Life assurers overtake funeral firms in own turf

April 15, 2021


Zimbabwe’s life assurance companies  could play the undertaker to funeral assurers after writing  funeral business nine-fold  more than the traditional players in the subsector during the 12 months to December 31, 2020, Business Times can report.

Official data obtained from the Insurance and Pensions Commission (IPEC) shows that life assurers wrote funeral business worth ZWL$540.60m in the reviewed period, which was nine times more than what dedicated funeral assurers generated.

Gross Premium Written (GPW) by the funeral assurance sector stood at ZWL$61.11m in the period under review.

Although this was a 76.81% increase from ZW$34.56m generated in 2019 on account of premium increments as funeral assurers sought to align both the premiums and benefits to the macroeconomic environment in response to inflation trends and remain relevant in serving policyholders.

The funeral companies are now under intense pressure.

They are struggling to stay afloat.

“The (funeral) sector continues to face intense pressure and competition from life assurers writing funeral business. The Commission urges funeral assurers to devise strategies that enable them to withstand the continued pressure and competition from life assurers so that they remain relevant,” IPEC said.

GPW for life assurers grew 512% in nominal terms to ZWL$3.65bn during the reviewed period from ZWL$596.93m in 2019.

The main drivers of the nominal growth in GPW were funeral assurance business and group life assurance, which registered growth rates of 436% and, 174% respectively.  This means the growth in absolute figures stood at ZW$1.97bn and ZW$990m respectively.

The growth in these two classes can also be attributed to a significant increase in premiums for funeral assurance and related products as the industry tries to cope with the Covid-19 induced increase in mortality rates.

The strong presence of life assurers  in the funeral market appear to be stoking the situation, making it difficult for the dedicated  funeral assurers to  stay afloat  as their ability to write new business  is adversely affected.

Out of eight funeral assurers, only three have capital positions that are compliant with the regulatory minimum capital requirement of ZWL$62.50m as prescribed in Statutory Instrument 59 of 2020.

The three are First Funeral, Moonlight and Sunset.

And those that are not compliant are Foundation, Orchid, Passion, Ruvimbo and Vineyard.

Total assets for the sector increased 12.75% from ZW$769.75m in September 2020 to ZW$867.90 m at the end of December.

The positive movement in assets was due to property revaluations, which saw asset values increasing by 16.85% from ZW$666.09m as at 30 September 2020 to ZW$778.25m as at 31 December 2020.

The asset base for the funeral assurance sector remains concentrated in immovable property consisting of 89.67% of total assets; with operational property constituting 75.79% and investment property 13.88%.

This indicates high concentration of investments in assets used for funeral service provision.

This may be one of the reasons why the sector has managed to stay afloat during the increase in Covid-19 related death claims, IPEC said.

“The Commission continues to implore sector players to be more cautious and hold assets that match their liability profiles in view of the policies with cash benefit components.

 Asset classes such as equities, cash, and money market investments were held in very small proportions relative to the overall asset portfolio,” IPEC said.

The funeral  assurers have also been finding it difficult to meet the prescribed assets  minimum capital  thresholds.

“All funeral assurers were non-compliant with the minimum prescribed asset ratio of 10% as stipulated by Statutory Instrument 206 of 2019.

“The total amount invested in prescribed assets was ZW$0.21 million against the required minimum amount of ZW$86.79 million, which is 10% of the industry’s total reported assets.

“The Commission, with the approval of the Ministry of Finance recently reviewed the prescribed asset framework to widen the asset recognised for prescribed asset purposes.

This is in line with the National Development Strategy 1 and takes into consideration industry needs to ensure preservation of investor and policyholder funds. The Commission has also called upon the industry to come up with projects that can be accorded prescribed asset status as a way of improving their compliance,” IPEC said.

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