The objective of this study was to update available reports, and review the development of Private Health Insurance (PHI) in Sri Lanka, its current status, its impact on public and private health care provision in the country and its potential contribution to future financing. A survey of the commercial health insurance schemes run by all the insurance firms operating in Sri Lanka was conducted with the support of the Insurance Board of Sri Lanka (IBSL). A comparative analysis of the schemes offered by private and state owned companies was then conducted along with an assessment of their business policies and strategies. The time series data on aggregate payments to claims expenditures incurred by insurance companies were analysed to gain an understanding of trends in prices, costs, and patterns of use of public and private health care services by the insured population. Prevalence of market failures in the domestic insurance market, such as moral hazard, adverse selection and supplier induced demand as well as well-known problems associated with the form of indemnity insurance that is prevalent in Sri Lanka were assessed based on already available information, and on the knowledge of the IPS research team.