Life assurers lurches into quandary

PHILLIMON MHLANGA

Life assurance companies have lurched into a quandary whereby the sector is struggling to underwrite traditional life products as a result of a steep fall  in market demand, Business Times can report.

The fall coincides with a decline in consumer trust in life products, which include endowment policies, pure endowment, annuities, term insurance and whole life policies, among many others, given that investments in such products have been eroded by rising inflation.

Traditional life insurance products used to contribute more than 60% of the sector’s gross premium written (GPW) in 2015, according to official data obtained from the Insurance and Pensions Commission (IPEC).
However, traditional life insurance policies currently make up just 8% of business issued by life assurance companies, according to Sibongile Siwela, the director of insurance for IPEC.

Currently, however, the funeral business is the dominant one contributing about 73%.

“You find that about 8% of total insurance revenue is generated from traditional life assurance product while about 73% of the total insurance revenue is generated  from funeral assurance business, which has become the backbone of the life insurance sector. The balance is generated from group life assurance business,” Siwela said.

In order to adjust to the changing realities in the life assurance market and the current economic climate, Siwela challenged the life assurance businesses to be extremely innovative in both product development and the realignment of their business models.

She emphasized that the businesses had to develop long-lasting products.

According to Prosper Matiashe, an actuary, traditional insurance products, which are long-term investments, remain crucial for raising capital for long-term national initiatives like infrastructure development.

“Long-term traditional products are key in raising funds for long-term investments, which is  essential  for funding  national projects such as the country’s infrastructure development,” Matiashe said.

Life assurance companies, on the other hand, are hesitant to underwrite business in traditional long-term products because they believe that pricing such products without yield curves and discount rates could not produce favorable outcomes.

However, policyholder interest in long-term plans has decreased due to market instability.

The severe decline has also been linked to persistent economic shocks that have shaken the sector  as a result of recent government-enforced monetary and fiscal measures, which have prevented the  players  from  preserving value.

The crux of the matter is that when the government dollarized the economy in 2009, policyholders in Zimbabwe lost value of more over US$3 billion, according to the Justice Smith-led Commission of Enquiry.

Policyholders also suffered financial losses when government decided to re-introduce the Zimbabwe dollars in 2019.