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Determinants of Growth in Life Insurance Policies in Sri Lanka: Case of A

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2014 Cambridge Conference Business & Economics ISBN : 9780974211428
Determinants of Growth in Life Insurance Policies in Sri Lanka
The Case of A Public Limited Company.
Pradeep Randiwela1
Professor of Marketing - Department of Marketing
Faculty of Management and Finance
University of Colombo – Sri Lanka
p_randiwela@yahoo.co.uk
+ 94 718161312
J.P.C.K. Wijerathne
Asian Allians Insurance – Sri Lanka
chintha@asianalliance.lk
+ 94 777874330
Tharaka W.B. Hettiarachchi

Business and Economics Faculty,
Monash University – Australia
tharaka.win@gmail.com
+61426605912
1
Former Dean of the Faculty of Management and Finance, University of Colombo, Winner of the Best
Professor of Marketing Award 2010 – CMO Asis.
July 1-2, 2014

Cambridge, UK 1
Determinants of Growth in Life Insurance Policies in Sri Lanka
The Case of A Public Limited Company.
Abstract
Primarily insurance was introduced to Sri Lankan market by foreign firms but later there was
greater domestic involvement. Following the transition of economic policy in 1978, the
economy along with the insurance industry grew and as of this date there are 16 insurance
operators and 15 insurance brokers in Sri Lanka. This paper intends to explore the reasons for
the growth of the life insurance industry in Sri Lanka.
The study employed primary research methods in the form of a questionnaire and sample
analysis to recognize the factors which has attributed to the growth. The study also analyses
prominent literature to consolidate the conclusions that are drawn.
This study has identified and substantiated several determinants which contribute to the
growth in the insurance industry such as: Socio-economic factors and Business/organisational
Factors. Furthermore, it was understood that the Socio-economic factors was the more
noticeable of the two of such as the per capita income contribution to the insurance industry’s
growth, business/organizational factors though not obvious like the socio-economic factors
plays a critical role in the growth of the industry as it is the positive individual performance
of firm has resulted in the collective growth of the industry.
Finally, the essay concludes that it was the combination of these determinants under their
respective spectrums that has contributed to the growth of the life insurance industry in Sri
Lanka.
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Cambridge, UK 2
Key Words: Insurance, determinants of growth, socio-economic, organizational factors, Sri
Lanka
1. Introduction:
Trade and financial liberalisation policies introduced in 1977 made a remarkable change in
the economy and society increasing per capita income from USD$193 in 1978 to USD$2014
in 20082. With the changing economic policy it also opened up the foreign job market which
saw a tremendous influx of revenue to the country, this was especially centred on the Middle
East as there was a huge demand for unskilled labour in that region which was generated
most of the income to the country.
De-monopolization and privatization of certain industries brought new revenue streams for
the country, they eliminated certain public sector inefficiencies and competition which was
encouraged ensured that firms be profitable as well as economical in its resource utilization.
While they also encouraged job creation and job variety to the general public, this implied
that more means of earning an income was available to them. Some of the industries that
were subject to de-monopolisation include telecommunication, banking, transport etc. This
growth in the economy in general was reflected in the insurance industry in particular. The
Table 1 illustrates the contribution of insurance to the GDP.
Table 1: Insurance Contribution to GDP (in million Rs)

