As Sri Lanka’s insurance industry evolves, effective regulation must balance policyholder protection, public confidence and innovation.

Damayanthi Fernando, Director General of the Insurance Regulatory Commission of Sri Lanka, outlines how the regulator is strengthening transparency, claims handling, market conduct and professional standards across the industry.

She highlights the importance of building trust to expand insurance penetration, particularly among underserved communities, while creating a regulatory environment capable of supporting digital transformation. From stronger consumer safeguards to data-driven supervision and emerging distribution channels, her perspective reflects a clear priority: enabling insurance to innovate and grow without compromising fairness, financial resilience or customer protection.

Q: At the heart of insurance regulation is a simple but powerful responsibility: ensuring that the promise made to a policyholder can be honoured when it matters most. What are the IRCSL’s key priorities in strengthening policyholder protection, particularly in areas such as transparency, claims handling, product suitability and fair treatment of customers?

Every regulatory decision the IRCSL makes ultimately traces back to a single question: will the policyholder be treated fairly when a claim falls due? Three data points frame our current priorities.

First, claims handling. Our 2025 general insurance claims settlement statistics show an industry average settlement ratio of 78 per cent by number of claims but only 43 per cent by value, with 49 per cent of claim value outstanding at the end of the year. This unprecedented result is due to the large number of claims occurring due to Cyclone ‘Ditwah’ in late 2025. That gap between claims settled by count and claims settled by value tells us where the friction lies: typically in larger, more complex claims, where claim adjustment issues arise.

However, as a responsible supervisor, we stepped in to manage possible disputes that would arise between the insured and the insurer after the catastrophe. In the IRCSL’s own islandwide Public Confidence Survey, conducted in partnership with the University of Colombo across a nationally representative sample of 4,280 respondents, the public identified the timely and efficient handling of complaints and the strong financial background of the insurer as the two most important factors shaping their confidence in the industry.

We are now moving from setting the rule to actively supervising adherence to it through our claims monitoring returns.

Second, transparency at the point of sale. Direction No. 6 of 2024 requires insurers and intermediaries to issue a standardised Insurance Product Information Document (IPID) before a policy is concluded, so a customer can compare what they are buying in plain terms rather than dense policy wording. This year, we went further with Direction No. 1 of 2025, which mandates a documented needs assessment and customer onboarding process for long-term insurance business, so that a product sold actually matches the buyer’s risk profile and financial capacity, not just the intermediary’s incentive structure.

Third, market conduct as a discipline in its own right. Our Market Conduct Guidelines, issued in October 2025, formally define market conduct as how an insurer designs its products and manages its relationship with policyholders, from before a contract is signed to the point every obligation under it has been met.

The same survey found that professionalism, honesty and the efficiency of customer service, while rated as somewhat less decisive than claims handling itself, were still considered important drivers of public confidence. Alongside this sits Direction No. 2 of 2024, which requires insurers and brokers to verify the educational qualifications of every insurance agent, and continuous professional development requirements that insurers must document for their sales force.

Taken together, these are not isolated rules. They are a shift from a compliance checklist to outcomes-based supervision, where the test is whether the policyholder actually experienced fair treatment, not merely whether a form was filed.

Q: Public confidence is fundamental to increasing insurance penetration. Where do you believe the industry still needs to improve in building consumer trust, and what is the regulator doing to encourage greater transparency, professionalism and accountability across insurers and intermediaries?

Sri Lanka’s insurance penetration stood at approximately 1.18 per cent of GDP in 2025, compared with an OECD average of 6.2 per cent. That gap is not primarily a pricing problem; it is a trust and literacy problem. Independent industry research attributes much of it to low financial and risk literacy and to insurance historically being perceived as complicated or reserved for the wealthy.

Our own survey work makes this concrete. The overall public confidence index for insurance in Sri Lanka stands at 50.2 out of 100, with life insurance recording a mean confidence score of 3.10 out of 5 against 3.30 for general insurance, largely reflecting the greater day-to-day visibility of motor insurance.

More encouraging is what the same data shows once a person actually engages with the system. Current life insurance policyholders report a mean confidence score of 3.51, compared with 2.93 among those who do not hold a policy, and the same pattern holds for motor insurance, at 3.38 against 3.15. Confidence rises substantially through direct experience of the product, which is why we see first-time engagement, and not advertising alone, as the more durable route to building trust.

