Relationship between Insurance Penetration and Economic Growth in Sri Lanka

Abstract

Insurance plays the role of risk bearer in case of uncertainty of life and business. Thus, insurance plays a crucial role in sustainable growth of an economy. Despite the importance of insurance for an economy, insurance penetration of Sri Lanka still at very lower level, yet access to only a small segment of the potential market as indicated by low penetration level. According to the IBSL report, insurance penetration reflects insurance premium percentage of GDP was 1.09% and recorded a growth of 4.8% in 2015. Hence this study was set out to examine the relationship between insurance penetration and economic growth in Sri Lanka. The secondary data collected from Insurance Board of Sri Lanka and Central Bank of Sri Lanka for a period of 18 years, from 1997 to 2015 were used. Regression analysis were used to analyse the data. The results indicated that there is a weak linear positive relationship between insurance penetration and economic growth and it is insignificant. The research recommend that the regulators and policy makers should enact a modern legal framework to protect the rights of policyholders and regulating the activities of market participants, foster a competitive pricing in the insurance market and adopt the best practices to develop the insurance penetration level.