OF FOREX ISSUES, CAPITAL FLIGHT CONTROL and THE INSURANCE INDUSTRY.

Illicit financial flows, also known as Illegal capital flight from an economy are manifested in different forms and are most likely to be conducted in currencies that are easily exchangeable internationally (US Dollar, UK pound, ROC currency), trying to exchange or sale a couple million Malawi currency notes in for arguments sake London would be a near impossible sale. The Argentine economic crisis of 2001 and Venezuelan crisis of 1980 were arguably to a large extent attributed to massive capital flight. Understandably this is an area of concern for the Malawi authorities, while the reasons for legal or illegal capital flight may vary; their cumulative effect negates the foreign exchange rate of the affected economy/country. Malawi continues to grapple with foreign currency challenges as witnessed via the print media of innovative but blatant foreign currency infringements such as the attempted smuggling of temporary under-garments fashioned out of US Dollar bills.

The author accords due recognition to the many subtle and legal ways of externalising funds, local commentators have cited the importation of items such as toothpicks, chickens etceteras as an unnecessary drain on the country's foreign currency reserves, an area that the author is qualified to comment on however is that of insurance premiums. Insurance companies are tasked with keeping a contractual promise; to repair, replace or reinstate property damaged, lost or destroyed within the definitions of 'damage' as per the agreed insurance contract otherwise commonly termed 'policy' document. Insurance companies usually only keep this contractual promise if due consideration (Premium) is provided or paid by the party requiring insurance (The Insured). It is this premium payment that the author argues must be tied in to Malawi's foreign currency reserves.

Insurers ordinarily take up huge risks such as a state of the art plant costing mega Malawi Kwacha and decide prudently to share that risk with another insurer (re-insurer) to 'hedge' or minimise its loss outlay should a total loss event occur, this practice is called re-insurance and necessitates that the insurer that decides to 'hedge' its losses share its premium as paid by the insured with the elected and accepting re-insurer epitomising the 'sharing of risks' concept. It is common to have bank 'x' insured in Malawi but shared percentage with reinsurers in Zimbabwe, South Africa, the UK, Nigeria, Australia, Japan, USA etceteras. Re-insurance is a rather delicate, technical and usually complicated matter that cannot be discussed in this brief article alone, suffice to say that reinsurance is practiced on truly global scale, it is an utmost necessity and respective insurers in every country need international reinsurers.

The author must argue that there may be times when local capacity can and must be totally satisfied before employing the scarce foreign reserves to purchase re-insurance internationally. The questions the author poses are; when does insurance premium externalisation become detrimental to the Malawi economy? Who is responsible for deciding when to externalise insurance premiums from the Malawi economy? Who should be responsible? Should it be the insurer, a collective body of insurers as approved or the insurance regulatory authority (Reserve Bank of Malawi) responsible for approving externalisation of premium to curb excesses, if any? Is the regulatory authority at present regulating this insurance premium exportation in line with the other 'citizens' and sectors of the economy that seek approval prior to externalising funds?

Rather than provide answers to the questions posed, the author would suggest an alternative scenario, wherein each insurer must be obligated to ensure that all licensed local Malawi insurers are approached to participate or share in the excess risk so offered and their written acceptance or declinature provided before the concerned insurer externalises the insurance premium, in this set-up the insurance regulatory authority (Reserve Bank of Malawi) would then provide consent to enable the insurer externalise the risk. Only then would the insurance industry exemplify responsible foreign currency utilisation. The author was privileged to be part of such a practice at work in the Tanzania insurance market. It worked well although it meant more administrative work for the insurers; it also meant that there was enough 'pie' to go around all licensed insurers. Perfect? Definitely not, but protective of our foreign currency reserves all the same.