Premium Income 2002 2003 2004 2005 2006 2007 2008
Long Term Insurance 8682 10613 12518 14814 17104 20729 23613
General Insurance 11599 13534 17037 22410 25931 31156 34553
Total Premium Income 20281 24147 29555 37224 43035 51885 58166
Gross Domestic Product 1822 2091 2453 2939 3578 4411
Total Premium as % of GDP 1.28 1.33 1.41 1.52 1.46 1.45 1.32
Growth Rate 20.29 19.06 22.39 25.94 15.61 20.56 12.11
2
Annual Reports Central Bank Sri Lanka
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Cambridge, UK 3
Hence, this study attempts to find out reasons which led to the growth of the insurance
industry with regards to life insurance is concerned.
2. Objective of this study:
The key objective of the study is to explore the reasons for the growth in life insurance
policies in Sri Lanka.
3. Method/s:
The study analyses literature and secondary sources and employed primary research methods
in the form of a questionnaire and sample analysis to recognize the factors which has
attributed to the growth. The periodicals published by the Insurance Board of Sri Lanka
(IBSL) were used to collect data with regards to life insurance policies are concerned.
Thereafter the questionnaire, was used among 100 policyholders and 50 potential customers
to identify the factors affecting an individual to purchase or consider purchasing a life
insurance policy. In addition, in-depth discussions were conducted with Insurance
Professionals and Heads of Insurance Companies to identify as to what measures insurance
companies employed in promoting and positioning their policies.
4. Literature review:
Carson and Dumm (1999) state relationships between policy performance and characteristics
of insurance depends on lapse rate, insurer expenses and investment yield. Beck and Webb
(2002) emphasise the importance of life insurance companies as part of the financial sector
has significantly increased over the past decades, both as provider of important financial
services to consumers and as a major investor in the capital market. However, they observe a
large variance in life insurance consumption across countries, which raises the question of its
determinants.
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Cambridge, UK 4
Meanwhile Sen (2008) states the insurance industry, in most of the Asian economies,
ASEAN and SAARC economies in particular, was publicly owned and remained isolated
from participation of either domestic private insurers or foreign insurers or participation of
both. But, regulatory reforms and policy changes in the ASEAN economies during the post-
financial crisis period and the process of economic liberalization in some of the SAARC
countries and China led to phenomenal changes in the growth pattern of the insurance
industry in these economies.
As per the Insurance Board of Sri Lanka (IBSL) (2008), the overall gross written premium
from long term and general insurance businesses added up to Rs.58,166 million showing an
annual growth of 12.11%, when compared with previous year’s total of Rs.51,885 million
and an annual growth of 20.56%. The decline in the premium income growth during the year
has resulted in a lower GDP contribution of 1.32% when compared with the previous three
years, while Total assets of insurance companies as at 31 December 2008 was Rs.155,994
million, which shows an increase of 15.7% when compared with the previous year’s total of
Rs.134,876 million.
Perera (1999), identifies 5 best practices that were persistently present in the management of
successful services sector companies namely: Lifetime Partnership with the Customer,
Dedicating Skills to the Organization, Building Affective Commitment, Now before How, and
Well Orchestrated Controls.
5. History of the Insurance Industry Sri Lanka:
The first insurance policy holders could well have been the Chinese; they employed certain
policies in order to reduce the risk of loss of cargo on their voyages. The Roman Empire too
employed insurance for its soldiers as it compensated the families of soldiers who lost their
lives in battle while it is also said that life insurance first began in securing the lives of
July 1-2, 2014

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individuals who took part in early sea voyages. English Insurance began in 18th century, this
was tied closely with the growth London coffee houses.
Insurance was first introduced to Sri Lanka by foreign firms in the 1930’s and later on
domestic firms too started their own insurance operations. The standout firms among these
domestic insurance firms were Sri Lanka Insurance Company and C.W.E Insurance
Company and along with the foreign operators they engaged in selling General Insurance as
well as Life Insurance policies. In 1961 Sri Lankan government by act in parliament brought
all insurance companies into normal company law.
It was also in 1961 that under parliamentary Act No.2, The Insurance Cooperation Act,
sought to establish an Insurance Cooperation in Sri Lanka and by 1962, The Control of
Insurance Act, Act No. 25 was introduced and passed in parliament. Under Act No. 25 these
insurance companies were allowed business operations but were prohibited to introduce new
insurance policies to the market and thereby the complete control of the insurance market
were under the government.
In January 1962, under the directive of Act No. 2, the Sri Lanka Insurance Cooperation was
established by acquiring the assets and ownership of the C.W.E Insurance Company. And
afterward up to 1980 the insurance market was monopolized by Sri Lanka Insurance
Cooperation. However, after 1978 liberalised trade policies facilitated the growth of the
industry paving competitive business opportunities. By 1980 the National Insurance
Cooperation then established several principal agents to supplement their business value.
Some of these agents were;
 Ceylinco Ltd.
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Cambridge, UK 6
 Mercentile Credit Ltd.
 James Finlay and Co Ltd.
 Aitken Spence and Co. Ltd
 Whittalls Boustead Ltd.
 P & I (Protection & Indemnity)
In 1987 legislation was brought to privatise insurance operations in Sri Lanka under Act No.
23, Public Companies Act of 1987. As a result Sri Lanka Insurance Cooperation and National
Insurance Cooperation were stipulated under the Companies Act but the government
retaining 100% control of operations.
It was also during this period that some companies which acted as principle agents to
National Insurance Cooperation broke free to act as insurance operators on their own or
merged amongst each other to do so. One of the firms which started operations on their own
was Ceylinco while Union Assurance was a company which was brought about after the
merger between several agents. Also several other foreign operators too started up operations
in Sri Lanka once again.
Currently there are 16 Insurance operators in Sri Lanka and 15 broker companies in Sri
Lanka, given the complete privatization of the insurance industry it was deemed necessary
that a regulatory authority to be present thereby in 2000 the Insurance Board of Sri Lanka
was formed under Act no. 43, Regulation of Industry Act of 2000.
6. An overview of the company:

Asian Alliance Insurance PLC (AAI PLC) is a composite insurance company offering both
Life and Non-life insurance solutions to individual and corporate clients. Asian Alliance
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Insurance began its operations in the year 1999 with Non-life Insurance. Commencement of
Life Insurance operations was in the year 2001.
Asian Alliance Insurance is a public quoted company with a paid up capital of Rs. 250 Mn.
Its major shareholders are Asia Capital PLC, Richard Pieris Company Limited and Vallibel
Investments. Asian Alliance Insurance is currently operating in a very competitive market
consisting of 16 players. The company has positioned it self both in the industry and in the
minds of consumers as “the professional insurance provider with tailor made solutions...”
(Asian Alliance Insurance Annual Report 2008)
Asian Alliance Insurance at present holds the 5th position in the market with regards first
year premium. It also enjoys the highest annual average policy value of Rs. 36,000/= and the
highest retention rate of 70% of first year retention and 52% for the second year retention in
the Life Insurance market. In the year 2005, for the first time since it began operations, AAI
PLC made a net profit of Rs. 26 Mn, whilst declaring a reversionary bonus to its Life
Policyholders and which has continued to date.
The current staff strength of Asian Alliance Insurance is 220, supported by a field force of
approx. 450. The day to day operations of Asian Alliance Insurance is monitored by the
Chief Executive Officer and the executive committee consisting of GM – Life & Technical,
GM – Life Sales & Distribution, GM – Non Life and GM – Finance.
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6.1. Life Department Policies, Recorded growth of Asian Alliance:
Life Business within Asian Alliance PLC recorded a continued growth throughout the year
2008 amounting to 9% rise in sales compared to 2007 and its customer portfolio amounted to
26776 policies as of 2008 (Annual Report 2008). The policies of Asian Alliance include, the
following information has been compiled upon considering the information present at
www.asianalliance.lk:
6.2. Alliance Family:
This policy focuses on family protection, it encompasses areas such as, Health Care,
Guaranteed Family Income, Guaranteed Maturity Values with Increasing Bonuses, Loan
facilities based on your calculated cash values, extended free Life Cover for a plan designed
for over 10 years
6.3. Retirement Plan
Aimed at individuals who are interested in investing for their future, the policy hopes to
attract customers through issuing a substantial sum at maturity which can claimed through
multiple avenues through a lump sum, re-investment, converted to an annuity to draw
periodical sums and so on.
6.4. Child Protection
The Child Plan Asian Alliance in itself aims to be a protection policy for dependents, in this
case the child. It carries immediate payment of credit assured in case of death as well as
receiving bonuses upon policy maturity.
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6.5. Loan Protection
Loan Protection is enacted in case of an individual failing to meet debt due to expiration or
total disability. Due to the risk being covered on a capital reducing basis, the beneficiary will
have the benefit of protecting their mortgage at the lowest premium in the industry
6.6. Individual Protection
While being the oldest form of insurance that is present, this policy covers a variety of
unfortunate tragedies that could take place. The sum assured is paid on the death of the life
assured during the term of the policy. The Alliance Term Plan also has the advantage of
being able to accommodate rider benefits at a very nominal premium.
According to figures obtained from the company, it can be understood that there is a recorded
growth in the amount of policies that Asian Alliance holds. There is also a recorded growth in
the distribution network of Asian Alliance Insurance PLC. The sales force too has increased
in strength, from 150 to 450 personnel approximately.
Figure 1: Business Growth