We are addressing this on two fronts simultaneously. On the supply side, we have tightened the rules that shape how insurance is sold. Direction No. 3 of 2024 governs advertising by insurers, brokers and agents to curb misleading claims at the marketing stage, and Direction No. 2 of 2025, on improving the confidence level of policyholders, addresses conduct issues directly at their source.

We have also acted against unfair commercial pressure within the distribution chain itself, including a direction addressing banks, finance and leasing companies that were forcing changes to an agent’s registered code, a practice that ultimately affects which customers get served and how.

On the demand side, the same survey shows that awareness of the IRCSL itself is uneven across the country. National awareness of the regulator stands at just 32 per cent, falling to 6 per cent in the Northern Province and 9 per cent in the Eastern Province, against a high of 53 per cent in North Central Province.

That regional gap is exactly why the IRCSL has run direct public engagement targeted at the lowest-awareness districts, including roadshows and workshops in Jaffna and Kilinochchi in October 2025, working alongside the Insurance Association of Sri Lanka, the Sri Lanka Insurance Brokers Association and the Sri Lanka Insurance Institute.

This is intentional. Confidence is not built by regulation alone. It is built when people in underserved districts see, first-hand, that a claim was paid promptly and a product was explained honestly.

Longer term, our ‘Vision 2030’ roadmap targets doubling insurance take-up by 2030, with the ultimate aim of achieving universal coverage. Reaching that target depends on trust compounding over several years of consistent, visible fair treatment, not a single campaign.

Q: Digital insurance, AI, data analytics and new distribution channels can make protection more accessible, but they also introduce new risks. How is the IRCSL balancing the need to encourage innovation and greater accessibility with its responsibility to safeguard consumers, data, financial stability and the integrity of the insurance industry?

Innovation and consumer protection are not opposing forces for us; they are sequenced. Our approach has been to build the data and governance infrastructure first, so that new distribution channels can scale without the regulator losing sight of the risk.

On data infrastructure, the IRCSL, in partnership with the Credit Information Bureau of Sri Lanka, has launched a Centralised Insurance Data Repository, alongside a Centralised Motor Insurance Data Repository and a Digital Motor Insurance Card. This gives us, for the first time, a real-time, industry-wide view of exposure and claims history rather than relying solely on periodic returns, which materially improves our ability to detect emerging risk early rather than after the fact.

On new distribution channels, Direction No. 5 of 2024 specifically governs the sale of insurance products to customers of mobile network operators and fixed-line operators through those operators’ own data and platforms. This channel has genuine reach into segments the traditional agency model has struggled to serve, but it also introduces new questions around consent, data use and product suitability at scale, which is precisely why we regulated it directly rather than leaving it to fall under general rules written for agency distribution.

On prudential resilience, we are in the process of reviewing the Solvency Margin (Risk Based Capital) Rules first introduced in 2016, through a public consultation launched in 2025, to ensure the capital framework keeps pace with evolving asset markets and remains aligned with international standards. This runs in parallel with the broader shift towards risk-based supervision and the planned adoption of IFRS 17 for more transparent financial reporting.

On data protection specifically, insurers now also operate under the Personal Data Protection Act No. 9 of 2022, as amended in 2025, which is administered by Sri Lanka’s Data Protection Authority and applies directly to how insurers and digital intermediaries collect, use and store customer data.

Our position is straightforward. We do not want to be the reason a good innovation cannot reach an underinsured customer, but we also will not let the pace of technology outrun the industry’s ability to demonstrate that a customer’s money and data are safe. Every new channel we approve is accompanied by a corresponding regulatory framework, rather than being regulated after the fact.

Key Takeaways

1. Policyholder Protection Must Be Measured by Outcomes
Regulation is moving beyond compliance checklists towards outcomes-based supervision, with greater emphasis on fair treatment, transparent products, professional conduct and effective claims handling.

2. Trust Is Essential to Expanding Insurance Protection
Increasing insurance penetration requires more than affordability or promotion. Building public confidence through transparent communication, financial literacy, professional conduct and positive customer experiences is fundamental to wider insurance adoption.

3. Innovation and Consumer Protection Must Advance Together
Digital channels, data and emerging technologies can broaden access to insurance, but innovation must be supported by appropriate governance, data protection, prudential resilience and regulatory oversight.