STRIVING FOR AN UP-TO-DATE MALAWI INSURANCE INDUSTRY

All things must change to something new, to something strange. Henry Wadsworth Longfellow US poet (1807 - 1882).

The non-life insurance industry in Malawi has changed a great deal since the country's independence, as evidenced by senior staff indigenisation in the various companies, growth in premium terms, complexity in locally written covers, changeover in regulatory function from being overseen by the Ministry of Finance to the Reserve Bank of Malawi and much much more along the years jointly as an industry and severally in the singular inimitable maturing of insurance companies. We have also proudly seen the brave birth of indigenous Malawian firms like Citizen, Prime and Reunion Insurance companies, with some of them boasting the best staff training policies in the country. Malawi now has 8 licensed insurers and a locally domiciled Re-insurer asides from the vibrant insurance intermediary market.

Non-life (General) policy wordings adopted from the British companies that introduced insurance to the warm heart of Africa invariably continue almost unaltered since their initial introduction over 35 years ago save for 3 or so firms that have adopted to user friendly English within their offerings in the last decade. What used to be termed 'Tariff' wordings (Motor, Fire, Workers Compensation insurance covers) which were a common front approach in insurance policy wording and product pricing by members of the all strong Insurance Association of Malawi have generally fallen into disuse except for serving as a guide in the light of financially stable insurance units, healthy competition and consumer fairness. The original firms from the United Kingdom have long since shed off their Malawi operations in the main due to their low Kwacha return in relation to the strong British pound making little commercial sense, mergers, acquisitions and changes in strategy. This has seen the Royal Sun Alliance (UK), Commercial Union, Pearl Assurance inter alia leave the country, and with them most of the European personnel that ran them, leaving a crop of well trained and professionally qualified Malawians that now run the companies with the biggest market shares.

I opine that whilst there have been many positive developments on the local front, on a global scale comparison the local industry has somewhat lagged behind in issues such as regulation and product development due to Europe de-linking, in-aggressive local demand and the economic woes that characterised Malawi since the advent of multi-democracy (not that this is an entirely bad thing).

Markets such as Zimbabwe, South Africa, Kenya and North Africa have been at the fore of adapting innovations such as bank-assurance which is a term coined to denote the combination of banking and insurance business within the same organisation, Alternative Risk Transfer (ART)- a method of protecting your assets using the non-traditional insurance market and shedding the 'small print' era. In the absence of having these alternatives on our insurance shelves the local market has turned to importing these covers from external providers for a fee on behalf of the multi-nationals such as Banks and manufacturing industry that enjoy these covers elsewhere in the world and therefore demand for them in Malawi.

However, the country need not copy blindly the offerings and regulatory climate of the first world and other stronger economies, there must be some deliberate benchmarks introduced, these suggestions that I will nowput forward in my essay are not my own, are not exhaustive but are necessary and urgent and will put us on the correct footing, we have witnessed them ably function in for example markets Zimbabwe, Tanzania, South Africa and the United Kingdom.

Most important is the need to re-structure insurance regulation to be more active and visible as per the Tanzania model, why 'fix it if it ain't broken' you may ask? because amongst a number of reasons this would ensure adequate 'solvency margin ratio' monitoring, the solvency margin ratio is one of the indices which the supervisory authority utilizes in order to judge the management soundness of a non-life insurance company. The solvency margin ratio means the ratio of "solvency margin of non-life insurance companies by means of their capital, reserves, etc." to "risks which will exceed their usual estimates" such as the risk of catastrophic loss or a sharp reduction in the value of their assets. Establishing a semi autonomous regulatory body by Act of Parliament would be a start, this body run by one of the insurance fraternity's 'own' would asides from monitoring the solvency margin ably transform the insurance industry into a sound and competitive agent for national savings mobilization and development investment channeling, promote the insurance sector as an effective catalyst for enhanced economic growth, strengthen and promote the industry health and orderly growth through establishment of operating performance standards and prescriptions, exempt the Industry from undue interference and develop an efficient, cost effective, comprehensive and customer driven insurance service.

Next would be the need to protect local policyholders and employees from the potentially abrupt and sudden decisions of foreign investors in locally registered insurance companies, a case in point would be the sale of the Malawi branch of the CGU which left ex-employees rather disillusioned and unsure of their future, and witnessed the first employee 'strike' of an insurance company in Malawi. This protection would be afforded by the introduction of a minimum shareholding quota of say 20% to 33.33% by Malawi citizens. This would in effect restrict registration of companies to those having at least the above quoted controlling interest, whether in shares, paid up capital or voting rights by citizens of Malawi and at least one third of members of the board of the company in question being citizens of Malawi, where for the purposes of definition the "citizens of Malawi" would include a body corporate registered in Malawi in which a citizen of Malawi or the government holds the majority of shares.

The Insurance Association of Malawi has a code of ethics that its members drew up that is currently voluntary and only enforceable on its own members by its own membership, it is a constructive, forward looking and timely document that would best serve its purpose if it were legally enforceable as a tool embedded within the Insurance Act as a deterent against rogue practitioners.

The Insurance Act of Malawi was enacted in 1957 and has the minimum capital requirement of US Dollars 38,000 for a company to register locally, this needs to be increased to an amount commensurate with the risks being underwritten on the market and the times, all of Malawi's neighbouring countries have minimum capital requirements that are on average ten fold our current prescribed capital requirement. This would ensure confidence in the market and protection of consumers.

Final in my suggestions would be to curb unnecessary capital flight of premiums currently being 'exported' to other countries through re-insurance premiums. Reinsurance is insurance for insurance companies. It is a way of transferring or “ceding” some of the financial risk insurance companies assume in insuring cars, homes and businesses to another insurance company, termed the Re insurer. Reinsurance is a highly complex global business. There is currently no prescriptive control by the government on amounts of risk and commensurate premiums exported outside of Malawi by resident insurance companies, this needs to be looked at carefully noting that a market as small as ours definitely needs protection but to avoid unqualified excesses permission must be sought as is required by persons travelling abroad to externalise funds, it must be that the local capacity being the sum total of all licensed insurance companies is satisfied before premiums are externalised, this would curb capital flight, 'spread' the risk on the local market which the basis of insurance business and would give the small growing companies impetus subject to their capacity, a chance to dip their fingers into the pie which hitherto has been beyond their reach in some cases.

It must be noted that all the above suggestions need to work in tandem to be effective and need to be enforced by a legal tool, which can only be the re-enactment of the now outdated 1957 Act. A team of insurance experts and others need to look at the future of the country's insurance market independently and suggest the constructive way forward to complement the successes the stewards of the insurance market have so far brought about with the support of the insuring public. It is time for change, albeit constructive forward looking change, change the insurance industry has called for and lobbied for unsuccesfully hitherto, serious attention must be paid to our outdated Insurance Act.

Any disrespect or harm to the Malawi insurance market and its members by this essay is unintended and regretted; it is the future of the market and the continued protection of the economy that matters most.