2008: Insurance year in review - Daily Times

While I agree with Lester's Malawi insurance year review pasted below I would like to add especially on the aspect of market saturation that buying/selling of insurance in Malawi is practically impossible to increase markedly when we have the lowest per capita GDP earning (purchasing power parity: 2007 est.) compared for instance to Zambia, Tanzania and Uganda economies; now I opine this is an area that needs revitalised government policy involvement, to purposefully create an environment that would allow for innovation in wealth creation, in deliberate creation of a viable middle class and an innovative banking sector [and private sector] that is willing to take risks in growing wealth and creating wealth that the insurers would in turn insure..., put simply insurance is about people who have disposable and discretionary incomes, those that are able to afford to amass property and value in themselves and are further able to afford to insure these insurable interests so created; the marked absence of growth of a real middle class particularly means there is very little in savings or wealth created within the Malawi economy; with prohibitive bank interest rates, the population and the small to medium scale business community is hesitant to borrow to grow or further invest in insurable ventures, the absence thereof creating a stagnant investment scenario that has very little to be insured, I applaud NICO's strategies by acknowledging that they had grown faster than the economy and the economy was no longer creating ample new business hence the investment in other growing economies such as Tanzania Uganda and Zambia. Check below some sobering statistics on Malawi:

• Our Industrial production growth rate: (2007 est.) was 4.4%, Tanzania- 8.2%;
• Our Labor force - by occupation: (2003 est.) is 90% agriculture based [mostly using hoes];
• Our budget for 2007 est was rev: $1.128 billion exp: $1.185 billion while that of Tanzania was rev: $3.561 billion exp: $3.594 billion;
• Our Exports: (2007 est.)were $604 million [note!! million] f.o.b. while TZ had $2.227 billion [note!! Billion]and the list goes on where we do not fare well, tavula pagulutu apa, pepani.

In a nutshell there is a lot of multi-sectoral work to be done to just be at par with the other three quoted countries let alone globally. We in reality need to ditch all egoistic politics, build the country then and only then bring in politics again.

Another way is for the insurance regulator to deliberately curb the flow of reinsurance premiums outside of Malawi by encouraging a sharing of the risks that local companies cannot hold; those risks and commensurate premium that they end up exporting to other foreign economies [good thing by the way], these excess risks if shared with other willing insurers within the Malawi market would grow the industry capacity, reduce capital flight and benefit the country as a whole....So you will note all my above suggestions require enactment of legislation or delegated authority by government, the Insurance Association should seek an audience with the government and strategise on the way forward.... easy for me to say [Monday Coach etc :-) ] this would also a pretty strong cure for undercutting, why would you undercut on a risk you are participating in? your interest would be in increasing the premium receivable from the risk not acquiring the risk by waging price wars. The Insurance Association of Malawi in this set-up can be more than what is, it could for instance have a role of receiving excess risks from local insurers before these are exported to foreign re insurers and instead offering these to other insurers within Malawi before exportation....

Undercutting of rates will continue as a survival strategy for those hoping to use the law of large numbers to survive, unfortunately in the long-term this is an unsustainable growth strategy for especially firms with low capital reserves and legal liabilities asides from increasing expense ratios to uphold which will inevitably result in a number of insurance companies going under or overexposing their re insurers. Great piece though I thoroughly enjoyed it, the research was (I assume) not easy to do. Enjoy....

2008: Insurance year in review BY LESTER CHINYANG’ANYA, Daily Times Malawi.
15:14:35 - 07 January 2009

http://www.dailytimes.bppmw.com/article.asp?ArticleID=11759

2008. What a year it was for the insurance sector. It was a year of mixed fortunes as far as insurance issues are concerned. The Southern and Central regions, as part of the Malawi insurance market, can largely be classified as saturated as opposed to emerging. Saturated markets are those where sales of insurance products are almost at saturation point. Most people have all the traditional insurance covers they are ever going to buy. The most viable way for insurance companies in saturated markets to grow is to venture further afield into new geographical territories. Whereas the Southern and Central regions have become saturated markets, the Northern Region is still in its infancy, insofar as insurance consumption is concerned.

The first quarter of 2008 will be remembered as the period in which insurance competition came to people of the Northern Region as an emerging market. In the quarter, the industry witnessed a trek of insurance companies and broking firms to Mzuzu and surrounding areas, which of late has also seen banks, motor dealers and other non-financial institutions establishing branches there. This is in search for ‘greener pasture’ through what economists call economies of scale.The Northern Region has now two resident life insurance companies sharing a market of approximately K100 million. We also witnessed the first broking firm establishing its office in the heart of Mzuzu. Previously, there was no insurance broker in the region. The region became a home to four more non-life insurance companies, bringing the total number of resident non-life insurance companies to seven, fighting for supremacy in a K80 million market. There are eight non-life insurance companies in Malawi. In May, NICO General Insurance Company in conjunction with Opportunity International Bank of Malawi (OIBM) became the first insurance company and bank to co-offer bancassurance product to the public through an insurance policy called Mthunzi. Bancassurance is the provision of insurance and banking products through a common distribution channel. Mthunzi is an insurance policy specially designed and written by NICO General to protect OIBM’s loan clients against theft and accidental damage to property bought using the bank’s loans.

