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Beaven Dhliwayo Features Writer
Government’s stance that insurance companies will now undergo monthly audits to ensure their assets are sufficient to cover clients’ properties in the event of loss, is a step in the right direction as it protects clients. Local insurance companies have been struggling to pay claims, and in the recent past resorted to negotiating payment plans with clients, who pay their contributions religiously every given month.
There is a high prevalence rate of fraud in the sector, hence its cleansing has long been overdue. Presenting the 2019 National Statement recently, Finance and Economic Development Minister Professor Mthuli Ncube announced that Government had gazetted new regulations that will, among other things, ensure minimum prescribed asset ratios for insurers.
Under the new regime, insurance companies will be required to conduct self-assessment to prescribed ratios within 14 days after the end of every month based on management accounts. The provisions empower the insurance industry regulator, the Insurance and Pensions Commission (IPEC), to take punitive or corrective measures to enforce compliance with the prescribed asset requirements, amid indications insurers have been struggling to comply.
Figures from IPEC indicate that the industry was losing over $165 million annually through various forms of fraud.
Government should tighten investigations on insurance firms to prevent fraud as it is unacceptable for insurance companies to stagger claim payments.
IPEC now has the power to rein in errant insurance companies, as well as to deal with issues of corporate governance, customer satisfaction and compliance issues. On the other hand, legislation governing insurance firms is outdated, and need to be continuously reviewed to improve corporate governance guidelines. Government should not tire till there is normalcy in the sector.
There should be a review of the current penalties, which were not deterrent and resulted in some insurance firms using the gap to avoid critical regulatory requirements.
For insurance firms to fulfil their mandate there is need for stronger requirements relating to auditors and an insurance accounting standard and stringent disclosure requirements for all firms.
Above all, there is need for the IPEC and the insurance industry to cooperate to speed up the implementation of the new regulations that seek to address capitalisation, corporate governance and accountability issues — among others — in the insurance industry.
In future, relevant authorities ought to reconsider the appointment of the IPEC board members to avoid issues of conflict of interest in cases where some directors of insurance firms were also board members of the IPEC.
The Insurance Bill should aim to harmonise the Insurance and Pensions Commission Act with the Insurance Act and the Pension and Provident Funds Act.
IPEC has a duty to focus on the alignment of laws to ensure policyholders get quality service.
Insurers have to be attractive and be able to instil confidence in clients unlike in the past.
In business circles, lack of capitalisation could restrict companies from taking a bigger share of risks, so they can keep more premiums in the country.
With such a scenario, some insurers may resort to undercutting premiums, which results in them failing to meet their claim obligations, and this is true for many firms in the country.
In the end this could result in a loss of confidence in the local market. Some clients may place their businesses with regional and international insurers.
On their part insurance companies should not wait to be pinned by Government, but find innovative and creative solutions to revive the sector in the country as the economy continues to underperform.
The sector needs to align its core principles with those promulgated by international organisations on pensions supervision, and modernise the country’s pensions’ laws, and also provide for separation of duty for various players in the pensions industry.
Worth noting is that there is a strong correlation between economic progress and insurance penetration. A lot of the challenges facing the sector in Zimbabwe can be attributed to the struggling economy. With a depressed economy, risk management and enterprise risk management tend to weaken — a trend that is currently prevailing in Zimbabwe.
Hence, it becomes imperative for all stakeholders to join hands and revitalise these essentials to support sustainability of the insurance sector. While the development of energy, agriculture, manufacturing and mining sectors is critical to the country’s economy, the insurance industry needs to provide robust and sustained solutions for both traditional and alternative risk transfer solutions to protect their expansion.
However, there are known factors limiting the growth of the industry.
Some of the factors bedevilling the insurance sector include, but not limited to low level of trust, low income levels; little awareness of insurance; legal and judicial systems as well as lack of human capital and expertise.
Thus, all insurance firms need to enhance consumer trust levels for them to enjoy a significant growth in the sector.
The industry needs to be more open and transparent with clients, and more importantly, to pay out legitimate claims. Experts also note that the provision of micro insurance solutions needs to be broadened through trusted stakeholder models to insure more individuals and businesses are insured.
For this to work, the sector needs to use alternative distribution channels such as mobile technology, retailers and banks. Additionally, for the sector to enjoy positive growth there is need to end insurance fraud.
It is critical not to only exclude the abusers and fraudsters, but to also stimulate honesty and integrity among the insured.
Transparency from the insurer and the likelihood of claim pay-outs will contribute to positive behaviour change in clients.
So much needs to be done for the revival of the insurance sector, but above all, willingness to reform is key for development.