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Inflation, devaluation hit insurance sector

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The Insurance Association of Malawi has said following the devaluation of the Kwacha by 25 percent in May and continued rise in inflation, the insurance value of most prized assets has depreciated.

The association has since advised insurers in the country to revise the values of items and consider upward adjustments of the insured sums, to enable adequate recovery in times of loss.

It says this will also in the long-run shied people from ‘under-insurance’.

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In a statement Wednesday, the association has said the culmination of the after-effects of the Covid pandemic and the Russia-Ukraine war has had an adverse effect on global prices including insurance products.

“Under the prevailing circumstances, the market or replacement values of such items have significantly reduced in return, and it is in this regard that we write to advise the insuring public to have another look at their most prized assets which are insured and revise their values in line with the said devaluation and inflation,” reads part of the statement.

The association whose membership comprises 10 insurance companies in the country has also advise the insuring public not to use the actual devaluation percentage of 25 percent when making adjustments as a precaution.

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“…maintaining the current values will render your assets undervalued and suffer effects of a condition we call ‘average’ or ‘under-insurance’. We would urge you not to limit your revisions to 25 percent. Please make sure you make comprehensive enquiries with technical professionals into what the current market and replacement costs are,” the letter adds.

Commenting on the matter Market Analyst Cosmas Chigwe said under the prevailing circumstances, it is unlikely for an insurer to replace a lost item if they are paid the exact amount that the insured it for.

He said the devaluation of the Kwacha and the rising inflation continues to eat into people’s disposable income, particularly for assets whose insurance is mandatory such as motor vehicles.

“The insurance industry is bound to face declining demand for products like life insurance as most people will usually use disposable incomes for such contractual saving products. And with the very high inflation levels, disposable incomes for most households at dwindling at alarming rates,” Chigwe said.

Meanwhile the Insurance Association has said it will continue to monitor the country’s economic situation and will be advising the public accordingly.

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