No of policies
Years
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7. Discussion:
As insurance coverage is estimated to be less than 10% of the population, there is
considerable scope for growth in the industry. The insurance sector consists of 16
companies, of which 11 companies are composite insurers engaging in both long-term and
general insurance business, while 3 companies engage exclusively in general insurance and 2
companies’ conduct only long-term (life) insurance business. Five companies have
collaborations with foreign insurance companies. In addition, there are about 50 insurance
brokers and about 25,000 insurance agents. The insurance industry is highly concentrated,
with two companies accounting for about 66% of the total industry assets, while the largest
five firms accounted for 94% of total insurance assets. Premium income for long-term
insurance and general insurance grew by 14% and 11% in 2008, indicating moderation when
compared with the previous year. While the total assets of insurance companies increased by
15% to Rs. 155 billion at end 2008.
Upon considering the statement above by the Central Bank (CB), it is understood that the
number of insurance policy holders has risen moderately compared to year 2007. It is also
safe to assume that such growth is recorded only after the liberalization of economic policy in
1978 thereby encouraging competition in the insurance industry. Nonetheless, it is incorrect
to assume that growth within the industry was entirely dependent upon competition but was
also subject to influence from other macro as well as micro economic indicators directly or
indirectly. It is upon clear identification and analysis of these said indicators that we can draw
conclusions as to the reasons for growth in the insurance industry.
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It is understood that one’s capability to secure a Life Insurance policy depends greatly on the
level of disposable income that individual possess. Thereby income or specifically disposable
income is a factor which influences the quantitative aspect of insurance policies being sold;
this fact can be deliberated upon analyzing the per capita income of the country.
Also upon the closer inspection of expenditure of consumers on goods and services would
give an idea as to why there is a growth recorded in insurance industry.
We can also consider the behavioural pattern of inflation with regards to the topic under
discussion and also the policy framework employed by the government more or less
influences the industry.
This chapter then will look into the contribution that these factors had been and will critically
analyse them and when ever relevant relating them to Asian Alliance.
7.1. Socio-Economic Characteristics affecting Industry Growth

One of the primary factors that are attributed to the growth within the insurance industry is
the rise in the per capita income of the country. This persistent rise in per capita income is
due to multiple factors, one of which is the rise in employment which in turn has increased
the number of individuals who are obtaining an income. It is to be noted that there is a steady
increase in employment in the Public Sector, as shown in Figure 2.
Figure 2: Total Employment in the Public Sector
No. of Individuals
employed.
Year
Source: Sri Lanka Central Bank Reports 2004, 2005, 2006,2008
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Also there has been a steady increase in foreign employment over the years contributing
significantly to foreign exchange earnings, the total foreign remittances received during the
year 2008 amounted to US dollars 2,918 million, an increase 16.6 %, compared to US dollars
2,502 million received during 2007 as recorded by the Central Bank, The following chart
signifies the this fact.

Figure 3: Total Foreign Employment
No. of Individuals
employed.
Year
Source: Sri Lanka Central Bank Reports 2004, 2005, 2006, 2008
Apart from foreign employment, foreign exchange and public sector employment which
contributed positively to the per capita income a rise in employment in Agricultural,
Industrial, Manufacturing, Construction and other sectors also positively increased the per
capita income of Sri Lanka. This is more elaborated in the table below;
Given these facts, it is quite obvious that there is a rise in the per capita income of Sri Lanka,
what this meant was, quite literally that individuals now had more disposable income and
they could fulfil their desire to secure a life insurance policy if the chose to. Of course this
depends greatly upon how a life insurance product reflect upon the need of the customer and
how well it is marketed by an insurance company, this fact is looked into in the following
chapter.
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Another factor that is considered a contributory factor to the growth of life insurance policies
is the proportion of youth or younger generation securing insurance policies. When
considering the data obtained from Asian Alliance it is observed that majority of policy
holders are between the ages of 18-30, the breakdown is shown in Figure 4
Figure 4: Policy holders Age Wise
Age
No. of policies
This could be credited widely due to the fact that the younger generation is more aware of the
potential risks that affect them. They are also in the process of building a family of their own,
thereby insurances with regards to family policies increase, this is shown in the Figure 5.
Figure 5: Family Policy Holders
No. of Family
Policies
Year
Source: Asian Alliance
July 1-2, 2014
Cambridge, UK 14
This generally upward trend in Family Policies as well as other insurance policies is a reason
for the rise in life insurance policies within the industry and consequently its growth.
Another contributory factor towards the growth in the insurance industry is the Risk Factor
towards an individual; this could either reflect risks which is associated with ones health,
living conditions and vocation that they are engaged in. It is a growing trend among
individuals to see that the procuring a life insurance policy is an investment that one is
making, a life insurance policy’s basic cover can be considered as the investment factor. This
is because when the policy matures the bonus that is presented to the beneficiary deems a
prudent investment for the long term. For example; even if an individual does not pass away
the value that individual gains at the policy maturity could in sense be viewed as a saving,
this is one of the reasons that the younger generation is more inclined to secure a life
insurance policy, this is cemented by the fact that most policies offer a low premium and high
rewards at the maturity of the policy.
7.2. Business/Organisational Factors affecting Industry Growth

