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Insurers feel heat as non-risk carriers get subs lion’s share

PHILLIMON MHLANGA

Zimbabwe’s short-term insurance companies are feeling the heat as non-risk carriers are now getting lion’s share of motor vehicle statutory subscriptions, it has emerged.

Several executives in the non-life business this week told Business Times that given that there are the ones carrying the risk, they were facing a severe challenge in the motor vehicle class, which is one of their main sources of business alongside fire and engineering business class.

Policyholders are paying a statutory cover of about ZWL$351 a term that covers four months, which is equivalent to US$4 using this week’s auction rate of ZWL$81.44:US$1 while non-risk carriers such as Zimbabwe National Road Administration (ZINARA )and the Zimbabwe Broadcasting Corporation (ZBC) are paid the lion’s share of subscription.

Light private motor vehicle owners fork out ZWL$750 or nearly US$10 and ZWL$400 or US$5 a term respectively. Companies pay ZBC about ZWL$800 for a light vehicle.

Fewer policyholders especially institutions have comprehensive cover while the majority of individuals have third party covers. Industry players also told Business Times that many policyholders who had comprehensive covers for their motor vehicles were now downgrading to third party insurance cover.

“The matrix is upside down. We are feeling the heat as risk carriers. Policyholders are paying us ZWL$300 a term, which is far less than what they pay ZINARA for licencing and ZBC for radio licence, that doesn’t carry any risk at all.

As a result, we struggle to cover the full cost of claims after an accident has occurred,” one managing director of an insurance company who requested anonymity told Business Times this week.

“Policyholders are now seeing us (short-term insurance companies) as the bad guys and they are increasingly losing confidence in us because we are failing to adequately cover for risks they (policyholders) thought had passed on to us through their payment of premiums.”

The executive said clients in the industry are paying motor vehicle insurance for them to be able to be licenced by ZINARA because the cover is too insignificant.

“I believe if policyholders pay at least ZWL$1 000 a term, it would make sense because at least 90% of liabilities will be covered,” the executive said.

They said the challenge was militating against growth of the non-life or short-term insurance sector which carries the risk to cover insurance of motor vehicles in Zimbabwe, the biggest class of business for the sector.

Others are fire and engineering.

Business Times can report that total business written for the three classes of business-motor, fire and engineering- amounted to ZWL$2.32bn, accounting for 84.60% of total gross premium written in the six months to June 30,2020, according to the official data obtained from the industry regular, the Insurance and Pensions Commission (IPEC).

Motor business brought ZWL$807.2m to the subsection from ZWL$144.1m recorded in the prior comparative period in 2019, which reflects a nominal growth of 460%. But, in real growth terms, this represented a negative 33%, meaning the margins of survival are now minimum.

In a survey conducted by Business Times this week, insurance companies in Zimbabwe only pay out about ZWL$20,000 to cover for damaged motor vehicles even if the vehicle is a write- off, meaning in real terms, it’s equivalent to a paltry US$245, which is insignificant.

The unfolding battle for subscription has now left the local insurers feeling the heat.

It has also become one of the biggest nightmares for policyholders and insurers, who have now increasingly come under fire as they fail to cover full costs.

More than 90% of costs to fix damaged cars are now rendered on the door steps of policyholders, yet they thought they had passed on the risk to insurance companies after religiously paying their ZWL$351 subscription for the term.

This has also compelled some car-owners to foot their own bills because most policyholders struggle to raise cash to fix the damaged cars.

Most motor vehicle parts are imported. Zimbabwe is battling foreign currency shortages, a situation which is making it difficult to get critical motor spares. Insurance companies are not allowed to charge premiums in foreign currency.

A Chitungwizabased motor mechanic, Clemence Chingwena, said he was quoted ZWL$134,000 after being involved in a car accident in January.

“I was shocked when the owner of the car I hit who processed the claim brought proof of payment from my insurance company that he was paid ZWL$20 000.

I checked with my insurer and they confirmed the figure. I was now asked to foot the balance on the quotation,” Chingwena said.

“To me this is crazy because I have been paying for years my subscription and this was the first accident I was involved in many years.

I thought I had passed on the risk to this insurance company, but here I am paying the difference of ZWL$114 000 to fix that car.

I am not happy with this.”

Several other policyholders who spoke to Business Times said short-term insurance companies were struggling to pay claims.

Business Times can report that about 18 complaints were lodged with IPEC between January and June this year, according to official data obtained from the insurance and Pensions regulator.

The data shows that 62% or 11 out of 18 complaints were for delays in settling of claims by short-term insurance companies due to harsh economic conditions.

The short-term insurance subsector is also buffeted by rising premium debtors which rose by nearly 200% to ZWL$1.54bn in the six months to June 30, 2020 from ZWL$526.71m recorded in the same period in 2019.

This constituted about 28% of total assets and 50% of gross premium written. Technical liabilities for Zimbabwe’s short-term insurers rose by 85.36% to ZWL$1.07m from ZWL$577.33m.

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