Zimbabwe’s funeral assurance companies might struggle to remain viable as they continue to lose business to life assurers, the Insurance and Pensions Commission (IPEC) has warned.
Although life assurers are within their rights to write funeral business, the impact of traditional funeral assurers cannot be ignored.
The trend has been noticeable over the last few years, and latest figures from the sector’s regulators report on funeral assurance for the quarter to March 31, 2020 points to a weakening funeral assurance segment.
According to IPEC, during the quarter under review, life assurers wrote inflation-adjusted funeral assurance business worth $39.27 million.
Comparatively, funeral assurers wrote 6.73 percent of the total funeral business that was written in the market, which IPEC said was “approximately fourteen times less than the funeral business written by the life assurers.”
During the quarter, inflation-adjusted Gross Premium Written (GPW) written by funeral assurers was down 50.33 percent to $2.83 million, attributable to a “notable decrease in GPW in real terms was on account of the decrease in real incomes following inflationary spikes.”
With life assurers claiming a huge portion of funeral business, IPEC says traditional funeral assurers should be innovative and be able to tap into other markets.
“Increasing competition from life assurers in writing funeral assurance business is also a threat that the funeral assurance sector should always put on its radar going forward,” said IPEC.
“This threat underscores the need for funeral assurance sector players to be innovative and aggressive in terms of writing new business and tapping into the uninsured market.”
The local funeral assurance sector is constituted by eight main players namely: First Funeral, Foundation, Moonlight, Orchid, Passion, Ruvimbo, Sunset and Vineyard.
Moonlight remains the dominant player in the sector, accounting for 61.51 percent of GPW for the quarter under review.
The balance accounted for 38.49 percent of funeral assurance business.
Over the past year, the local funeral assurance sector has been affected by a difficult operating environment typified by hyperinflation and currency depreciation. This has resulted in increasing the sector’s costs of doing business, shrinking premiums in real terms due to reduced disposable incomes of consumers and limited viable investment options to invest policyholder funds, which could have long-term consequences on their viability.
The latest numbers show that rising operating costs are becoming a concern for the sector.
Operating expenses increased by 285.24 percent and, according to IPEC, were largely concentrated in one funeral assurer, which accounted for 68.34 percent of the total operating expenses ($8.71 million).
The balance accounted for remaining 31.66 percent of operating expenses.
The expense ratio for the period stood at 64.87 percent.
“This ratio continues to be very high and is unsustainable in the long term, especially if funeral assurers have an excessive run on the book where claims are concerned.
“All funeral assurers are therefore reminded of the need to rationalise their operating and management expenses to levels that are sustainable,” said the regulator.
In terms of earnings, five funeral assurers reported positive profit before interest and tax, while the remaining three reported losses during the period under review.
“However, the reported losses experienced by the three funeral assurers were insignificant as the overall net effect was an increase in profit before interest and tax by 21.37 percent from $3.6 million for quarter ended March 31, 2019 to $4.37 million for the quarter ended March 31, 2020.
“The increase in profit before interest and tax was on account of a sharp increase in nominal GPW written emanating mainly from premium increases in line with the general increase in prices during the quarter under review.”
The sector is struggling to meet minimum capital requirements, with just two out of eight funeral assurers reported capital positions above the regulatory minimum capital requirement of $62.5 ima million.