It is understood that a sole business too contributes to the growth within the industry, this fact
can be substituted by analyzing how well needs of a consumer is reflected in the product or
service line offered by an insurance company.
 Alliance Family
 Retirement Plan
 Child Protection
 Loan Protection
 Individual Protection
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In summary the main attributes of the products are:
Living benefits
1. Maturity benefit – sum of the basic sum assured and the accumulated
bonuses declared at the end of every year by the company
2. Total permanent Disablement cover (TPD)
3. Partial Permanent Disablement cover (PPD)
4. Family Income benefit in the event of TPD
5. Premium protector benefit in the event of TPD
6. Hospital cash benefit
7. Family health care – Covers LA, spouse and up to 4 children
8. Family health care super benefit
9. Critical Illness benefit
Death benefits
1. Basic sum assured and accumulated bonuses
2. Additional life cover
3. Accidental death benefit
4. Funeral expenses benefit
5. Family income benefit on death
6. Spouse cover benefit
7. Value added annual escalation benefit
These products are marketed in such a way that it reflects to the customer that his or her
needs are fulfilled, for example; if an individual desire’s financial support upon
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hospitalisation that need should be reflected in the product attributes. If it does, then that
individual is willing to purchase an insurance policy.
Thereby the product line of the company needs to reflect the customer needs in order to
record a growth, which is the case in Asian Alliance. This is clearly illustrated in Figure 2,
from this chart we can conclude that one of the reasons for the rise in the number of policies
is due to the product or service portfolio reflecting customer needs accurately, this fact can
also be attributed to the growth in the life insurance industry as more and more insurance
companies are developing policies that are more customer oriented, this fact is substantiated
in the Insurance Board of Sri Lanka Annual Report 2008 which clearly shows the rise in life
policies shown in Figure 6.
Table 2: Rise in life policies
2002 2003 2004 2005 2006 2007 2008
No of New Life Policies Issued 241,412 305,092 304,639 366,132 409,933 527,385 555,886
No of Life Policies in Force 1,200,763 1,359,536 1,490,191 1,629,061 1,740,648 1,923,550 2,103,809
Total population (in ' 000)* 19,007 19,252 19,462 19,668 19,886 20,010 20,217
Total Labor Force (in ' 000)* 7,150 7,654 8,061 7,312 7,599 7,489 7,569
Penetration as % of the Total

population 6.3 7.1 7.7 8.3 8.8 9.6 10.4
Penetration as % of the Labor Force 16.8 19 20.8 22.8 24.3 25.3 27.8
Source: Central Bank of Sri Lanka Annual Report 2008
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Also an additional factor which governs the growth of the industry is the value addition that
is incorporated by firms within the industry. To explain this fact, let us look at forms of value
addition that Asian Alliance utilizes;
The sales force of the insurance company is the most vital component in its organizational
structure as it provides the revenue flow to the company. It is also one of the primary
interfaces that the customer deals with; thereby it is quite essential that an insurance advisor
is capable to deal with a customer efficiently. To ensure that this is the case, Asian Alliance
make certain that advisors have substantial training in; product knowledge, how to approach a
customer, identification if customer needs and after sales services. It is only if the sales force
is competent and comprehensive that it can cater to the exact customer requirements plus
offering them a service not equivalent to another. Thereby it is the sales force which adds
value to a company’s business operations and in the case of Asian Alliance as well as the
industry, the sales force seems to be a key contributor to the growth of life insurance.
While another fact that adds value is how well the company facilitates its business processes
to the customer, if we consider a simple scenario, a customer might need to make a payment
to Asian Alliance, the company facilitates multiple modes of payment;
 Bank Standing Order through the customer’s account Bank Account
 Direct cash/cheque payments to any of the Regional Distribution Offices,
 Cheque payments by post
 Direct payments to Sampath Bank & Commercial Bank Branches, using specific
forms available in the Bank Branches
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 Online through the www.payeasy.lk website
 By credit card standing order where you can fill in the form attached herewith &
returning it to the company.
Thereby the customer finds it convenient to make the payment through his/her choice or
mode rather than being limited to a singular payment method. Therefore value addition to
business processes has indeed contributed to the growth in the life insurance industry.
Another fact that could be contributing to the growth of the insurance industry is that there
maybe greater information flow to customers, this is achieved through organized marketing
of products as well as communication the positioning of the company to customers.
It is noted that there has been an increase in advertising by insurance companies, in Asian
Alliance cost hovers around Rs. 50 million in advertising. Industry giants such as Ceylinco
Insurance, Sri Lanka Insurance, Janashakthi Insurance along with Asian Alliance has been
utilizing media to communicate their life policies to their target market.
A prime example that can be noted is that these mentioned companies advertised on the news
belt of the Sri Lanka Broadcasting Cooperation in which they aimed at proliferation of the
market through the largest broadcasting station in Sri Lanka. This emphasis on
communicating brand awareness to customers coupled with factors such as value addition
and personal selling could also contribute to the growth of the industry.
Competition is also a driving factor in the rise of life insurance policies in the industry,
companies has altered their product portfolio to match consumer needs, and given the
competitive nature of the industry, has resulted in the cost an individual bears of an insurance
July 1-2, 2014

