In an exciting collaboration between Minet Malawi, Britam, and The Daily Times - Malawi's leading newspaper - we are thrilled to introduce a groundbreaking initiative that will redefine your Wednesdays. Welcome to the Insurance Insights Column – a weekly rendezvous with the world of insurance and contemporary issues that matter. Every article aims to illuminate the intricate landscape of insurance products and relevant topics that impact us all. The articles will be educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on March 20th, 2024
There are two common mistakes that the insuring public makes vis-à-vis insurance service providers. One - many people cannot tell the difference between an insurance company and an insurance broker. Two - a lot of people, including some insurance practitioners, refer to the Lloyd’s of London as an insurance company.
For starters, a broker is an intermediary who, on behalf of policyholders, places risks with insurance companies. A broker binds a policyholder and an insurance company in an insurance contract without being personally bound. In Malawi, there are 24 authorized insurance brokers – albeit at different levels of competence and capitalization.
A broker is not a doorman. The major responsibility of a broker is to educate and inform their clients about contractual obligations or actions that fall outside and within insurance policy terms and conditions. A competent broker will also give his clients advice on non-insurance risk management techniques, such as pensions plan, equity, futures, risk valuation and other derivatives. A broker is biased towards an insured, not an insurer.
In Malawi, the financial services industry comprises hundreds of institutions. They include commercial banks, cooperatives, micro-financial firms, securities dealers, banki m’khonde (village banks), transfer pricing advisors, pension administrators and advisors, insurance companies and brokers, just to mention a few.
As we write this article, there are 20 insurance organizations and pension service providers in Malawi – six of which are life insurers, five pension administrators, one reinsurer and eight non-life insurers. Insurance is a risk transfer mechanism. Risk averse individuals and organizations transfer unwanted risks to a party that is willing to bear the risk for a fee. One of the parties that accept risks from risk averters is an insurance company. In fact, insurance is the most reliable risk transfer mechanism available in modern age.
There are numerous ways of classifying insurance companies. Insurance companies can be classified as proprietary, mutual or Lloyd’s.
This brings us to the second common mistake – referring to Lloyd’s as an insurance company.
As alluded to in one of our previous columns, insurance service can be bought directly from an insurance company or through a broker. Insurance consumers who use brokers benefit more than those who go direct.
Recently, we travelled to Mzuzu. We met a long-time friend of ours, who when asked about where he insures his property, gave us name of a broker. When we engaged him further, we deduced that the pal insures with ABC Insurance Company through XYZ Insurance Broker. Although our friend is serviced by XYZ Insurance Broker and does not come face to face with his insurers - ABC Insurance Company - it is wrong to say that XYZ Broker is his insurer. A broker is merely a professional middleman.
Insurance can also be purchased from Lloyd’s. Most of you reading this column, today, have never heard of or read about the Lloyd’s of London.
We have come across people, who refer to Lloyd’s of London as an insurance company. Do not be mistaken - Lloyd’s is not an insurance company. Lloyd’s is an association that provides both physical facilities and services to members for selling insurance.
Lloyds by itself does not write insurance. At Lloyd’s, insurance is written by syndicates. Put it in a simple way - Lloyd’s is like Malawi Stock Exchange, which does not buy or sell securities, but rather provides a marketplace and other services to members.
Insurance is actually written by syndicates that belong to Lloyd’s. The syndicates are managed by underwriting agents, who are responsible for appointing professional underwriters for each major type of business or risk. Syndicates tend to specialize in certain lines of insurance business. Lloyd’s is famous of writing unique risk exposures, such as - pianist’s fingers, footballers’ legs, feet of ballet dancers, et cetera.
Back to our case, according to what we deciphered from the conversation we had with our pal during our recent sojourn up north – Mzuzu, there seems to be little or no knowledge or no idea about how insurance and its market work; what insurance organizations specialize in and what insurance career means among our schoolchildren.
Views from the top are that survival and growth of Malawi’s insurance industry lies in men and women who are enlisted in it and not enlisted for it. The insurance fraternity needs to educate the insuring public about various aspects of the industry, including the difference between a broker and an insurer. As professional advisors, the insurance fraternity must aim to have well informed and empowered consumers. If insurance practitioners cannot educate their clients, who will?
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