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 June 12th, 2024
No visit to East Africa is complete without sampling nyama choma. Renowned for its wide variety of game and domesticated animals, East Africa sets the continent’s standard in meat eating carnival. Caveat - do not jump onto every piece of meat that falls in your plate. You will end up gobbling something that you averred not to touch your mouth.
East Africa is not only famous for its nyama choma but is the continent’s hub of commerce. It boasts, inter alia, a robust insurance market with more than one hundred insurance companies, over twenty reinsurance offices and numerous intermediaries. Despite the high distribution, insurance market players, I learnt in my recent sojourn, practice health competition. No wonder the region enjoys the second highest combined insurance penetration and deepening in Africa. For starters, South Africa has the highest insurance penetration and deepening at 12.5 percent and $900, respectively.
Unlike in Malawi insurance market, premium rate undercutting is uncommon among players. In most cases, when a risk is too large for one insurer, it is shared with other insurers through co-insurance or facultative reinsurance. Co-insurance is short form for collective insurance.
Recently, I was privileged to come across a risk exposure that is co-insured by twelve insurers. I find this arrangement to be fascinating and encouraging. The Malawi insurance fraternity must borrow a leaf from the arrangement. Dear reader, verily verily I say unto you, if Malawi insurance market is to become of age, practitioners must refrain from premium under-cutting tendency. The practice is not only killing the market but making it unattractive to keynote recruits and securities.
Collective insurance is common when the value of a risk is too large for one insurer or where a policyholder, due to strategic factors, wishes to interest several insurers. Instead of each insurer issuing its own policy, one insurer is nominated to underwrite the risk. The nominated insurer is also responsible for pricing the risk, calculating premium, issuing endorsements and conducting risk surveys, if deemed necessary.
Following co-insurers have a duty to ensure that underwriting standards practiced by the nominated lead insurer are in line with what they would have adopted if they were the leader. Proponents of collective insurance arrangement argue that the system has a tendency of improving underwriting standards and insurance penetration.
Ask any insurance guru and they will probably tell you that standards in our local market are dwindling to the extent that some players have gone to the extent of promoting predatory marketing. Perhaps, we need to borrow a leaf from our colleagues in East Africa.
In co-insurance, one policy document is prepared. Insurers that participate in the risk are referred to as co-insurers. The underlying policy is customarily issued by the insurance company with the largest stake - percentage of the risk or business interest. Although co-insurers are endorsed in the policy, each insurer is responsible only for its agreed percentage of any loss, which may be settled under the policy or policies. Stated differently, liability is several but not joint.
Since the leading insurer may incur considerable expenses on behalf of the panel in surveying the risk or risks and documentation processing, co-insurers pay a certain percentage of their premium share to the leader. Insurance people refer to this contribution as overriding commission.
Co-insurance is never without drawbacks. In the event of a large loss, all co-insurers settle the resultant claim separately, sending separate cheques to the policyholder. You will agree with me that this arrangement can be cumbersome, especially if the co-insured risk involves many insurers. To overcome this problem, insurance adjusters are engaged to ensure that co-insurers make simultaneous payment to the policyholder.
In most cases, co-insured risks are large and placed through brokers. Sometimes, it can be stressful for brokers, as they have to approach a large number of insurers to fully place the risk.
Prospective co-insurers often crash in underwriting standards. Big insurance company would be less willing to participate in a collective insured risk, where a small insurance company leads. There is a joke that circulates in insurance that ‘a corolla cannot tow a Mercedes Benz.’ Hmmm. Or can it?
Views from the top are that insurance is often abused by unscrupulous risk owners because local insurers do not talk to each other ‘keenly.’ They prefer to compete than collaborate. A lesson ought to be learnt from East Africa on how co-insurance can shape the landscape of Malawi’s insurance sector, especially underwriting and claim standards. Malawi insurers must avoid predatory marketing. Learn to support each other’s terms and above all, share risks. Co-insurance is the answer. Talk to us. We are here to serve you.
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