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policy being substantially reduced, this fact can be solidified if one looks at Asian Alliance
Insurance’s premium of an insurance cover which is the lowest in the industry thereby a
potential customer is more likely to acquire a policy.
8. Summary and Conclusion:

The growth that is recorded in the life insurance industry is attributed to several factors but it
can be brought under two major umbrellas for the purpose of this study. Socio-economic
factors are the more prominent characteristics that an individual may observe without deep
scrutiny, for example; it is generally understood that the standard of living has risen over the
past two decades or so, thereby it can easily be concluded that there is a rise in the per capita
income of the country and ultimately the rise could be listed as a factor for growth in the life
insurance industry. This study however has substantiated this upon clearly listing the points
which credit a growth in the per capita income, such as a rise in employment in the public,
private and other sectors and growth in the foreign exchange and foreign employment.
Thereby this point maybe credited to the growth in the industry.
Other Socio-economic factors that were discussed include; proportion of youth or younger
generation securing insurance policies, greater public awareness especially the youth, the
Risk Factor towards an individual which is associated with ones health, living conditions and
vocation that they are engaged in as well as the investment view that individuals regard life
policies with clearly contributed positively to the growth of the life insurance industry in Sri
Lanka.
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Business/Organisational factors has also affected the growth within the industry, although it
is not blatantly apparent to the casual observer through thorough analysis several factors were
seen that directly contributed to the growth of the life insurance industry.
Primary among these was the how clearly the needs of customers were reflected by the
product attributes of insurance policies. Customer oriented policies are a basic necessity in
the insurance industry yet it does not imply that this orientation is done properly. In this study
when examining this point it was observed that the growth in the number of policies was due
to the customer orientation process functioning properly and thereby contributing to the
growth of the life insurance industry.
Another key factor that was observed which encompassed several areas of interest was value
addition to insurance services that are provided in the industry. The areas of interest that was
discussed in this project was a quality sales force as well as and effective and efficient means
of facilitating business processes to customers. Value addition has contributed immensely to
the growth within the industry as they serve as excitement factors to the customer thereby the
attraction of customers to the organisation is facilitated therefore the growth as well.
Improved information flow as well as competition has too served as key factors which has
attributed to the growth of the insurance industry.
It is understood that the insurance industry in Sri Lanka has indeed recorded a growth since
its inception in the 1930’s. What is significant is that the contributory factors for the growth
originated or rather was facilitated after the implementation of trade liberalisation policies in
1978. From being a state run monopoly in 1962 to having 16 companies functioning in the
industry, today the industry possesses a gross written premium of Rs.23, 613 million and a
July 1-2, 2014

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GDP contribution of 1.32. This study explored the reasons that contributed to the growth of
the life insurance industry. The literature review stood out as a secondary research method
that was conducted as to determine the reasons for the growth in the life insurance industry
coupled with the primary research method of issuing questionnaires to substantiate the facts
that where identified in the secondary research as well as comprehend other facts that was
attributed to the growth of the industry.
In the study it was identified that socio-economic factors were contributing to the growth of
the industry among them was the rise in the per capita income of the country. It was noted
that the growth of the insurance industry lay collectively with the rise in per capita income,
the foreign exchange along with the public sector, the private sector and foreign employment
contributed to the rise in the per capita income and thus the growth in the insurance industry
was recorded.
Also the risk factor too was contributory to the growth in the life insurance industry, be it
personal risk arising from health issues to war; it had benefited the growth of the industry as a
whole. The awareness and willingness expressed by the young generation to procure
insurance had contributed positively to the growth of the industry.
While it was noted that socio-economic factors did play a critical role in the growth of the
industry, the role of organisational/business factors could not be ignored. Customer oriented
policies the firms were incorporating to their product/service portfolio played paramount
importance to the rising number of policies the firms were recording. The manipulation of
customer needs in these products was the critical factor which decided whether a customer
July 1-2, 2014

