As the COVID-19 pandemic rages on, price competition among non-life insurers in Sri Lanka is likely to intensify as a ban on auto imports and an economic downturn hinder premium growth according to a recent analysis from Fitch Ratings. Fitch believes that new business premiums from motor insurance - which accounted for around 60% of the non-life insurance industry's gross premiums - will contract in 2020 with the reduction in new vehicle registrations.
It stated that the release of the limited new-vehicle stocks into the market would be insufficient to offset the contraction in new business premiums.
Moreover, some policyholders are switching to third-party insurance from comprehensive coverage and allowing policies to lapse due to the economic stress caused by the pandemic, which will impede non-life insurers' business growth.
Data from the Insurance Regulatory Commission of Sri Lanka (IRCSL) revealed that the total non-life premiums and premiums from motor insurance fell by 8% and 4% year-on-year respectively in 1H2020.
Growth in the industry's motor premiums slowed to 2% in 2019 from 16% in 2016 due to the government's efforts to limit the outflow of foreign exchange by curtailing vehicle imports.
Fitch noted that the recent ban on auto imports came in the wake of the pandemic as the government tried to control currency depreciation by supporting foreign-currency reserves.
Sri Lankan policymakers recently also indicated that this ban might continue at least over the near term given the economic stress caused by the pandemic.
Therefore, it is expected that the constrained top-line growth, potential amplification of price competition as well as lower investment returns will put pressure on the earnings of non-life insurers in Sri Lanka.
This pressure will, however, be softened by the temporary reduction in claims during the lockdown period, particularly from motor insurance.
(Asia Insurance Review)