Liquidity challenges hit insurance sector

The insurance sector performance continues to be subdued as players face credit and liquidity vulnerabilities despite being adequately capitalised, solvent and profitable, the Reserve Bank of Malawi (RBM) has said.

Industry insiders have since attributed the situation to economic pressures being experienced in the country.

In its 2022 RBM Financial Institutions Supervision Report published on Tuesday, the central bank  said the sector reported K28.8 billion insurance claims during the year under review, up from K26.8 billion  registered the previous year.

On the other hand, recoveries from reinsurers stood at K11.8 billion compared to K7.1 billion the previous year.

Reads the report in part: “The sector continued to experience liquidity challenges with a liquidity ratio of 86.9 percent which was below the recommended benchmark of 100 percent due to high insurance receivables.”

In a written response yesterday, Insurance Association of Malawi vice-president Abdul Mageed Dyton observed that the the disruptions caused by the Covid-19 pandemic and forex shortages affected revenues.

He said customers should expect a gradual premium increase in the short and medium-term as the sector will be responding to a corresponding hardening of the reinsurance market, which was heavily affected by global catastrophes like earthquakes, cyclones, and floods.

Dyton said following the disruptions, customers resorted to cutting down production as they could not import raw materials while a lot more were negotiated for extended insurance premiums payment, leading to high insurance receivables, thereby affecting insurers liquidity.

 He said: “In the end, insurance companies find themselves in a tight corner to balance between the need to fully comply with relevant regulations or meet customer expectations.

 “For example, due to economic constraints, customers seek huge premium discounts and demand to pay premiums in installments. Yet regulations expect insurance companies to collect premiums upfront or cancel unpaid policies after 30 days and pay legitimate claims within 14 days.”

 Dyton said the sector is poised to introduce digital motor insurance certificate and is cooperating with the Ministry of Labour for speedy operationalisation of the Workers Compensation Fund to curb insurance fraud.

  Meanwhile, in view of the subdued performance, RBM Governor Wilson Banda, who is the registrar of financial institutions, said he will continue the multi-pronged engagement with the sector to address existing and emerging risks.