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bought a policy or not and judging how well Asian Alliance had performed it was understood
that this was a crucial factor contributing to the growth of the industry.
Improved information flow as well as competition has too served as key factors which has
attributed to the growth of the insurance industry as well as the incorporation of Value
Addition to the service offered to the consumer, for Asian Alliance Insurance Plc the Value
Addition came in the form of its competent and efficient sales staff as well as its efficient
presentation of business processes to the consumer.
In evaluating the project one must remember that there were limitations in formulating this
project, the primary of which was the certain publications from International Monetary Fund
and World Bank has not been considered on the purpose of statistical clarity also the IBSL
does not account for group life policies thereby the growth recorded might not accurately
reflect the true growth of the industry. Also companies are reluctant to part with certain data,
especially pertaining to data that maybe utilized by competitors thereby certain comparisons
that are drawn may not necessarily hold true for every company and given the limited time
frame the project was subject to the securing of resource material was strained One must also
keep in mind that only a limited sample is obtained for the purpose of this study; it is simply
not feasible to process a large volume of data given the short duration of this study. Also
since it is not a large sample its eventual outcome of the primary data may not be completely
accurate.
However given the scope of consideration the study is deemed successful and it manages to
draw critical evaluations as to the contribution of socio-economic and organisational
spectrums to the growth of the life insurance industry in Sri Lanka.
July 1-2, 2014

Cambridge, UK 23
References:
Anderson, D. R. and Nevin, J. R. (1975) Determinants of Young Married Life insurance

Purchasin Behavior: an empirical investigation, The Journal of Risk and Insurance vol.
42, No 3, pp.375-387.
Annual Report (2008) Insurance Board Sri Lanka.
Annual Report (2008) Asian Alliance Insurance.
Annual Reports (2003 – 2008) Central Bank of Sri Lanka.
Beck T. and Webb I. (2002), Determinants of Life Insurance Consumption across Countries,
The World Bank Development Research Group Finance
Beck T. & Webb I. (2003) Economic, Demographic and Institutional Determinants of Life
Insurance Consumption across Countries, The World Bank Economic Review, Vol. 17,
No. 1, 51-88, http://www.iifdc.org/pubs/Beck%2BWebb.pdf, retrieved 12th January
2014.
Beenstock, M. et al, (1986) The Determination of Life Premiums: An International Cross

Section Analysis1970-1981, Insurance, Mathematics and Economics, vol. 5, pp. 261-
270.
Browne, M. J. and K. Kim, (1993) An International Analysis of Life Insurance Demand, The
Journal of Risk and Insurance, vol. 60, pp. 616-634.
Campbell, R.A., (1980) The Demand for Life Insurance: An Application of the Economics of
Uncertainty, Journal of Finance, 35: 5, pp.1155-72.
Carson, J. M. and Randy E. D. (1999), Insurance company-level determinants of life

insurance product performance, Journal of Insurance Regulation; Winter 18, 2; pp.
195.
Jeya T. (2001) Insurance Industry and General Insurance in Sri Lanka, Institute of Sri Lanka
Insurance, http://www.sundaytimes.lk/010909/plus4.html
Perera T. (1999) Best Management Practices in the Banking, Finance and Insurance Sector of
Sri Lanka Volume 2 Number 1 June.
Outreville, F. (1996) Life Insurance Market in Developing Countries, The Journal of Risk
and Insurance, vol. 63, pp.263-278.
Sen S. (2008), An Analysis of Life Insurance Demand Determinants for Selected Asian
Economies and India, WORKING PAPER 36, MADRAS SCHOOL OF ECONOMICS
Ward ,D. and Zurbruegg, R. (2002) Law, Politics and Life Insurance Consumption in Asia,
The Geneva Papers on Risk and Insurance, vol. 27, no. 3, pp. 395-412.
http://en.wikipedia.org/wiki/Kano_model, 20/08/09
July 1-2, 2014

