PHILLIMON MHLANGA
Skyrocketing premium debtors have rocked Zimbabwe’s short-term insurance market, threatening the viability of companies in the sector, Business Times can report.
As a result, the Insurance and Pensions Commission (IPEC), which regulates the insurance market in Zimbabwe, has expressed disquiet about the crisis that is causing havoc in the sector and putting several short-term insurance companies in danger of going bankrupt.
Grace Muradzikwa, the Commissioner of IPEC, described the situation as dire.
“Its called a promissory note in insurance. There has been a tendency for insurance companies issuing policy cover without policyholders paying immediately or saying I will pay later. This is a risky practice because one will be giving credit on intangible. And that’s part of the reason why the industry today has a high percentage of premium debtors,” Muradzikwa told Business Times.
In the short-term insurance sector, premium debtors increased from ZWL$15 billion in June of last year to ZWL$20 billion at the end of August of this year, according to official data obtained from IPEC. This puts the short-term insurance sector in a precarious position and forces them to settle claims for policies whose premiums have not been paid in full or in part.
As a result, Muradzikwa was adamant that a “No premium, No cover” law be implemented in an effort to handle the emergency given the terrible circumstances.
She said IPEC has crafted a ‘No premium, No cover’ Statutory Instrument (SI) . And is now with the Ministry of Finance and Economic Development for their scrutiny. Muradzikwa believes this could be the lasting solution to the crisis.
“The undesirable continued, with the in premium debtors skyrocketing. It’s a sign of weak credit risk management by the sector.
“To this end, the Commission has prepared the SI on the ‘No Premium No Cover’ regulation to protect both the industry and policyholders against the negative impact of the issuance of cover on credit,” Muradzikwa said.
She added: “The issue is quite pressing because they (insurance companies) are sitting on high levels of debtors.
And the ageing of these debtors is worrisome.”
The blame has also landed on the doorsteps of Zimbabwe’s struggling companies which are accused of continuing to deduct workers’ premium contributions from their salaries, but deliberately chose not to remit those premiums to respective insurance companies.
Instead, they choose to fund their cash flows.
The insured will undoubtedly suffer from this as well.
Zimbabwe’s insurance sector has the potential to play a significant role in Zimbabwe’s financial system as it provides critical risk management products and services to clients.
The sector also has the potential to be extremely important to the country’s economic revival.
However, the insurance companies’ ability to meet their obligations has been hampered by the high levels of premium debtors. The amounts of technical liabilities have become unmanageable.
Because of this, the working capital ratio of the majority of insurance businesses is negative.
This means that the insurance businesses may find it challenging to fulfill their short-term financial obligations due to the elevated risk of liquidity.
This week, a number of analysts expressed concern that the sector’s credit risk management was deficient.
“Clearly, the rising premium burden is a concern because in the case of credit default, the insurance companies are not able to monetise their receivables. It also means, there is weak credit control system to manage credit risk in the sector, something which is threatening the viability of industry players,” Wonder Sibanda, an insurance expert told Business Times.
