From his corner office at one of the oldest highrise buildings in Colombo, Chandana Aluthgama suggests that three hours is all they should take to settle a motor insurance claim. Sri Lanka Insurance Corporation (SLIC) is the oldest and one of the largest insurance companies in the island. It is now owned by the government after seven years under private management ended in 2009. Of SLIC’s Rs19 billion in annual general insurance (non-life insurance) premiums, around 65% are motor insurance. Typically around 70% of vehicle accident-related insurance claims are fender benders below Rs75,000. An insurance company would take several days to pay one of these claims. Sri Lanka Insurance Corporation, which in 2019 had 18.8% general insurance market share (the market leader had a share of 19.6%), pays around Rs800 million for fender bender type motor claims. Aluthgama is SLIC’s Chief Executive. He started in insurance sales when he was an undergraduate and moved up the career ladder over the next two decades. He realised the scale of the opportunity was immense because SLIC was one of the biggest motor insurers in the island.
“Paying claims fast, it makes a lot of sense,” he says because satisfied customers are more sticky, and shortening resource-intensive processes save costs. Anyone obtaining a life policy will sign up for a commitment, spanning 20 – 40 years, whereas with a motor policy, should a client make a claim and then find the process too bureaucratic or the renewal premium too high, the client can move to a different insurer. Companies have to be price competitive and serve customers well, a two-pronged strategy that SLIC’s deploying for its motor insurance. Since launching a new campaign in August 2019, the aim has been to settle motor claims up to Rs75,000 in three working hours and those up to Rs500,000 within three working days. So far, that strategy has been vindicated by its success.
Now six months since the launch of the programme, 30% of fender bender motor claims – which are the majority of claims – are paid within three hours. SLIC’s short term aim is to grow this to 50%. Due to this and other initiatives 2019’s net claim ratio, or the percentage of claim costs compared to the premiums, fell to 57% from 61% a year earlier. Led by this the overall general insurance claim ratio also declined to 62% from 67% in 2018. “For us, if we pay the claim faster, it’s better. Because when we really look at the books, what happens is we pay the same amount, whether we pay it quickly or take a longer time. Whereas when we pay fast it’s better for us as well as for the customer.” Aluthgama had headed the general insurance business at a rival firm before his appointment as chief executive of SLIC in May 2018.
He quickly went about establishing and aligning the team to a three-year strategic plan. Some of the cornerstones of the new strategy were process-reengineering including tech optimising, cost optimisation, sales growth, investment optimisation and performance management. Shortening the motor claim cycle was the first important breakthrough of the new strategy. It required huge changes, confesses Aluthgama. SLIC is a limited liability company but is owned by the government. Apart from a seven-year period under private ownership, the firm, founded in 1962, was under government control. As a government entity, SLIC’s financial strength made it attractive for customers looking to cover risk. In 2001 SLIC paid the largest single claim in Sri Lanka, of Rs39.5 billion to Bandaranaike International Airport, following a terrorist attack. An insurer’s financial strength is one of the most critical determinants for customers and for regulators. In future, though, consumer marketing skills and its ability to separate good risks from bad may matter more.
The insurance industry has been around for centuries, and for many decades in Sri Lanka too. However, the last quarter-century has been transformative for insurance businesses. Forces driving change include technology, regulations, the investment climate and a demographic transition. To distil to a few initiatives what it takes to lead an insurance company to success is challenging. However, it became apparent to SLIC’s new Chief Executive that culture and processes were two areas that needed the greatest attention.
“We are driving several initiatives to change the mindsets of people to serve customers better,” Aluthgama points out. “But at the same time, I always believed that changing a process is more efficient and faster than approaching it only by talking to people.”
Before the 1990s, it was easi – er than now for insurance firms. They sourced underwriters and employed accountants, tech – nical staff and marketing and advertising professionals. Sales were handled by independent insurance agents and brokers as well as full-time permanent sales staff. While the advantage of state ownership was the stability it offered, Aluthgama soon found that the structures that made an insurance company successful elsewhere were not well es – tablished at SLIC. Streamlining departments, support services and reporting were prioritised under the strategic plan’s early stages. From the outside, SLIC’s newly streamlined structure may appear logical and even identical to most other insur – ance companies.
However, to appreciate the breadth and depth of the transformation in the last two years under Aluth – gama’s stewardship, the current structure has to be compared with the one that existed. Some will argue that the only way to scale a business is to possess a widely accepted culture and be processes-driven. Aluthgama has taken this twopronged approach.Everyone in the company was aligned around the ‘one team, one goal, theme during 2019.
