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 are educative at all levels, catering to both practitioners and non-practitioners.
As published in The Daily Times (Malawi) on September 25th, 2024
There was a big football match in the English premier league on Sunday, 22 September 2024, at Etihad stadium between Arsenal and Manchester City teams. Billed as the clash of the season between the premier league heavy weights, the latter rescued a dramatic point with only sixty seconds remaining on the clock. The game ended in a 2-2 tie. Ask any Arsenal fan and they will probably tell you that it felt really good to be a gunner for the ninety-seven of the ninety-eight minutes of the game. Arsenal was about to cause one of the major upsets in the history of the club’s football.
I watched the game at Lilongwe Golf Club. As we were waiting for the match to kick off, a certain gentleman who had just finished playing a round of golf, sitting next to me asked, “sir, what is your line of business?” I told him that I work in the noble profession as an insurance broker. He took me aside and confided in me that he was working for a new multinational company in Lilongwe. He wanted to find out from me the factors that his company need to consider when choosing an insurance company to insure with.
This is what I shared with him.
What constitutes a good spouse is subject to debate. But menfolk and womenfolk agree that beauty or handsomeness alone is an incomplete index. Choice of marriage partner looks for a number of factors that cannot be listed in this column because of space limitation.
The same applies in insurance. Price alone is not an adequate measure of rationality in selection of an insurer. The case in point is that the cheapest insurer is not necessarily the best. In fact, it is the worst. Avoid cheap insurance service providers.
A few weeks ago, I came across a newspaper advert by a government ministry, putting its insurance programme to public tender. For government, this is in order. Government has an obligation to the public to be transparent in service and product procurement as espoused in Public Procurement and Disposal Act. But one thing that hit me was the basis of selection of the would-be insurer. The advert stated that it would use least-cost criterion to pick its prospective insurer. This means that the insurer that quotes the lowest premium will be awarded contract. Just like beauty is not a competitive index for choosing a marriage partner, so is premium in insurance. There are a number of salient factors that the insuring public needs to consider in choosing a prospective insurer.
In developed insurance markets, such as South Africa, United States of America, United Kingdom and others, insurers are classified by independent rating agencies on a variety of measures which indicate their present strength and prospects for the future. In this case, for insurers with same rating, price is arguably a competitive factor since insurers are already sized up and compared using comparable indices. Malawi insurance market does not have such measures. In fact, of the eight general insurance companies in the market, only two insurers are rated. Therefore, selecting an insurance service provider based on premium quoted alone is inadequate and dangerous. It must be avoided at all costs.
When you are looking for an insurance company to place your risks with, it is important that you shop around the market taking cognizance of the policy wordings and limits of liability on offer. Let me give an example: Likoma Insurance Company quotes premium of MWK16 million for a vehicle valued at MWK200 million against comprehensive risks with third party property damage limit of MWK60 million. On the other hand, Chizumulu Insurance Company quotes premium of MWK9 million for the same vehicle but with limit for third party property damage of K20 million. If you use premium as sole determining factor, by picking Chizumulu as your insurer, you will be selecting an insurer that in relative terms, is latently expensive. Although Chizumulu is seven million Kwacha cheaper than Likoma in terms of premium, its – Chizumulu’s - cover, is ceteris paribus restrictive by K40 million. It is essential that a competitive price is not chosen at the expense of reduced cover. Take note that policy wordings are not standard across a panel of insurers. Chizumulu, for example, may quote cheaper premium than Likoma but punish you with excessive deductibles. They may also be excluding other insurable risks such as riots, strikes, civil commotion, floods and cyclones.
Views from the top are that the cheapest is not essentially the best. Avoid the temptation of selecting insurers based on premium alone. Talk to us. We are here to guide and serve you.
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