History and Development of Insurance in Sri Lanka

Insurance business in Sri Lanka commenced with the advent of the Coffee and Tea Industry. During this period, the Insurance Office Ltd., Royal Assurance, New India Assurance Co. Ltd., and Ocean Accident and Guarantee Corporation Ltd., were few of many with Edward Lumley underwriting business for Lloyds of London. The primary entrants to Insurance business in Sri Lanka were the Agency Houses which managed plantations and were acting as Agents of Overseas Insurance handling mainly their in-house plantation business. In the early part of the 20^th century, Life Insurance Companies too were established. E.g. Original Insurance Co, Pearl Assurance etc.

It is only after the passing of the Companies Act of 1938; Sri Lanka Insurance Companies were established. Ceylon Insurance Company that was established followed by other Companies like Colombo Insurance, Lanka Life etc.. who endeavored to serve the needs of the local populace. The indigenous community became more aware of Insurance only after the promulgation of the Motor Traffic Act 1938, which made Party Insurance compulsory. At that time, there was no specific legislative framework to authorize, supervise or control the Insurance business in Sri Lanka.

The Insurance Industry was nationalized in line with the prevailing economic policy of the then socialist Government in Sri Lanka. At the time of Nationalization in 1961 there were more than 60 local and Foreign Insurance companies and Agency houses. With the promulgation of the Insurance Corporation Act, No.2 of 1961, the Insurance Corporation of Sri Lanka (ICSL) was established in 1961 as the sole insurer authorized to transact Life Insurance business in Sri Lanka. Thereafter with the enactment of the Control of Insurance Act, No.25 of 1962, the insurance of the state to regulate and control the activities of Lanka Companies. In the best interest and protection of insuring public were made very clear.

In 1964, General Insurance was nationalized as provided in the Finance Act of 1963 and ICSL was authorized to be the sole Insurer to transact both Life and General Insurance business in Sri Lanka. The Insurance Corporation of Sri Lanka was initially incorporated to underwrite Life Insurance, enjoyed monopoly status from 1964 in all classes of Insurance. The existing private companies were precluded from underwriting new business, but were liable to service old policies. General Insurance policies posed little problems companies faced difficulty in serving the long term Life Insurance policies. Many companies had liquidity problems and some policyholders lost money. A period of a prolonged state run monopoly commenced and lasted for 18 years.

In 1979, the insurance (special provisions) Act, No.22 was enacted providing for the establishment of subsidiary Corporation of ICSL or Independent Corporation to carry on the business of any type of insurance.

In 1980, another State Insurer, the National Insurance Corporation (NIC) was incorporated with the objective of crating competition after 18 years of monopoly by the ICSL. But state monopoly still continued. The NIC structure provided for eight Principle Agents, seven of whom were from the private sector was selected on the basis of prior experience in the industry. The principle agents were:

·        Acland Finance and Investment Ltd.

·        Aitken Spence and Co. Ltd.

·        Carsons Cumberbatch and Co. Ltd.

·        Ceylinco Ltd.

·        James Finlay and Co. (Colombo) Ltd.

·        Mercantile Credit Ltd.

·        Protection and Indemnity Ltd.

·        Whittall Boustead Ltd.

These principle agents were functioning as underwriters for the NIC in a controlled environment. They were authorized to underwrite and settle claims on behalf of NIC up to limits specified in their respective agreements.

In  1986, the Control of Insurance Act. No.25 of 1962 was amended opening the doors for the private sector to venture into the field of Insurance as Insurance. Control of Insurance (amendment) Act. No.42 of 1986 permitted public companies too to carry on insurance business in Sri Lanka after 25 years of state dominance. Three companies listed below registered and obtained license in terms of the amended legislation and commenced insurance operations in competition with the two state corporations in 1988.

• Ceylinco Insurance Co. Ltd
• CTC Eagle Insurance Co. Ltd.
• Union Assurance Ltd.

In 1993, both ICSL and NIC were converted to Limited liability companies. ICSL changed its name to Sri Lanka Insurance Corporation Ltd., (SLICL) and NIC to National Insurance Corporation Ltd.,(NICL), which was taken over by Janashakthi Insurance Co. Ltd., in 2001.

In the latter part of 1994 and 1995 two more companies Janashakthi Life Insurance Company Ltd., and Janashakthi General Insurance Company Ltd., commenced operations handling exclusive Life Insurance business and General Insurance business respectively and subsequently in 2000 these two companies merged as Janashakthi Insurance Co. Ltd.

In 1999, Co-operative Insurance Company Ltd., commenced operations. In June 1999, CTC Eagle Insurance Company Ltd., changed the name as Eagle Insurance Company Ltd., consequent to the company becoming a member of Zurich Financial Services Group and then being absorbed by the Aviva Group. December 1999, another new Insurance Company, Asian Alliance Insurance Co. Ltd., commenced operations transacting General Insurance business and since March 2000, they have started transacting Life Insurance business too.

Hayleys AIG Insurance Co. Ltd., a joint venture between American International Group (AIG) and Hayles Group also commenced operations transacting General Insurance business and since March 2000, they started transacting Life Insurance business. Six more Insurance companies are now competing in the local market having established since 2001.