Regulatory Alerts2025-01-01
Guidelines on Pricing of Motor Insurance Products by Insurers, 2025
The Registrar of Financial Institutions requires Malawian insurers to implement scientific premium rating models that calculate motor insurance rates based on vehicle characteristics, claims history, and driving records. These rates must adequately cover claims costs, reinsurance, commissions, levies, management expenses, and profit while minimizing cross-subsidization and unfair discrimination. The guideline mandates triennial model reviews, board-approved annual rate guides with supporting rationale, CEO oversight of underwriter compliance, and exception reports for policies priced below minimum thresholds.
REGISTRAR OF FINANCIAL INSTITUTIONS
GUIDELINE ON PRICING OF MOTOR INSURANCE PRODUCTS BY INSURERS
(Financial Services Act and Insurance Act)
1.0 INTRODUCTION
Pricing of insurance products is complex because pricing decisions are made before the ultimate cost of claims is known. In recent years, rates of motor insurance products have declined, largely because insurers have deviated from scientific pricing models. Instead, insurers charge arbitrary rates that are void of any scientific rationale. Therefore, Malawian insurers have grappled with insolvency, mostly because their pricing levels are inadequate to fund claims emerging from risks that they assume.
Accordingly, in line with Section 96 of the Financial Services Act, the Registrar, pursuant to his mandate of regulating and supervising the insurance industry, has developed this Guideline on pricing of motor insurance products. The Guideline prescribes minimum requirements for the pricing of insurance products.
2.0 OBJECTIVES OF THE GUIDELINE
The objectives of this guideline are to ensure that: -
- Insurers rate motor insurance products appropriately;
- Insurance premiums are not inadequate, excessive or unfairly discriminatory;
- Cross-subsidization is minimized; and
- Pricing models for motor insurance products use recognized tools such as actuarial analysis, statistical modeling, telematics and data analytics.
3.0 MINIMUM REQUIREMENTS FOR PRICING OF MOTOR INSURANCE PRODUCTS
3.1 Insurers shall have a scientific premium rating model that is supported by recognized tools such as actuarial analysis, statistical modeling, telematics and data analytics.
3.2 The premium rate for motor insurance products should take the following into consideration: - a. Vehicle type b. Vehicle age c. Vehicle usage d. Location of the vehicle e. Vehicle mileage f. Claims history g. Driving record
3.3 The premium rate for motor insurance products shall at a minimum make provisions for the following: - a. Cost of claims; b. Reinsurance costs; c. Commission expenses; d. Levies and taxes; e. Management expenses; and f. Profit.
3.4 The premium rating model shall be reviewed at least once in every three years.
3.5 Insurers shall have a documented pricing philosophy which shall be communicated to all underwriters.
4.0 OTHER REQUIREMENTS
4.1 A Board approved premium rating guide, containing minimum recommended rates for motor insurance products, must be submitted to the Registrar at the beginning of each calendar year together with the rationale behind it.
4.2 The Chief Executive Officer (CEO) of the insurer should ensure that underwriters fully adhere to minimum rates prescribed in the insurer’s pricing model and rating guides.
4.3 Upon request by the Registrar, the CEO of the insurer shall submit exception report containing a full list of policies which were rated below the minimum recommended premium rates together with justification for such discounts.
[Signature]
Dr. MacDonald Mwale REGISTRAR OF FINANCIAL INSTITUTIONS
February 2025