The Malawi insurance marketplace will remember 2008 for rate cutting in many insurance lines as competition for market share among market participants continued to soar in both premium and terms. The number of fraudulent claims in personal lines also multiplied. Despite these pressures, profitability remained strong, underscored by a relatively moderate claim cycle, which allowed insurers to concentrate on curbing fraudulent claims triggered by deadly syndicates, comprising of some lawyers, medical personnel and traffic police officers. In the second quarter, Malawi Union of Savings and Credit Cooperatives (Muscco), the country’s leading micro-financial institution, announced that it was introducing cooperative insurance for its members. The market is yet to see this coming to fruition.The 2008/09 national budget was delivered on May 23 at New State House in Lilongwe by Finance Minister Goodall Gondwe. The inclusion of crop and weather insurance for maize in the national budget attracted the fraternity’s interest. The arrangement is that companies buy maize with an undertaking that in case of maize shortage, government buys the maize at a price that the company in question purchased it. If by an agreed month, the government decides not to purchase the maize, the company is free to export it.Besides crop insurance, the government agreed to pilot World Bank weather index-based insurance under which an insurance pool, provided by the Insurance Association of Malawi, would pay policyholders if it is found that weather conditions have impaired crop production. One thing that came out clearly from the finance minister’s presentation is that the two schemes act as a tool of alleviating effects of bad weather on crop production, notably the country’s staple food crop, maize. This is a move in the right direction.

A much discussed policy issue during the 2008 Insurance Institute of Malawi’s (IIM) conference that took place on September 26 in Blantyre was access to insurance products by financially and socially disadvantaged individuals in Malawian communities. This remains a key policy issue and a challenge for the entire fraternity and the government. The Deputy Governor of the Reserve Bank of Malawi Mary Nkosi, who was the guest of honour at the IIM’s conference, bemoaned the country’s poor insurance penetration levels in spite of the economy’s excellent economic growth rates. Insurance penetration is the ratio of gross written insurance premium to Gross Domestic Product.Malawi’s insurance penetration stands at a miserable 2.6 percent against world average of 7.5 percent. The top three countries are United Kingdom at an enviable 16.5 percentage point, South Africa at 16 percent and Taiwan at 14.5 percent. The lower the rate, the less developed the market is. Many people in Malawi cannot afford insurance. Financial impetus is required to reach untapped markets. There is need for the fraternity to consider providing new and innovative products at the lower end of the insurance market spectrum.The conference observed that this must be pursued from a marketing perspective. The fraternity must forge partnerships with other key stakeholders, such as banks, farmer organisations and other non-governmental organisations to develop insurance literacy module aimed at delivering education and awareness about insurance benefits. This involves the insurance industry developing and providing compatible and simplified insurance products that meet the needs of specific rural market niches.The year 2008 was also weighed down with heavy road traffic accidents. The fraternity picked a number of road traffic accident claims in both material damage and third party liabilities.

According to the 2008 National Road Safety Council of Malawi’s first biannual road accident statistics, which were released in October, there were 3,555 reported road accidents, of which 462 culminated into deaths. Of the said 462 deaths, 193 involved persons in the age group of 25-44. Lilongwe had most deaths, followed by Blantyre and Ntcheu, in that order. The worst severe case occurred in Mzimba, where 24 people belonging to Last Church perished at Mapangira on their way to prayers at Euthini.

For the first time ever, the industry saw claim paying ability rating of two general insurance companies, with NICO General Insurance Company being the first and highest rated with AA- (Double A minus).Claim paying ability rating is an actuarial-based opinion of the rating agency of an insurance company’s financial capacity to meet obligations of its policies in accordance with its terms and available funds. The rating measures an insurance company’s ability to pay claims in the short to medium term under different stressful underwriting and economic regimes. The other highlight of the year was the introduction of funeral bancassurance product called Mthandizi by OIBM. The launch took place in September in Mchinji.2008 was a turbulent year for fire insurers. The industry witnessed a spate of severe fires that gutted down the country’s major markets of Nkhata Bay, Mangochi, Madisi, Matabwa in Mzuzu, Lilongwe, Zomba, Ndirande, Nthukwa in Chilomoni, Mponela, Dyeratu in Chikwawa, Karonga. The list is endless. Private dwelling houses and commercial buildings were not spared; on the morning of October 5, Rab Processors’ warehouses in Lilongwe were razed down. Church houses belonging to CCAP in Blantyre and SDA in Lilongwe, respectively, fell victim to the flurry as well. The island district of Likoma had its share, where two houses were mysteriously burnt down. In September, the RBM released a press statement informing the general public about insurance and reinsurance companies and intermediaries that are authorised to conduct insurance business in the country. The fact that this important announcement was made after renewing the players’ licenses (after the month of April) underpins the value of the professional working relationship that exists between the fraternity, the insuring public and the regulator. Yes, I can envision the fraternity continue working closely with the regulator and insuring public to ensure implementation of this important piece of announcement commences smoothly and in a timely manner. The message needs to cascade down to all insurance buyers in the market.

A large number of significant and extreme weather events during 2008 impacted heavily upon the industry, which in turn culminated into insurance claims. In November, a fierce windstorm blew off roofs of 19 Malawi Housing Corporation’s newly constructed houses in the medium densely populated township of Area 49 in Lilongwe. Twenty-three other houses, belonging to two different non-governmental organisations, were also affected by the same event. In the second week of the same month of November, another hailstorm hit Neno, destroying schools, churches and dwelling houses. In the third week, Chief Chimaliro’s area in Thyolo was hit, prompting government through the Department of Disaster Preparedness to respond with food and other material support. Following on these events, the Insurance Association of Malawi issued a statement of benevolence to ensure that the public had necessary information at hand on many aspects relating to risk management during the just ended festive season and in times of crisis and recovery.As alluded to, 2008 marked a year of refinement. The Insurance Institute of Malawi, which is the sole professional organ of the industry, coined its mission statement, vision and values with a view of ethically and expertly promoting its image in a dynamic business and economic environment. It was also a year of stabilisation. Big claims were down. Premiums by policyholders were affordable.

All in all, 2009 is here. To you dear reader, I wish you a Happy and Prosperous New Year. To my fellow insurance practitioners, all we can hope for is a fraud-free 2009.