In 2013, the Competition and Fair Trade Commission (CFTC) raided the offices of the Insurance Association of Malawi on allegations that the Association was being used by its members as a “forum for discussing premiums charged.” Upon investigations, the Commission concluded that the Association was engaged in a cartel, and directed them to cease and desist from the activity, as well as make a public withdrawal of any recommended premium rates that might be in place. To date, the insurance premium rates in Malawi are largely unregulated. Similarly, in 1944 the United States (U.S.), Supreme Court decided a case where member companies of South-Eastern Underwriters Association were accused of among other things fixing premium rates on fire insurance in specific states. The Supreme Court ruled that the Sherman Antitrust Act extended to insurance business and therefore prohibited insurance companies from fixing premium rates. The U.S. legislators responded quickly with the McCarran Ferguson Act of 1945, which exempted the insurance industry from federal antitrust laws if the state regulates it. Non-life insurance, with the exception of health insurance, is currently largely excluded from federal antitrust laws. Whilst, the insurance premium rates in the U.S. are considerably regulated, Malawi has maintained a free market. This paper explores the effect of rate regulation on non-life insurance sector by comparing the U.S. and Malawi insurance markets. The paper asserts that whilst free competition has an effect of lowering premium rates and making insurance affordable to individuals, price wars and premium undercutting result to race to the bottom. When insurers charge insufficient premiums, they may be unable to satisfy claims owing to a lack of liquidity, resulting in negative market conducts. In the worst-case scenario, charging low rates might lead to the insolvency of insurance businesses thereby decreasing the supply of insurance on the market. The study suggests that the Reserve Bank of Malawi (RBM), Malawi's insurance regulator, should be free to regulate insurance premium rates without being estopped by the CFTC, so that insurance premiums are adequate, fair, and not exorbitant. RBM, for example, may establish minimum premium rates that are beneficial to insurance companies while also considering consumer interests
