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 August 07th, 2024
There is already plenty of talk and traces of puzzlement among opinion leaders in the way insurance is being commoditized in Malawi. Since its inception, insurance industry has operated within a set of rules designed either to restrict or widen exposure, depending on the state of affairs at hand. In some cases, the situation has allowed insurance industry to be efficient and in other cases to be admonished.
Until recently, my image of Malawi insurance industry was of an oligopolistic structure, where supply of insurance capacity is in the hands of relatively few barometrically interdependent organizations – working at arm’s length. I must confess - that image took a knock some months ago.
Verily, verily, I say unto you, our insurance industry will soon or later start being counted as an endangered industry. When everything is said and done, insurance people will have themselves to blame. Insurance as a commercial offering is regrettably being commoditized grossly, especially on the sales counter of the transaction.
A paper that was presented at the Insurance Institute’s conference in Blantyre some years ago, entitled “Unsatisfactory affair of our practice: collision with the future” still rings bell in my ear. Every business transaction has its own procedures that ought to be followed from both ends as a consumer and a seller.
For a consumer, major elements in choosing an insurer would be cost, product, financial solvency and service. Weight given to each of these factors depends on the actual line of insurance, whether it is corporate or personal line.
An insurer with good service history will fetch, ceteris paribus, more customers than one who serves clients and brokers poorly. Insurance consumers hardly recognize extra policy benefits, such as increased policy limits, premium credit warranty, et cetera. For example, every car owner I have come across always wants his claim settled yesterday - that is - as quickly, accurately and painlessly as possible. This is a big challenge for insurers.
The case in point is that insurance companies need to go an extra mile in product innovation and service. The insuring public out there needs products that are responsive to their daily risk exposures, not products that suit the insurer’s balance sheet and sale convenience.
Have insurance companies ever thought of joining hands with commercial banks and micro-financial institutions to cover loans through trade credit insurance or parametric cover or first written demand bonds or other innovative facilities? There is an enormous trade credit, parametric and first written demand bond market out there that is unexploited. Talk of agriculture sector.
Look at the way banks and micro-financial institutions are outdoing each other in promoting their loans, planting auto-teller machines in every corner of the country (I am told that the only district in Malawi that has no bank auto-teller machine is Likoma Island).
The point is that there is a market that insurers ought to work on instead of fighting for the existing cake or coming up with services that cut corners. Need I say more? Malawi’s insurance penetration is circa 3 percent. Our market is still unsaturated. There is still room for growth.
Back to trade credit insurance. Credit is a system of buying and selling goods or services without immediate payment being made. Agreed, in business, it is rare to trade without allowing credit. A delivery note or invoice is issued at the time of sale. A statement of account, on the basis of which one is supposed to pay, follows at a later date.
Despite this organized procedure of trade between buyer and seller, there is risk that the former may default payment. For various reasons. Trade credit insurers assure the seller that if his debtors fail to meet their obligations, he (the seller) can recover part of the losses from the insurer.
Trade credit cover is often provided on co-insurance basis. Insurers keep sellers in the risk. The risk is shared between an insurer and a seller. For instance, an insurer can take eighty per cent of the risk. The seller takes the balance. In the event of a claim, the loss is shared proportionally. The arrangement makes the seller less likely to take unduly hazardous risks by providing generous or unjustified credit terms to customers. This should remind you, dear reader, about origins of 2008 credit crunch, which through multiplier effect, is still hurting you and me, today.
Views from the top are that although the global and national economic boom is back, the prognosis is still iffy. Trade carefully. Talk to us. We are here to serve you.
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