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 October 2nd, 2024
Back in the day, we learned in economics that “human wants are unlimited whilst resources required to satisfy the wants are limited. As such, choices or decisions of what, how, for whom to produce and from whom to buy, have to be made. Every choice involves an opportunity cost.” An opportunity cost is the benefit that is sacrificed as a result of an alternative choice.
What this fancy economics jargon illustrates is that in life, one needs to be rational, vis-à-vis choices. No matter how rich a person, a company or a country can be, they can only obtain a limited amount of temporal or financial resources at any given time.
This is true in insurance. The insuring public buys insurance in order to have peace of mind. As a policyholder, one needs to be satisfied that the insurance company that one has chosen will provide one with adequate insurance programme. The difficult part lies in the choice of the insurance company with whom to place your risk portfolio.
In our column last week, we pointed out that there are many factors that one has to bear in mind when choosing an insurance company. We mentioned that in developed insurance markets, insurers are rated by independent rating agencies on a variety of measures which indicate present strengths and prospects for the future. Price is arguably a competitive decisive factor since insurers are already rated using common parameters. In Malawi market, such measures are not available. Therefore, selecting an insurer based on the level of premium alone is risky.
When you are looking for an insurance company to place your portfolio with, it is important that you shop around the market. Look at policy wordings and limits of liability on offer. It is essential that a cheap price is not chosen at the expense of reduced cover. Take note that policy wordings are not standard across a panel of insurers. One insurance company, for example, may quote cheaper premium than the other but introduce in the cover high excesses or deductibles. A deductible is part of a claim that is borne by the insured. Such insurers may also be excluding from cover notable insurable risks. The risk that many insurers exclude from cover, especially for standalone covers, such as fire and allied perils policy is accidental damage.
Therefore, it is important to ascertain whether the insurance company you want to buy cover from is rated or not. Importantly, decode the assigned rate. As pointed out above, insurance companies are rated by independent rating agencies on a number of factors vis-à-vis claim paying ability. The higher the rate, the more certain it is that the insurance company will honor its future claim obligations. For instance, an insurance company with a rate of AA+ [double A plus] is stronger than one with a rate of AA [double A]. Be discerning - rates can either be in local currency or in dollars [foreign currency]. It is no brainer that an insurance company that is rated based on Malawi Kwacha will play second fiddle to an insurance company that is rated based on US Dollars.
Study the insurer’s business philosophy. Establish whether the insurer you have chosen takes a long-term or short-term view of your business relationship. Insurers that take long-term view may not offer cheap premiums. However, such insurers offer continuity of cover after bad years [periods of heavy claims]. You do not want your insurer to leave you when you need them most - by canceling policies due to poor claims history.
Obtain information about the financial strength and solvency margin of the insurer. It will do you more benefit than harm to be acquainted with the balance sheet of your insurer. Although the balance sheet is a snap-shot of the financial position of a company, its size gives a picture of the company’s asset base. This assists to gauge whether the prospective insurer is sufficiently capitalized or not to enable it pay future claims with minimal hassles and financial stress.
Be acquainted with experience and mixture of key staff, especially management. Insurer’s competence is often measured by this parameter. Top-rated insurers have a good number of qualified staff. In Malawi, many insurance practitioners take The Chartered Insurance Institute of London examinations. Find out how many of their key staff are Associates [ACII] or Fellows [FCII] of the Institute. This gives you confidence that you are dealing with competent and qualified professionals. Same applies to choice of brokers. If you are in doubt, talk to us. We are here to guide and serve you.
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