Abstract:
Financial systems are an important element for the economic growth process, because they have a function which provides funds for wide spreading of new technologies and accumulation of capital funds.Insurance serves a number of valuable economic functions that are largely distinct from other types of financial intermediaries as it provides risk transfer and compensation by the efficient distribution of different risks. A well-developed insurance sector is necessary for the economic development of an emerging economy like Sri Lanka, as it provides long-term funds for physical and social infrastructure, while simultaneously strengthening risk-taking abilities.The increase of total assets by 22%, income by 40% and pre-tax profit by 262% shows the expansion of Sri Lankan insurance business in 2010 (Central Bank of Sri Lanka Annual Report -2010). This study examined the current industry conditions of insurance industry in Sri Lanka and was focused on assessing the relationship between economic growth and insurance sector development. Further, to focus on the causality directions between two identified variables also was a main objective of this particular study.
