PHILLIMON MHLANGA
Zimbabwe’s insurance industry has come under the spotlight for its failure to invest in robust information technology (IT) systems, a critical step towards mitigating risks and early detection of rampant fraud in the multibillion sector, Business Times can report.
Experts said deploying robust IT systems across insurance companies’ various functions from underwriting and claims to marketing and distribution will derive business insights that are accurate and timely as insurers can make better and faster decisions.
Most insurers in Zimbabwe have remained the largest users of traditional insurance systems at a time global insurance players have migrated from legacy systems to the latest and sophisticated systems which provide advanced analytics, telematics and smart contracts, among others.
Sibongile Siwela, director of insurance at the Insurance and Pensions Commission (IPEC) said Zimbabwe’s insurance industry was not ready to rumble citing lack of robust IT systems in the sector.
She said insurance companies should make aggressive plans related to robust IT systems, a development which would also help with analytics that would allow for efficiency, mitigate risks and rapid sharing of information.
Failure to harness robust IT systems may result in foreign insurers penetrating the Zimbabwe market, a situation which is likely to drive local players out of business, Siwela said.
“The digital revolution is disrupting the business environment and the insurance industry is no exception.
But, of serious concern is that there is a lack of a robust IT system in Zimbabwe’s insurance industry,” she said.
Global insurance players who have invested in robust IT systems, which have overtaken traditional or outdated systems, are bringing value because the insights or interactions are bringing those insurance companies and their commercial customers closer through technology.
The call for robust IT systems in Zimbabwe’s insurance sector comes at a time when fraud and financial crimes in the insurance space have risen.
The threat posed by financial criminals, experts said, is becoming more complex and varied, making it imperative for local insurers to utilise robust IT systems that provide analytics in real time so that they can cost effectively monitor a wide array of potentially fraudulent activities, among other problems faced by the sector.
Apart from these challenges, Zimbabwe’s insurance sector is set for a radical shakeup after the International Accounting Standards Board issued new reporting rules, the International Financial Reporting Standard (IFRS) 17.
The new regulations would come into force in 2023.
Initially, the global accounting standard, which will have wide implications for all insurers, policyholders and other related parties including actuaries and banks, was set to come into force in 2021, but has been deferred to 2023.
IFRS 17 supersedes IFRS 4. Under IFRS 17, insurance entities will be required to firstly identify homogeneous risk portfolios then divide these groups based on their profitability.
This could be a mammoth task given the current IT systems deployed in the sector.
“This (IFRS 17) is expected to come with complexities on financial disclosures of insurers and profound operational impacts on all aspects of the (insurance) companies, meaning that Zimbabwe insurers will need to implement significant technical and practical changes to current practices,” IFRS expert Elles Mukunyudze told Business Times.
“They need to completely overhaul their underlying actuarial models, financial reporting processes and IT systems, meaning there is a need for robust IT systems.”
IFRS 17 is expected to lead to the biggest change ever in financial reporting regulations for Zimbabwe’s insurance companies.
Insurers will also be expected to implement IFRS 9 along with IFRS 17 within the next few years.
Executives told Business Times that at least US$74,000 is required annually to obtain a software licence, a figure which is beyond the reach of many.
Others said the other problem was that the insurance sector fragmented and prefer working in silos operating outdated IT systems.
Some executives proposed a business model in which companies can source one system and share.
“IT systems are expensive because most of them are imported. It requires forex for licencing.It makes it difficult for us to acquire the latest IT systems or upgrade what we already have,” an IT executive with one of the leading insurance companies in Zimbabwe, who preferred not to be named because he is not allowed to speak to the press, told Business Times this week.
Another IT executive in the insurance sector said it was expensive to import robust IT systems proposing sector players come together to procure and share the system. “The cost is too heavy for local insurance players.
For example my company has been quoted US$83,000 annually for the latest and robust software.
I tell you, some have been asked to pay more than our figure depending on the size of the insurance company.”
