THE Insurance and Pensions Commission (IPEC) has engaged the World Bank to assist in the development of a framework for an index-based insurance industry as the sector grapples with implementing a compensation process for policyholders who lost value of their investment.
Policyholders suffered a huge loss of value, estimated at over US$3bn, during the hyperinflation period in the mid-2000s and the subsequent dollarisation of the economy in 2009.
Four years ago, former President Robert Mugabe established a Commission of Inquiry to look into the conversion of value from Zim dollars to the US dollars for the period 1996 to 2014. It recommended that the policy holders be compensated. But due to the difficulties that arose from currency complications, the compensation process has been delayed.
Now that Zimbabwe has de-dollarised and there has been a huge loss of value again, another Commission of Inquiry is needed.
IPEC commissioner Grace Muradzikwa told the insurance regulator’s inaugural annual general meeting held in Harare yesterday that the commission would soon issue guidance to the industry.
“We are cracking our heads because it’s really a difficult issue,” she said. “We are seized with this and grappling with the legacy loss of value at a time where there is a repeat loss of value. We will be providing guidance to the industry soon. We are working with the World Bank. It’s a very difficult and emotive issue,” Muradzikwa added.
IPEC board chairman Albert Nduna concurred: “We are working closely with the industry,” he repeated. “The guidance document will be circulated soon.”
Muradzikwa said IPEC had directed industry players to submit a capital requirements roadmap. Finance Minister Mthuli Ncube last week announced new minimum capital requirements for insurance companies to ensure that they are well capitalised to protect value for policyholders and pension members.
Although there are questions on what informs the new capital threshold, Ncube announced that the new minimum capital requirements for short-term and funeral insurance entities will be ZWL$37.5m, from ZWL$2.5m, for life assurance, ZWL$75m (from ZWL$5m) for reinsurance, and ZWL$4.5m (fromZWL$300,000) for micro insurance companies.
The development comes at a time when IPEC is working on revamping the solvency regime, moving from a one-size-fits-all capital regime to a risk-based capital framework called the Zimbabwe Integrated Capital and Risk Project (ZICRP) which will be launched next year.
Under ZICRP, the minimum capital threshold will be determined based on the risk that they assume. It is a movement from an unscientifically determined capital, where figures are just thrown around to the one which is related to risk and is in line with international best practice. This will help to ensure that each insurer can withstand any risk it is exposed to, and ultimately enhance the protection of policyholders.
Muradzikwa also revealed that contribution arrears to pension funds have risen by 17% to ZWL$700m in the 12 months to October this year, from ZWL$600m last year, threatening the stability of the sector.
She said the non-remittance of pension contributions by companies has deprived members and their families of their entitlements in the event of retirement, death or other developments. These benefits can only be paid to beneficiaries whose contributions and premiums are up to date.
“It’s a serious concern to us,” Muradzikwa said. It is a criminal offence for companies to deduct pension contributions from employees’ but fail to remit them to the respective pension fund, according to IPEC. Giving a 10-month trading update, Muradzikwa said revenue in the industry grew 83% to ZWL$16.2m from ZWL$8.9m in December 2018.
Operating costs rose by 212% to ZWL$5m during the reviewed period, from ZWL$1.6m. Surplus after unrealised exchange gain was ZWL$8.8m (from ZWL$5.5m), which reflects a 59% increase.