Zimbabwe’s funeral assurance companies’ executives face the daunting task of restoring fortunes in their organisations following unprecedented damage caused by measures implemented to reduce the spread of COVID-19 pandemic, which has resulted in dedicated funeral firms struggling to get back on their feet.
The COVID-19 crisis has had a significant impact and has exposed the frangibility of supply chains. It has led to a major economic disruption and sudden halt in demand for funeral assurance products, meaning a near total lack of revenues for many while they continue to pay rents, wages and interest payments.
The pain for funeral assurers is expected to continue even after President Emmerson Mnangagwa recently relaxed the lengthy lockdown.
The development comes against a backdrop of dwindling new business and persistent erosion of disposable income as inflation bites.
Apart from COVID-19 pandemic, which has turned the heat on funeral assurers, they are also facing mounting threats from life assurance firms who are now writing more than 90% of funeral business in Zimbabwe.
Their strong presents appear to be stocking the situation, making it difficult for dedicated funeral assurance companies to stay afloat as their ability to write new business is adversely affected.
This has hurt the country’s already fragile funeral assurance firms.
The Zimbabwe Association of Funeral Assurers (ZAFA) general manager, Taka Svosve disclosed that funeral assurers have suffered deep scars due to the emergence of COVID-19 pandemic, which caused an abrupt stop to most business transactions including payments, especially between March and July 2020.
Even up to today, many companies and individuals were finding it difficult to generate income.
The development worsened the situation for funeral assurers, who suddenly experienced unexpected shocks in cash flows. Zimbabwe has eight registered funeral assurance companies namely, First Mutual, Moonlight, Foundation, Vineyard, Ruvimbo, Sunset, Passion and Orchid.
“Some client companies and individuals suddenly stopped generating income. It therefore became difficult for funeral assurers to receive or follow up on their premiums from both individual and group clients resulting in some unexpected shocks in cash flows,” Svosve said.
Worse still, they could not view the premiums, which could have helped issues around the sustainability of funeral assurance companies amid the tough economic climate, which has seen a sharp rise in prices of goods and services in the past few months.
The failure to review upwards the premiums also means that funeral assurance companies will find difficult to maintain the standard and quality of service delivery.
Apart from that they are now battling to meet their financial obligations.
“While premiums were being eroded by the marauding inflation it was not easy for funeral assurers to review their premiums during the pick of the lockdown.
“Both group and individual clients had their incomes curtailed due to the COVID-19 induced lockdown and could therefore not meet any new premiums increases.
“Funeral assures had no option but to defer any premium review but to the detriment of their cash flows and operational obigations,” Svosve said.
Zimbabwe’s funeral assurance companies are also battling to write new business.
“Funeral assurers rely on visiting and meeting with potential clients for new business,” Svosve said.
He added: “However with most companies on COVID-19 induced lockdown, coupled with restricted movement for both human and vehicular traffic, acquiring new business became a challenge.
“When incomes of both individuals and corporates are suddenly cut as happened or happening during this covid19 pandemic naturally getting new business for funeral assures gets immediately affected.
“Funeral insurance is pushed to the bottom of the priority list under the circumstances.”
Economists said the shock of the lockdown has caught many flatfooted.
“This is the real crisis. We are probably going to see balance sheet stresses worsen and is likely to result in loss of many jobs,” an economist Amos Chisango told Business Times this week.
Amid a likely dearth of working capital, banks need to step up their lending to help many funeral assurance businesses stay afloat.
There are currently on the brink as they struggle to meet the capital threshold set by Insurance and Pensions Commission (IPEC).
But lending, analysts say, could put extra stress on the financial systems, which have not been lending much. Zimbabwe banks are battling rocketing bad and doubtful debts due to delays in repayments by borrowers.
Amid all this COVID-19 pandemic induced crisis, the country’s dedicated funeral assurance companies, have being ditching re-assurance arrangements.
Failure to deploy funds to re-assurance companies is likely to exposes their balance sheet and policyholders, according to latest Insurance and Pensions report.
Analysts indicated that the failure by the funeral assurance companies to deploy a portion of their funds to re-assurance firms as required by the law has added uncertainty in an already fragile sector.
The sector is also negatively affected by adverse decreasing gross premium written (GPW) and persistency ratio which is an indicator of customer satisfaction. A high ratio indicates a large pool of satisfied customers and GPW.
Low persistency ratio indicates inability to retain customers in the face of increased competition from life assurance companies.
The sector’s inflation-adjusted GPW decreased by 45.63% to ZWL$6.74m in the six months to June 2020 from ZWL$12.39m recorded in the comparative period in 2019.
Profit before tax decreased by 80.34% in real terms to ZWL$708 430 in the six months to June 2020 from ZWL$3.60m in the same period in 2019.
The expense ratio for the industry increased to 67.76% in the six months to June 2020 from 61.95% in the same period in 2019.This means more financial resources were deployed towards expenses during the review period as compared to 2019.
In line with the increase in expense ratio, the real profit before tax declined to ZWL$0.708m to ZWL$3.6m in the comparative period in 2019.
The decline in profitability by the sector is in tandem with the decline in the number of policies written by the sector.
The decline in the performance of the sector was also evidenced by the non-proportional increase in liabilities as compared to the increase in assets.
Liabilities for the sector increased by 499.13%.
Compliance with prescribed assets declined to 0.02% at the end of June from 0.04% at the end of June 2019.