Sri Lanka as the venue for this major international seminar, long before the armed conflict in the north and east came to an end.

Thank you for your vote of confidence on Sri Lanka. Thank you for ignoring the totally wrong impression of our country as one big ethnic battlefield, created by our enemies using their Weapons of Mass Deception!

We are honoured to host a FAIR seminar in Sri Lanka for the first time.

We warmly welcome over 275 participants including more than 100 delegates from 26 countries. In addition to delegates from our neighbouring countries, we have participants coming from more distant countries such as Sudan, Libya, Seychelles, Iran, South Africa, North Korea etc. They bear testimony to the relevance of this seminar for the insurance industry in the Afro-Asian region.

‘Meeting the Challenges of the Rapidly Changing Environment’ is a timely and appropriate theme for this international seminar that focuses on Personal Lines Insurance.

As we are aware, we are experiencing the most severe, global recession in modern economic history. Even though the insurance industry did not cause this turmoil, we are an integral part of the capital market, and therefore, we are not immune from this global economic turmoil.

With the slump in stock markets and the downward trend in interest rates, investment income for insurance companies has also come down. This has negatively affected profits, since, in many cases, investment income has been offsetting the underwriting losses of the insurers. This situation directly impacts Personal Lines Insurance. In a rapidly changing economic environment, different groups of people face different risks depending on the circumstances underlying their daily lives.

However, in view of the mistrust caused by the widespread failure of finance companies, we need to build confidence in the insurance industry. We need to encourage consumers to buy long-term insurance products, to help them cover risks and maintain or improve their quality of life in later years.

With the slowdown in economic growth, personal disposable incomes will be lower. This will negatively affect savings and investment, as well as the life insurance business. When people buy during an economic downturn, they are extremely conscious of the hard-earned money they spend. Customers will now want better products, better prices, and better service.

This poses a formidable challenge to the insurance industry in the Afro-Asian region. Our personal insurance penetration is still very low after many decades of market activity. As countries develop, people move away from the community support found in tribal environments, where insurance has a lesser role to play.

In more urban environments characterised by higher personal investments and associated risks, insurance has a much higher role to play. Therefore, one would expect the market penetration of personal lines insurance to keep up with economic growth. Why hasn’t this happened?

Looking at life insurance in Sri Lanka over the past 5 years, the penetration of life insurance as a percentage of total population increased only from 7.1% to 10.4%. I think a similar situation exists in many developing countries in Asia and Africa. Why is this?

In my view, this is mainly due to public unawareness of the benefits of insurance due to poor marketing communication, poor distribution channels at grass root level, and insufficient new product developments to meet the changing needs of potential insurance consumers.

We need new thinking. As Albert Einstein said, “We can’t solve problems by using the same thinking that created them.”

Ladies and gentlemen, we need to go beyond conventional thinking to ensure the survival and growth of our insurance industries, under increasingly uncertain conditions. We need to do a zero-based analysis of everything we do.

We need to start from our business models, and go right through to field sales strategies. We need to take a fresh look at our administrative costs, product development strategies, marketing strategies, advertising strategies, and sales strategies.

Let’s look at product development. How many insurers are using an ‘inside-out’ approach and offering conventional products? How many are using a proactive ‘outside-in’ approach to track changing market requirements and to develop matching new products?

Insurers typically go after higher-income earners in urban areas since their products are often expensive and inflexible. This is one of the main reasons for the continuing low market penetration of life insurance in our countries.

We need to deploy innovative new concepts such as ‘Blue Ocean Strategy’ which challenges everything we know about corporate and marketing strategy. It proposes a new concept of Value Innovation to offer higher value to consumers at a lower cost. It offers an innovative way to open up new market space and reach non-customers, instead of battling competitors in existing overcrowded markets.

For example, why are we offering a combined burglary and fire cover to households? Why are we demanding a higher premium to cover the fire risk, which is much less than the burglary risk in urban environments? Why? Because it is a standard insurance product, and we have sold it for many years, unthinkingly!!

To increase market share, insurance companies often expand their branch network and add technical manpower. Since the associated costs are high, insurers often find it difficult to balance high operating costs with the low premiums needed for market growth. The banking sector faced a similar dilemma, until the introduction of micro-credit at community levels. Just like their concept of Micro-credit, we can use Micro Insurance to reach the grass-root levels.

