The adverse impacts of Cyclone Ditwah has revealed the unpreparedness of the Sri Lankan insurance sector to cater to disaster risk insurance needs of the local Micro, Small, and Medium Enterprises (MSMEs) segment, Central Bank of Sri Lanka former Senior Deputy Governor Yvette Fernando said, speaking to media on Friday (9).
“Insurance penetration is very low. Insurance companies are more into general and life insurance. They have to have some specific products targeted to these requirements, so that the risk is minimised and mitigated, using insurance,” Fernando said, noting that insurance products in Sri Lanka are typically geared towards life and general covers.
She made these comments at the Centre for Poverty Analysis (CEPA) Sustaining Transformative Growth in Sri Lanka 2025 to 2030 report launch.
While Sri Lanka does not have accurate data on MSME insurance penetration, general insurance penetration ranges marginally above 1% of Gross Domestic Product (GDP), making it one of the lowest penetration rates in the region, as noted by the Insurance Regulatory Commission of Sri Lanka (IRCSL), the national regulator of the local industry.
“Insurance is one risk mitigant. Whenever they face these [crises] they can make use of it. That kind of a product mix is not currently available in our country. So that's the penetration that is needed from the insurance sector,” Fernando continued.
In Sri Lanka, MSMEs account for more than 50% of the country's GDP. The National Enterprise Development Authority (NEDA) Director Dhanuka Liyanagamage, speaking to the Daily Morning Business recently noted that in the agency’s engagements with SMEs in reconstruction and recovery efforts, it found that there is a significant gap of awareness within the segment with regards to business insurance and risk.
At present, the Sri Lankan government has been providing direct financial assistance to impacted businesses, with a loan subsidy of Rs. 200,000, at an interest rate of 3%. Micro-entrepreneurs are eligible for up to Rs. 250,000, and small-medium-scale entrepreneurs are offered up to Rs. 1 million, while medium/large-scale entrepreneurs are offered up to Rs. 25 million.
The Ministry of Industry and Entrepreneurship Development noted that of the 29,649 businesses that had registered themselves on the national database for compensation; 5,639 businesses were micro enterprises, 4,636 were small businesses, and 2,986 were medium-scale firms.
Sri Lanka’s local insurance industry has weathered the economic impacts of the past five years, with local players in the market having posted significant growth in 2025. A Central Bank Financial Stability Review for 2025 report published back in October stated that Gross Written Premium (GWP) of both long term and general insurance subsectors witnessed an increase, amidst a marginal improvement in insurance penetration of the country.
GWP for the first quarter of 2025 was up 10.6% in year on year terms, with life insurance driving the increase, while general insurance recorded a marginal decline of 0.4%.