PHILLIMON MHLANGA
Zimbabwe’s insurance sector regulator, the Insurance and Pensions Commission (IPEC), has proposed new rules to force all local insurers to publish their financial results in far-reaching reforms in the multi-billion sector.
IPEC commissioner Grace Muradzikwa told Business Times that the proposed disclosure rules which are expected to be enacted in one of the three Bills currently under debate in Parliament is likely to boost transparency of information provided to customers and investors.
The insurance laws are being reviewed under the Insurance Bill, the Pensions and Provident Bill as well as the Insurance Commission Bill.
IPEC wants to align the laws to international best practice.
Critically, the laws, especially the Pensions and Provident Fund Bill, are expected to foster better corporate governance practices within the industry while adequately providing the legal basis for the troubled entities’ resolution framework. IPEC‘s enforcement powers are also expected to be increased.
IPEC said forcing local insurance companies to make their financials public will empower policyholders and investors who will now be provided with more information to help them make more informed decisions.
“We are going to come up with a requirement that compels all insurers to publish their financial results for purposes of transparency,” Muradzikwa told Business Times.
Although insurance companies listed on the Zimbabwe Stock Exchange have been publishing their financials, the majority, which is not listed, have been criticised for keeping their financials a secret.
This means the publication of the financial results could be a new era for most players in the sector.
The industry has for years been dogged by unethical market practices, unfair trade practices and general lack of standardised insurance policies, all reflective of weak laws.
The ills came despite the sector handling billions which required more disclosures to comfort policyholders who pay monthly premiums.
In addition to that, the insurance industry has been adversely affected by Zimbabwe’s economic crisis.
The crisis has had increasingly visible impact on the insurance industry, primarily through their investment portfolios.
As the crisis worsens, the market valuations and the outlook for real activity are deteriorating significantly.
But, the sector can grow again, if proper policies are put in place, according to experts.
A number of concentrated exposures in the sector were revealed during the crisis period.
The plight of policyholders was amplified during the crisis period after losing life time savings through erosion of their investments.
The new rules on financial results are in sync with what is happening in other financial services sub-sectors such as the banking industry, where all banks—listed on the local stock exchange or not—are all compelled to publish their financial results.
Evidence available suggests the role of the insurance function in the crisis has had a destabilising influence on the policyholders.
The insurance industry has the potential to significantly contribute to the development of Zimbabwe’s economy given that they are large investors with longterm investment horizons.
The industry players are able to hold a relatively large part of their investment to maturity, something which can help them withstand short-term shocks.
But, in contrast, they amplified the pressures on policyholders, who lost more than US$3bn when their years of investments were eroded by hyperinflation which ravaged Zimbabwe’s economy, according to a Justice Smith’s Commission of Inquiry report which investigated the prejudices by insurance policyholders when the country dollarised in 2009 to escape hyperinflationary pressures.
Recently, the insurance and pensions industry players indicated that another Commission of Inquiry was needed to ascertain the value of policies that have been eroded by hyperinflation.
Given the vulnerabilities in the insurance and pensions industry, several analysts said transparency should aid and support patient decision-making, not undermine competitive negotiations that lower insurance costs and should not put downward pressure on premiums for consumers and employers.
They said the move was also important to ensure that solvency for the sector is constantly monitored.
The proposed rules also come after several insurance companies violated their reporting obligations by failing to provide their financial data for the third quarter of 2019 to IPEC within the stipulated timeframe.
This meant that IPEC’s third-quarter reports were compromised.
The reports are critical in apprising the regulator and other stakeholders of the financial condition of the players in the sector.
Their failure forced IPEC to use halfyear results in their third-quarter reports, something which is unacceptable.
The requirement ensures that stakeholders are provided with timely, accurate and reliable reports on a periodic basis.