The current scenario of uncertainty and rapid change increases the need for insurance cover among people, to cover the higher levels of risks they face. Therefore, increasing the knowledge and usage of personal lines insurance in our countries is another big responsibility that rests on us. This requires a higher level of consumer engagement. People from all walks of life need to understand how insurance can cover the diverse risks they face.

We need to focus on consumer education and awareness to bring about the much needed improvement in consumers' usage of insurance.

However, creating awareness is only the step in insurance selling. If we apply the AIDA model for selling, we need to guide prospective consumers through the four stages of Awareness, Interest, Desire and Action.

As we all know, this is very difficult in the insurance industry, since people have to pay now for a future benefit that may be hard to visualize. Pay now and Die Later!

That’s why the insurance industry needs well trained field sales staff, who knows all the features and benefits of their offerings. Even more importantly, in the present scenario, they need a high level of Emotional Intelligence to understand and satisfy the real needs of insurance consumers, and provide valuable market feedback to their product developers.

In my view, the conventional advertising strategies used by many insurers fail to support the efforts of their field sales staff. Their soft focus on brand building has certainly created wide awareness of insurance among most levels of people. However, they have failed to actively engage the attention of their listeners, viewers and readers.

They have failed to create a sense of urgency among people for buying insurance products they need to cover the diverse risks they face.

Let’s look at the insurance industry from a regulatory perspective. We need to face up to the complex task of improving regulation, while facilitating the growth of our insurance industries under challenging conditions.

In order to ensure the stability and solvency of our insurance industries, we need a shift in emphasis from compliance-based supervision, to a new paradigm of risk-based supervision. Rapid changes in the marketplace demand fast regulatory responses to ensure the stability of the insurance industry, while protecting insurance consumers.

We have to adopt a three-pillar approach, on the lines developed in Basel, for Banking. Pillar 1 will be a basic minimum capital requirement. Pillar 2 is supervisory review, whereby this capital requirement is geared to the risk characteristics of an individual firm, and its ability to manage risks effectively. Pillar 3 is an enhanced disclosure regime, allowing customers and counterparties to make better informed decisions for them. This will strengthen market discipline, and reduce the need for intrusive regulation.
The bottom line in regulation is: we need to ensure a robust insurance industry, whose collective financial health is capable of withstanding the shocks and strains which will inevitably arise in this sector, especially in the current scenario of rapid change and uncertainty.

The timing of this seminar is very important for Sri Lanka, since we have just eradicated terrorism completely from our country. The development of the Northern & Eastern provinces after 30 years of armed conflict, will pose great opportunities as well as challenges for our insurance industry, especially in the area of personal lines insurance.

I would like to take this opportunity to thank the Reinsurers and other counterparties, for the support extended to us during the long armed conflict, and look forward to receiving their continuing support in the future. We believe that the time has come for reinsurers to re-assess the risk of terrorism and war in Sri Lanka, and bring down their rates accordingly. This will help us with the implementation of the rapid economic development programme we have planned.

This important seminar provides a great opportunity for participants to share strategies, experiences and best practices. It provides valuable insights, from national and regional perspectives, into the development of personal lines insurance. Here, we have a rare opportunity to interact with eminent speakers from many countries, who have come here to share their ideas and experiences.

I would like to thank the Federation of Afro-Asian Insurers & Reinsurers once again for selecting Sri Lanka as their venue, even before the armed conflict in the North and East came to an end.

I would like to thank the Insurance Association of Sri Lanka for all their efforts to ensure the success of this important international seminar.

On behalf of all of us here in Sri Lanka, I would like to make a request to all the speakers and delegates, who have come here from many different countries. When you go back home, please share your personal experiences of Sri Lanka with your colleagues and friends. Instead of the ethnic battlefield portrayed by international media, please tell them how you have seen different ethnic groups living here together in total harmony, without any hostility towards each other!

I wish you all an enriching experience at this seminar. I would like to wish all the speakers and delegates from all participating countries, a very memorable stay in Sri Lanka, filled with the happy smiling faces of our people.