(Micro)Insuring the Future in Sri Lanka

Hong Kong and Colombo, Sri Lanka – 16 – 26 March, 2015

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In March 2015, GIFT travelled to its first programme in the South Asian country of Sri Lanka to work on a project in an exciting field: microinsurance.

Working with the LOLC Group, one of Sri Lanka’s leading conglomerates, and their fledgling microcredit department, GLP participants developed a business plan to support the expansion of their microinsurance business, and better serve Sri Lanka’s poorer populations by providing affordable coverage.

Project Partner

LOLC Insurance is a wing of the Lanka Orix Leasing Company, a leading Sri Lankan conglomerate. Established in 2011 to serve the needs of LOLC, it has since expanded its services to provide general and life insurance to the general public.

 

Sri Lanka

Located off India's southern tip, the tropical island of Sri Lanka has attracted visitors for centuries. The island boasts eight UNESCO World Heritage sites, fifteen national parks, and 250 acres of botanical gardens.


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Sri Lanka's culture stretches back 2,500 years. From the 4th Century BCE to the 11th Century AD, the Buddhist capital of Anuradhapura was one of the most stable and cosmopolitan cities in South Asia. Known as Ceylon during the colonial period (as part of the Potuguese, Dutch, and then British empires), the island gained independence in 1948.

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Sri Lanka is predominantly Buddhist, but is also home to a number of other faiths, such as the Hindu Tamils, as well as Muslim and Christian populations.


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Sri Lanka's nominal GDP per capita stands at US$3,889 (equivalent to countries like Indonesia, Mongolia and Georgia), yet has performed well on many social indicators, such as a life expectancy of 74 and literacy rates of 98%. It is the only South Asia countries to rank "High" on the Human Development Index.

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Sri Lanka provides basic healthcare and primary, secondary and tertiary level education to its population for free.

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Despite its successes, Sri Lanka still has approximately 10-13 million people that live at the "bottom of the pyramid." This group has yet to benefit from the island's economic development and its social safety nets, and are at risk when illness or natural disaster strikes. 


Microinsurance

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According to the IFC and the World Resources Institute, low-income consumers in developing countries have a global purchasing power of about US$5 trillion. An estimated one billion people currently cannot afford any health services.


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Microinsurance is the “protection of low-income people against specific perils in exchange for regular premium payments proportionate to the livelihood and cost of the risk involved.”

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Microinsurance is usually understood to be insurance coverege whose premiums do not exceed US$2.5 per month, and whose products are designed to meet the needs of the poorest members of society. 


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It is estimated that the global market for microinsurance covers 2.5 billion people and will net US$40 billion in potential premiums each year—a figure equivalent to the insurance market for insuring "emblems of wealth".


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Low-income households prioritize protection against poor health and crop failure over other potential scenarios. However—like many products designed for the "base of the pyramid"—these products can be more difficult to design, market and administer. The trade-off is between complexity and benefits: a simpler product may better suit what poor consumers can afford, but may offer limited beneifts. 

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The loss ratio—the ratio between total losses incurred in claims and the total earnings from premiums—hovers around 70%. Adminstrative, acquisition and sales costs comes out of the remaining 30% margin.

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Unlike neighboring India, which has one of the world's most dynamic microinsurance sectors and dedicated microinsurance regulation, Sri Lanka's microinsurance industry is just starting. Product variety is lacking, and the regulatory framework is underdeveloped. 

 

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Access to formal insurance remains limited in Sri Lanka. In 2013, only 1.2% of a total population of 21m people was covered by insurance, of which 0.35% (or less than 100,000 people) came under formal microinsurance schemes.


On the Ground in Sri Lanka

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The group travelled to Kandy, the last capital of Sri Lanka's ancient kings. A 150-year-old Victorian-era railroad connects Colombo and Kandy, travelling past stunning landscapes and a steep, winding ascent through mountains. 


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Kandy is the home of the Sri Dalada Maligawa, which houses the Sacred Tooth Relic. The temple, founded in 1595, is one of the holiest shrines in Buddhism. It was often believed in Sri Lanka that whoever controlled the Sacred Tooth Relic had the right to govern the country. This has influenced the modern tradition of newly-elected leaders addressing a crowd from the temple gates. 


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The first stakeholder meetings involved customers of LOLC’s successful Micro Credit business (LOMC) in Digana, outside Kandy. 


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Samantika (pictured above) used a US$380 loan from LOMC to launch and run a small garment business.

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Former government employee Senaka and his wife Shirani used an LOMC loan to run a small poultry gram, with 320 chickens.


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A local primary school was the hub for meetings between participants and important stakeholders, including LOMC customers, community-based organisations, leaders of the agricultural union, local government officials, and the school principal himself.


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Participants also met with owners and employees of local small and medium enterprises—all clients of another LOLC Finance, another LOLC Group Company.

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Participants visited Bisma, a halal biscuit company that has been successful in the Sri Lankan market and is planning to expand internationally. 

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The group also went to visit Red Lion, one of Sri Lanka's leading cake companies. Red Lion's owner allowed participants to visit the factory and interview the staff.


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Participants met Ashita and his wife, who used an LOLC loan to start a garment factory and retail brand in Kandy.

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The group also interviewed tuk tuk drivers who had taken out small loans to help lease their three-wheelers. These drivers would benefit from affordable insurance to protect themselves and theirvehicles in case of accidents or illness. 


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Building a Solution

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Participants created a set of recommendations focused on new products & services, distribution & partnerships, and supportive policies that would ultimately lead to an increase those covered by microinsurance in Sri Lanka.

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Through meetings with government, community and business leaders, and through frank and open discussions amongst themselves, participants learn to navigate conflicting and contradictory views to transform concepts and theories into realities on the ground.

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The GLP uses real-world field projects to hone the practical skills needed to manage diverse teams in unfamiliar situations. Participants create new business models to solve critical development challenges.

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Participants suggested creating a "freemium" model for microinsurance. Free insurance accounts with capped payments would be bundled with savings accounts, financing, and other services. Users could increase the caps on payouts by becoming paid subscribers. This bundling would make poorer consumers more comfortable with the idea of insurance.


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Participants developed a business plan that outlined their strategic recommendations for LOLC. Below are a few excerpted slides.

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The programme culminated in a forum where participants on the GLP presented their recommendations to an audience of LOLC senior management and other key stakeholders, including the LOLC Group Managing Director and the Director General of the Insurance Board of Sri Lanka. 


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Jagdish Khanna, HSBC India

 "Having attended many a leadership program, I can say the GLP’s unique format in content, setting and delivery made a lasting impact." 

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Carola van Lamoen, Robeco

 "The Global Leadership Program offers a unique combination of 'learning by doing', high quality speakers, an unconventional setting and an intense collaboration with participants from many different backgrounds and beliefs.."

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Shintaro Yamaji, ORIX Corporation

 "What makes the GLP most noteworthy is that participants are encouraged to think deeply about the issues because the ultimate goal is not just raising awareness but producing a profitable and socially impactful business plan for the local partner company."

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To learn more about GIFT's work in Sri Lanka, or its other projects in the region, contact Helena Lim.