SRI LANKA BANS COMPETITION IN STATE INSURANCE DEALS: REPORT

Sri Lanka's state has shut out competitive bids from private insurers for state entities, drawing a warning that the move would increase the cost of state enterprises and raise burden of government to the ordinary man.

The Sunday Times newspaper said Sri Lanka Insurance Association, an industry body, has protested to the Insurance Board of Sri Lanka, the regulator, over a Treasury order which ended competition for government insurance deals.

"Government institutions will also lose substantially due to the absence of a competitive market which would determine the right price for their insurance purchases," the newspaper quoted the letter as saying.

The move to ban competition came after Sri Lanka Insurance Corporation (SLIC) which was involved in a flawed privatization, was returned to state hands following a court order.

The newspaper said state institutions and public corporations had been asked to get insurance from only SLIC and National Insurance Trust Fund another state body.

Shutting out other insurers gives a chance to state insurers to bid without competition raising the operating costs of state institutions.

Many public enterprises have already made record losses in 2009 running in to tens of billions of rupees requiring state bank finance and state credit guarantees to keep them afloat.

Last year the government had issued 52 billion rupees (US$456 million) in credit guarantees to cover loans given by state banks to various state bodies.

Sri Lanka's insurance sector, banking, telecoms, shipping, aviation and education were stifled for decades due to a state monopolies and mismanagement and the country's growth lagged region raising poverty and unemployment.

State monopolies which curbed the economic freedoms of people came mostly after rulers 'nationalized' private property of citizens in a socialist led policy period.

Sri Lanka does not have a monopolies and mergers commission to effectively combat anti-competitive behaviour and politicians on both sides of the divide are big spenders of peoples' money.