Make risk management a priority
Once upon a time, it appeared as a norm when managing risks simply implied purchasing an insurance policy and forgetting it. In today’s world, this is simply insufficient—the wide range of risks we face and the stakes are far too high. A robust risk management system can help your company protect its profitability, reputation, and the stakeholder’s value.
Recently, the Institute of Chartered Accountants in Malawi (Icam) issued a paper which provided guidance to its members on the situation of the Malawi economy in relation to the International Accounting Standard (IAS) 29 Financial Reporting in hyperinflationary economies. While comfort was provided in Icam’s conclusion that IAS 29 is not applicable to Malawi economy at this present time, this article is written to guide business owners and company executives—especially those belonging to small and medium enterprises (SME) including small non-governmental organisations (NGOs)—on how to effectively enhance their risks management programmes to stay on course.
This article pin-points insurance as one of the most important risk management tools which, unfortunately, in Malawi tend to be left out in budgetary processes of most businesses unless it is enforceable by law, such as motor vehicle insurance.
Insurance plays a major role in risk financing, which is to cover the truly erratic, calamitous losses of which no individual can take effective preventative measures. With insurance, a business is able to control its expenditure, sustain earnings and resources, and make provisions so that small claims do not become big and costly. In essence, insurance creates peace of mind as your employees know that they will be covered in the event that a severe claim warranting your organisation declared bankrupt, in the worst case scenario, arises.
Having said this, it cannot be ignored that better risk management is when an organisation stresses managing for lesser, foreseeable and avoidable losses, as this leaves it with better cash flow and well-positioned to treat at least some superficial calamities as rather regular expenses. When more-predictable, perhaps immaterial losses, become expenses which over time are treated as ordinary “retained” expenses, the organisation will spend prudently on insurance, while devoting more resources to its mission.
Much as the Malawi insurance market has not reached its full potential, it is important that buyers are helped to make informed decisions. Attention to detail should not only enable the insurance policy to cover your company’s risks, but that it is acquired at the best possible quote.
To achieve this, you need to provide a cause for the underwriter to write the business at a best price: Professionally, underwriters are guided by the basic underwriting principles, but these general rules cannot address all the situations likely to arise. Clients need to emphasise their organisation’s best practices, prevention and risk management programmes. Provide the underwriter justification to slot your business into these guidelines, and most importantly, attach all supporting documentation which an insurer may request you to provide.
Finally, dear readers, if we critically look at the fire out breaks in Mzuzu, Lilongwe and other markets, one wonders where this country would have been if it were not for government’s swift response in compensating these people. More looting maybe?
I think there is untapped market in this small-scale business sector that demands an innovative approach by the insurance industry gurus in disseminating insurance knowledge to the grass roots and helping SMEs manage their risks while effectively supporting the government security programmes.
In their write-up titled ‘Does insurance promote economic growth?’ published in the Journal of Risk and Insurance, Ward, D. and Zurbruegg, R. (2000) argued: “There is a strong positive correlation between insurance market development and economic development.” They described it as an “S Curve”, which stated the starting sharp and then smooth increase of insurance development corresponding to the lower and higher stages of economic development, respectively.
Happy New Year as you prudently seek risk management strategies that effectively beat the economic woes!
—The author is a Certified Risk and Compliance Management Professional in Insurance and Reinsurance. He holds an MBA in Financial Services and ACCA qualifications. He heads the Internal Audit function at Charter Insurance, but likes writing business and corporate governance related topics in his personal capacity.
