Ceylinco Insurance marks 30 years, aims for 15 % annual growth
View(s):As it celebrates 30 years of business as Ceylinco Life and 80 years in total in the business, Ceylinco Life – just like its iconic ‘father and child’ logo – is aiming at a future with 15 per cent annual growth and the challenge of making insurance a preferred job for school leavers.
File picture of Ceylinco Insurance Plc ringing the opening bell to commence trading at the Colombo Stock Exchange (CSE) in June as part of a ceremony organised to mark the company’s inclusion in the S&P SL 20 Index.
“Our goal is 15 per cent growth annually and making this profession a preferred job,” noted R. Renganathan, Managing Director/CEO of the company, in an interview at his Colombo office, last week. “In the list of preferences, we are listed at no. 17 just above the politician,” he added.
In a wide-ranging conversation, the pioneer insurance industry official spoke on a range of issues from the time of the then Ceylon Insurance, over 80 years ago, to its current avatar as Ceylinco Life, ad hoc taxation issues and the looming crisis of an ageing population and how the insurance industry can help.
He also made one point that is not taken into consideration by the government or the public: That insurance companies are equal or even more tend to mobilise savings from the public compared to banks. “Very often people think that its banks that mobilise the small savings, ignoring the role of the life insurance industry.
Statutorily 30 per cent of our funds have to be invested in government securities. As at date, Ceylinco Life investment in these instruments is Rs. 42 billion,” he said, settling down to a long conversation at his upper-floor office which has a nice view of the Police Park at Thimbirigasyaya.
Excerpts of the interview:
On the logo:
“Our original logo was the father looking at the child. We did some research and found that it was time to look at the future. Now we have a modern and younger father looking at the future. Many people identify this logo with Ceylinco Life.
Our biggest contribution to the industry has been the 3-tier sales organisation – agents, supervisors, branches: 4 to 6 agents attached to a supervisor and 3-4 supervisors attached to the head of a branch. We pioneered this structure which is standard now in the industry.
We pioneered tele-writing where we call the customer direct and check the accuracy of the answers in an insurance proposal.”
On life insurance
“There is greater awareness of life insurance but our culture is such that we still don’t want to think about death. A subtle message needs to be given and here a one-on-one conversation with an agent becomes important. We pay 3-4 death claims a day and 30-40 health claims a day. We have 900 permanent staff and 4,000 independent contractors.
Ageing
Unfortunately only a few of us are looking at ageing population issues. There seems to be no support or awareness creation. For instance in a country like Belgium, when a person pays a premium for a retirement plan, the state refunds you 30 per cent to encourage the scheme. In Sri Lanka there is no incentive whatsoever. You cannot be myopic and think you will lose some taxes but need to look at the far reaching consequences.
R. Renganathan
Normally your income increases above expenses but at retirement your income comes down, and then there is a gap. If this gap is not funded, what happens in the case of health? Straight away you utilize state services which mean pressure on the government’s health system. The government has to look at it and give some incentives, so that people, if they can afford it, will not go to the government hospital but use their own insurance. Unfortunately governments have come and gone but there has been no forward movement.
At Ceylinco Life, we have a product where you can accumulate a fund. Normally the traditional thing is to accumulate a fund and at retirement, you have a monthly pension. But this has all changed because when you agree to make a payment, you make certain assumptions, especially from a longevity point of view. However now people are living longer, thus all those assumptions have gone haywire. In the developed world, they are considering postponing the age of retirement purely because when you retire you are making payments for no production. Thus if you increase the retirement age firstly you get some production out of it and secondly, you delay retirement and the period when you pay for ‘no production’ from an individual.
In the public sector there is what is called a defined pension, where someone knows what his retirement pension would be. But you also have to predict how many years you are going to pay and that keeps changing. Companies have moved away from defined benefit to a defined contribution – which means that you accumulate the fund and after that the payment is based on what the company can afford to pay you.
In Sri Lanka because of lack of retirement planning, traditional economic theory and thinking of reducing interest rates in my view will never work because those who retire depend on that interest income that they earn. Assuming you try to reduce that rate of interest for the purpose of making funds cheaper to business, your population will starve. So you can’t apply that traditional thinking.
Our interest rates are going to be at a very high level purely because that’s our way of a retirement planning. You need to address this. Also the pension is based on taxation (there is no income to pay these pensions) where each year the Government decides on the quantum of pensions and then get it from taxes.
Because the government didn’t move on these issues, we launched the Ceylinco Retirement Plan… we have about 30-35,000 members. From 18 years onwards you can purchase it … and at this age you accumulate a higher fund.
Taxes
There are ad hoc changes to taxation … when we calculate a premium that a customer has to pay for 15-20 years, the tax aspect is very important. What we found recently is that when the Government permitted quoted debentures it was tax free. Suddenly halfway down the line, they have removed this.
When you buy a Government security – T bill or bond – there is tax deducted at source, so in our books we bring what is called a notional tax credit which is set off against our tax liability. This is again an assumption we make in calculating our rates. Now with this amendment it is removed.
These are amendments from 1 April 2018 but prior to that a formula used was what was called investment income minus expenses. This was the practice but suddenly from the year of assessment 2010-2011, they decided to redefine expenses. This means for some years we have to pay more taxes that profit.
In a scenario when there is no consistent policy, how do insurance companies project the premiums that are to be charged? This is very specific to life insurance as there is a special formula used. This is one of the biggest challenges we are facing at the moment.
Achievements
Among achievements is the support we provide to breadwinners. Our average death claims have gone up from Rs. 100,000 to Rs. 1 million. The company has invested a lot in health and education, offering scholarships to students, building class rooms, organising health camps and buildings specialised health facilities adding that CSR is in the company’s DNA.
General information
According to official data as at end 2016, the total number of life insurance policies in Sri Lanka is nearly 3 million, the number of policies as a percentage of the total population is 13.7 per cent and the number of policies as a percentage of the labour force is 36.2 per cent.
(Feizal)