Government has finalised regulations for the new solvency regime for the insurance sector called the Zimbabwe Integrated Capital and Risk Programme (ZICARP) framework, which takes effect next month.
The insurance sector regulator, the Insurance and Pensions Commission (IPEC) launched ZICARP last year.
Finance and Economic Development Minister, Mthuli Ncube, revealed that President Emmerson Mnangagwa’s administration has finalised regulations to enforce the implementation of ZICARP.
“Government has finalised regulations to enforce the ZICARP framework with effect from 1 January, 2023,” Ncube said.
He added: “The Programme sets minimum capital requirements for insurance companies proportionate to the level of risk, in order to enhance financial stability of the insurance sector.”
ZICARP aims to improve the safety and soundness of the country’s fragile insurance companies in a bid to enhance protection for policyholders
It is expected to capacitate insurers to withstand any risk they get exposed to as it requires that local insurers have capital aligned to the risk they carry.
Currently, local insurers have a one size fits all regulatory capital requirement, regardless of their size and nature.
Life assurers were required to hold a minimum capital threshold of ZWL$75m, short-term assurers ZWL$37.5m, and funeral assurers ZWL$62.50m.
IPEC wants the sector to move away from an unscientific determined capital to one which is related to risks insurers carry under ZICARP.
This means there will be a need to understand each insurer’s business line and products and identify risks in those activities and assess the quality of risk management, day to day management and oversight.
Basically, it means that the new risk framework aims to address weaknesses of the current capital regime which unscientifically determine the minimum capital thresholds of insurance companies.
ZICARP also forms part of an early warning system with a supervisory ladder of intervention that enables IPEC to timely take necessary measures in the interest of policyholders.
The framework also enables orderly exit of insolvent insurance companies from the market and improves confidence in the insurance sector. It also promotes standardisation across the country’s insurance market and alignment to international regimes.
Other countries such as South Africa and Kenya have already applied the risk based capital regime, which requires or promotes consistent and comprehensive disclosures by insurance companies to protect policyholders.
The new framework considers the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy undertaking.
Consequently, IPEC is implementing Circular 11 of 2016, which requires an effective risk management system to be put in place. It outlines the governance and risk management requirements for insurance companies.
The circular constitutes key pillar 2 of the ZICARP requirements including the establishment of actuarial functions, internal audit functions and documentation of key risk management framework and policies within insurance companies.
ZICARP will ensure that insurance companies will have sufficient capital to meet obligations.
Under the new framework, insurers must ensure adequate disclosure of material information to policyholders including mechanisms to keep them well informed and educated about insurance products, claims and complaint handling procedures.
They must also disclose all issues of non-compliance with the Insurance Act, regulations, Money Laundering and Proceeds of Crimes Act and other applicable laws.
These include violations relating to the capital adequacy ratios below the prudential minimum thresholds, prescribed assets ratios below the statutory limits, non-compliance with the minimum corporate governance standards as laid out in the Insurance Act or regulations.
Every non-compliance insurance company is now required to disclose the causes of non-compliance, provide a statement of the proposed compliance plans and timeframes for addressing the non-compliance
The development comes at a time when Zimbabwe’s insurance sector is in dire straits emanating from low confidence after policyholders lost more than ZWL$3bn after dollarisation of the economy in 2009.
The loss was attributable to bad investment decisions and excessive recurrent expenditures by insurers, which was eroded by decade long hyperinflation and low activity in the economy, according to a report by a Commission of Inquiry set up by former President Robert Mugabe in 2015, to look into the conversion of insurance and pensions values from the Zimbabwe dollar to the United States dollars.
The industry is also battling to regain confidence after players in the sector failed to honour their obligations.