Cambridge, UK 24
Appendix II
Table 1: Growth in per capita income

Year Mid Year USD GDP at current GNP at current Per capita GDP Per capita GDP
Population Rate market prices market prices at market prices at market prices
('000) (Rs. Million) (Rs. Million) (Rupees) (US$)
1978 14,190 15.61 42,665 39,045 3,007 193
1979 14,472 15.57 52,387 52,291 3,620 232
1980 14,747 16.53 66,527 67,230 4,511 273
1981 14,847 19.25 85,005 84,540 5,725 297
1982 15,196 20.81 99,238 100,258 6,531 314
1983 15,417 23.53 121,601 120,979 7,887 335
1984 15,603 25.44 153,746 149,357 9,854 387
1985 15,842 27.16 162,375 161,694 10,250 377
1986 16,127 28.02 179,474 178,724 11,129 397
1987 16,373 29.45 196,723 195,883 12,015 408
1988 16,599 31.81 221,982 221,435 13,373 420
1989 16,825 36.05 251,891 250,060 14,971 415
1990 16,267 40.06 321,784 319,420 19,781 494
1991 16,448 41.37 372,345 369,262 22,638 547
1992 16,631 43.83 425,283 424,313 25,572 583
1993 16,850 48.25 499,565 499,622 29,648 614
1994 17,089 49.42 579,084 575,528 33,886 686
1995 17,280 51.25 667,772 659,050 38,644 754
1996 17,490 55.27 768,128 757,298 43,918 795
1997 17,702 58.99 890,272 879,983 50,292 853
1998 17,935 64.59 1,017,986 1,001,900 56,760 879
1999 18,208 70.39 1,105,963 1,090,335 60,740 863
2000 18,467 75.78 1,257,636 1,233,402 68,102 899
2001 18,732 89.36 1,407,398 1,382,220 75,133 841
2002 19,007 95.66 1,581,885 1,559,867 83,226 870
2003 19,252 96.52 1,822,468 1,805,933 94,664 981
2004 19,462 101.19 2,090,841 2,070,109 107,432 1,062
2005 19,668 100.50 2,452,782 2,422,733 124,709 1,241
2006 19,886 103.96 2,938,680 2,898,256 147,776 1,421
2007(b) 20,010 110.62 3,578,688 3,539,634 178,845 1,634
2008 (c) 20,217 108.33 4,410,567 4,311,527 218,161 2,014
Sources: Central Bank of Sri Lanka
July 1-2, 2014

Cambridge, UK 25
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Determinants of Growth in Life Insurance Policies in Sri Lanka: Case of A

Conference Paper · July 2014

Pradeep Randiwela J.P.Chintha Kumari Wijerathne

Master of Business studies View project

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Determinants of Growth in Life Insurance Policies in Sri Lanka

The Case of A Public Limited Company.

Tharaka W.B. Hettiarachchi

July 1-2, 2014

Determinants of Growth in Life Insurance Policies in Sri Lanka

The Case of A Public Limited Company.

the growth of the life insurance industry in Sri Lanka.

prominent literature to consolidate the conclusions that are drawn.

of firm has resulted in the collective growth of the industry.

July 1-2, 2014

Key Words: Insurance, determinants of growth, socio-economic, organizational factors, Sri

most of the income to the country.

were subject to de-monopolisation include telecommunication, banking, transport etc. This

Table 1 illustrates the contribution of insurance to the GDP.

Table 1: Insurance Contribution to GDP (in million Rs)

July 1-2, 2014

industry with regards to life insurance is concerned.

2. Objective of this study:

policies in Sri Lanka.

to identify the factors affecting an individual to purchase or consider purchasing a life

insurance policy. In addition, in-depth discussions were conducted with Insurance

Professionals and Heads of Insurance Companies to identify as to what measures insurance

companies employed in promoting and positioning their policies.

July 1-2, 2014

from participation of either domestic private insurers or foreign insurers or participation of

industry in these economies.

Well Orchestrated Controls.

5. History of the Insurance Industry Sri Lanka:

July 1-2, 2014

was tied closely with the growth London coffee houses.

all insurance companies into normal company law.

were under the government.

industry paving competitive business opportunities. By 1980 the National Insurance

Some of these agents were;

July 1-2, 2014

 Mercentile Credit Ltd.

 James Finlay and Co Ltd.

 Aitken Spence and Co. Ltd

 Whittalls Boustead Ltd.

 P & I (Protection & Indemnity)

retaining 100% control of operations.

in Sri Lanka once again.

6. An overview of the company:

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Life Insurance operations was in the year 2001.

Investments. Asian Alliance Insurance is currently operating in a very competitive market

(Asian Alliance Insurance Annual Report 2008)

Policyholders and which has continued to date.

GM – Life Sales & Distribution, GM – Non Life and GM – Finance.

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6.1. Life Department Policies, Recorded growth of Asian Alliance:

6.2. Alliance Family:

for over 10 years

6.3. Retirement Plan

multiple avenues through a lump sum, re-investment, converted to an annuity to draw

periodical sums and so on.

6.4. Child Protection