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 May 2nd, 2024
Wherever you go, you will find that insurance is regulated either by government or a quasi-state corporation. In the United Kingdom, for example, supervision of insurance organizations is under the ambit of Financial Services Authority. Tanzania Insurance Regulatory Authority, Pensions and Insurance Authority supervise insurance practice in Tanzania and Zambia, respectively. In Malawi, formal regulation of insurance and pension administration is in the hands of Reserve Bank of Malawi via Insurance Act of 2010. The Insurance Act sits under the Financial Services Act, which is an umbrella and supreme legislation for the supervision of financial institutions in the country.
None the less, the insurance fraternity in Malawi takes upon itself to regulate the noble practice through various formations, such as Insurance Association of Malawi - IAM, Brokers Association of Malawi - BAM, Life and Pensions Association - LIPA. Whereas IAM deals with general or short-term insurance business, LIPA is for long-term or life insurance. BAM represents interests of brokers. Insurance Institute of Malawi is an academy of the practice.
Insurance, unlike tangerines or cars, is an intangible product. It possesses unique features that set it apart from tangible goods. This, therefore, calls for special interest in government regulation.
If you visit an insurance company to buy house contents insurance, I expect an insurer to give you a document known as policy. A policy document is not insurance per se - it serves as evidence that there is contract between you and the insurer.
Clearly, it is not the policy document that you are buying, but a promise to be indemnified or compensated in the event that the insured house contents are damaged by fire and other special risks or stolen. In short, you are buying what insurance people refer to as ‘peace of mind.’ The down side of this transaction is that peace of mind is intangible.
Insurance benefits are realized at some time in the future in form of claims or policy maturity, in the case of life insurance. Sometimes, it is not the original insured that collects the benefits. For example, under personal accident cover, in case of death of insured person, policy benefits are collected by legal beneficiaries or nominated persons.
The complication of insurance as a contract is that the insurer receives payment today in form of premium. Loss or damage may not happen immediately. There is a time lag between time premium is received by an insurer and the time claims are paid to you.
In other words, the policy’s ultimate performance happens sometime in the future. As an insured party, you need to be guaranteed that the insurer will keep the promise. Government, thus, serves the role of an umpire to ensure that the insurer does not break the promise.
Insurance as a legal contract is not simple. Very few people understand the legal clauses in an insurance policy - yes, very few.
Insurance is a contract between two parties, insurer and insured. However, the contract is an imbalanced one. The insurer is an expert in the field, while the insured is a lay person. Because of the use of legal jargons in the policy by the former, the latter has a great and unfair disadvantage in construing the wording when it comes to the actual performance of the contract - when there is a claim or dispute. In the absence of regulation, the insurer can frame a policy which avoids payment.
Insurance is also regulated to diminish market abuses. The insurer may fail to live up to the insuring public’s expectation by refusing to pay legitimate claims or even coming up with policy wordings that are misleading. The regulator encourages the use of policy wordings that provide predictability and certainty. Good insurance practice should be reassuring, reliable, relevant and responsive.
Issues of solvency also require regulation. It is the duty of government to see to it that insurance companies have the financial ability to pay claims.
In this area, government uses solvency ratios to measure the extent by which an insurer’s assets exceed liabilities. If liabilities exceed assets, the insurer is rendered insolvent and is a likely candidate for dissolution. In short, it is taking more business than financial resources available to enable it meets claims.
It is the duty government to vet senior management of insurance organizations vis-à-vis their professional qualifications, probity and knowledge of the business and market. This is necessary in order to give confidence to the insuring public.
Views from the top are that insurance as a product is full of twists and turns. It certainly needs fit and proper persons to offer the service. Talk to us. We are here to serve.
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