“With all these changes happening, we wanted everybody, including the trade unions, to be aligned to a single aim. I have to compliment the trade unions for their support on all fronts.” In 2019, the entire SLIC team conducted a street brand promotion across the country, the first instance of such a large scale promotion involving the entire team. Last year (2019), was a chal – lenging one for the economy. Following the Easter Sunday bomb attacks, already weak consumer sentiment fell to an unprecedented low level. Projected 2019 growth was not met, but SLIC nonetheless did remarkably well.
SLIC post – ed the second-fastest growth among the top five life insur – ance companies in 2019 with a 12.2% increase in premiums and over 65,300 life policies in force with a 16% market share. On average, life premiums grew at 10.5% in 2019, almost 2% lower than SLIC’s growth rate. Life policy growth was a result of new products, promotions and aggressive activations starting in 2018.
To appreciate the breadth and depth of the transformation in the last two years under Aluthga – ma’s stewardship, the current structure has to be compared with the one that existed
In general insurance, SLIC reported a modest 2% gross written premium growth during 2019. Overall, SLIC collects monthly premiums of over Rs3 billion. Alongside government bonds and bank savings, life insurance ranks as one of the safest and most respectable of investments. All three have been investment options for centuries. However, life insurance stands apart as a financial product for the protection it offers against the unexpected risks dependents face if things go wrong. Due to regulatory requirements, most insurance companies split their life businesses from non-life. In SLIC’s case, such a split hasn’t been done yet. If everything goes to plan, Aluthgama says the segregation of the businesses will happen by end-2020. Economic weakness in 2019 meant that life insurance grew faster than non-life. The extremely competitive non-life business was also going to re – quire more capital, and margins were under pressure.
Sri Lanka’s non-life insurance market collected 47% of the Rs188 billion premium income in 2019. The two businesses, life and non-life (also referred to as general insurance) are vastly different. Life insurers guarantee policyholders a fixed rate of return on their policies. Shareholder returns are generated only to the extent that investment yields exceed those fixed returns on policies and costs of running the business. Life companies’ liabilities to policyholders also have a longer duration than their as – sets. As a result, insurers must manage guarantees given years ago, with assets which are maturing and have to be reinvested.
In non-life insurance, policyholders only have the risk covered. They do not receive their capital back or interest. Insurers keep the non-life premium investment returns. The process-driven approach to management at SLIC extends beyond claim processing.
“We’ve now developed a process driven approach even for investment. We have our investment committee, which is a sub-committee of the board, and our detailed investment strategy is approved by them. The management acts within that mandate.”
Like everywhere else, technology is driving change in insurance, pushing companies into unfamiliar territory. Technology is enabling SLIC to do things faster. Three mobile apps for the SLIC management, intermediaries and customers now provide real-time information for decision making. Previously it took a month and a half to obtain granular details about the business. Smartphone in hand, Aluthgama now gleams when he uses the SLIC app which the management has access to.
“Now, at the click of a button, we can see if some – body keys in a new policy at a branch. This will quickly change,” he points to a number on the SLIC app to which only the management has access.
“I can even drill down to the branch level or even the individual agent level now.”
Insurers are moving towards becoming distributors and packagers of risk rather than bearers of risk. Insurers then will concentrate on packaging these risks and selling to investors keen on long term investment products
A policyholder too can report a motor accident on the customer app. Aluthgama’s experience managing insurance balance sheets is apparent when he discusses the need for real time data, now available in a system that also runs on a smartphone. “It’s generally a business where you need to be hands-on with the data. If because we aren’t engaged, when prices drop and there is no strategy, we will lose revenue and erode the bottom – line.”
Elsewhere in the world, insurers are moving towards becoming distributors and packagers of risk rather than bearers of risk. Insurers then will concentrate on packaging these risks and selling to investors keen on long term investment products. As captive pools of funds wanting to match their long term liabilities, like pensions, grow, this model may emerge in Sri Lanka. Whether these are packaged and sold or not, insurers need high-quality business, which in life insurance means customers who will be with the company over the long term and continue on to update their coverage.
So far the industry faces the challenge of having to improve the quality, particularly in the life business. In non-life policies, the challenge is around price gouging and the resulting pressure on the top line and bottom line. However by deploying technology SLIC is readying for the disruption the industry is about to face. The immediate disruption is now happening in non-life, where the distribution dependent on salespeople and agents is being taken over by e-commerce sites offering multiple quotes.
Potentially, insurance sales will be faster and more efficient. Life business is less susceptible to e-commerce disruption because the products are not as simple as non-life products such as motor insurance. However, more innovative insurers are trying to take life sales online. Aluthgama is circumspect about the future. “We must embrace technology, that’s the only way forward.
Typically, a traditional company will be the last to move, but here [SLIC] the management is keen to adopt these practices.” The essential product of insurance— protection from risk—has few apparent substitutes. Insurers have built substantial customer bases and in Sri Lanka where investment revenue has been decent, it has provided reliable profits for companies. However the future is unlikely to be a reflection of the past.