Insurance firms are struggling to pay reinsurance premiums outside Malawi due to lack of foreign exchange, leaving insurers with great exposure, Business Review has established.
Reinsurance is insurance for insurance companies.
In an exclusive interview with Business Review on Wednesday, Insurance Association of Malawi vice-president Wales Meja said the situation has left industry players with huge risk in case of eventualities.
He said: “When somebody insures, they pay premium in Malawi kwacha, but when we are insuring or reinsuring, we pay in dollars. So it’s very tough.
“We are reinsuring, but we cannot even pay the premiums outside Malawi. So, we have got this very huge, huge risk that we are insuring where we are failing to pay the premiums.”
Meja, who is also Britam Insurance Malawi chief executive officer, said other than the forex challenges, the industry is faced with rising prices, which has impacted on operational costs, forcing some players to ponder increasing premiums.
“When we insure, we insure on the basis that if there’s a claim, we should be able to come and assist. Now because of the devaluation and the inflation levels that we have now, the claim costs are going up almost every day so are the claims.
“A spare part that we were buying at K200 000 last year, we are buying it at K700 000, but the premium is as was a year ago. And operating expenses are rising.”
An industry player, who spoke on condition of anonymity, pointed out that most of the insurance firms have billions of claims for forex which banks are yet to honour.
This, the industry player said, means that if any eventuality befalls them, they may not be able to get compensations from their insurers, which could force them to go bankrupt.
The insurance industry has been struggling in recent years, with data showing that the sector posted a K2 billion combined underwriting loss in 2023, a rise from the previous year’s K91 million.
The factors that contributed to the losses include national economic pressures coming from currency devaluations in 2022 and 2023, high inflation environment which led to an increase in claims costs, court awards and operating expenses.
According to Reserve Bank of Malawi (RBM) data, premium ceded to reinsurers by general insurers in 2023 stood at K26.2 billion, representing 31.3 percent of total gross premiums written during the year.
Fire remained the highest reinsured class of business, constituting 40.2 percent of total ceded premiums followed by miscellaneous class at 18.7 percent.
Speaking at the 2025 Insurance Institute of Malawi Annual Charter Dinner in Blantyre last week, RBM deputy Governor Kisu Simwaka said through recently passed Insurance Act, the central bank seeks to bolster governance and management of insurance institutions and provide enhanced supervision over premium payments and claim settlements.
Treasury data shows that in 2017, insurance penetration, which is the contribution of the insurance sector through the amount of premium income generated in a particular year to its economy, was at 1.52 percent while the projected figure for 2021 was 1.50 percent.
These percentages are lower than insurance penetration of three and two percent reported in 2008 and 2014, respectively.
The insurance sector is crucial to the economy, serving as a vital channel for households and businesses to transfer risks to entities better equipped to manage them, according to experts.
The sector currently comprises six life insurance companies, eight general insurance firms, one re-insurance company, 24 insurance brokers, five agents for brokers (banks offering bancassurance services), 40 insurance agents (for general insurers), 494 individualised agents (for life insurers), 16 insurance loss assessors/adjusters, one insurance settling agent, and one funeral services insurance provider.
As at December 31 2023, total assets of general insurance in Malawi were valued at K88.9 billion while total assets of life insurance were valued at K1.3 trillion.
