RBM governor urges insurers to balance profits, sustainability

Chuka: Nearly 47 percent of wealth unclassified
Chuka: Nearly 47 percent of wealth unclassified

Reserve Bank of Malawi (RBM) Governor Charles Chuka has called on insurers to restore the credibility of the industry by maintaining adequate capital, honouring claims and establishing a new code of practice that will cement the sustainability of their businesses.

The head of the central bank, which acts as the registrar and regulator of the industry credited with helping people plan their lives and secure their wealth better, made the call when he opened the Insurance Institute of Malawi (IIM) Lakeshore Conference in Mangochi on Friday.

A bustling arm of the country’s financial system whose total asset base stood at K520.3 billion in 2011, the industry has grown sharply—with its assets base jumping from K2 billion (about $5m) in 2003 to K103 billion (about $257m) in December 2012—amid low public reach and lingering uncertainty and questions over their ability to honour claims.

Between 2009 and 2011, the risk management industry witnessed a bittersweet with its assets swelling by 25 percent to K77.8 billion and market share shrinking from 21 percent to 15 percent. While the business climate is improving on the back of stabilising economic situation, Chuka described as “more worrisome” the fact that nearly 47 percent of the industry’s wealth was unclassified or not converted to fixed assets, government securities, loans and real estates—a trend he attributed to the liabilities side where 68 percent of the assets constituted unearned premiums.

“While this is raising questions about the industry’s general profitability, the more troubling issue is its capacity to honour claims,” he said.

The industry performed relatively better last year as it grew 32 percent and placed 36 percent of its assets in government securities and fixed deposits. More needs to be done in the way they handle risks to allay questions about the financial soundness of the insurance industry since 78 percent of its liabilities were unearned premiums, the governor recommended.

Chuka advised the firms to put risk management at the heart their operations for government has no capacity to pump bail-out funds for ailing financial institutions as its US counterpart did when the world woke up to the rude awakening of the near collapse of once too-big-to-fail insurance conglomerate American International Group (AIG).

He reasoned: “State intervention does not come cheap. In Malawi, we dont have a framework for rescuing failing insurance companies. It is more efficient and expedient to close them down, passing all the cost to shareholders.

This might have been subtle reference to the closure of Swift Insurance Broker, but the governor said the role of RBM as a regulator is to help firms grow, not to shut them down.

IIM president Tawonga Manda conceded that the insurers can do better, but called on government as well as the private sector to intensify awareness campaigns not only to ensure more Malawians are insured but also know how to claim compensation. He reckons the enactment of the Pensions Act three years ago has helped broaden their wealth at a time rising cost of living and weakening currency left some Malawians failing to pay premiums.

“Coming for the eighth year, the annual conference, under the theme ‘Towards a Sustainable Future’, offers various players in the industry to reflect on how we have performed in the year ended and look forward. Insurance penetration and regulatory compliance are among the key issues under discussion,” he explained.

Only three percent of the country’s population, estimated at 15 million, have access to insurance service, IIM confirmed.

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