Zimbabwe this week rolled out a new solvency regime for the insurance sector that aims to improve the safety and soundness of the country’s fragile insurance companies in a bid to enhance protection for policyholders, Business Times can report.
The new framework, the Zimbabwe Integrated Capital and Risk Programme (ZICARP), will capacitate insurers to withstand any risk they get exposed to as it requires that local insurers have capital aligned to the risk they carry.
Currently, local insurers have a one size fits all regulatory capital requirement, regardless of their size and nature.
Life assurers were required to hold a minimum capital threshold of ZWL$75m, short-term assurers ZWL$37.5m, and funeral assurers ZWL$62.50m.
The industry regulator, the Insurance and Pensions Commission (IPEC), wants the sector to move away from an unscientific determined capital to one which is related to risks insurers carry under ZICARP.
This means there will be a need to understand each insurer’s business line and products and identify risks in those activities and assess the quality of risk management, day to day management and oversight.
Basically, it means that the new risk framework aims to address weaknesses of the current capital regime which unscientifically determine the minimum capital thresholds of insurance companies.
Analysts said the new framework will be responsive to market dynamics.
ZICARP also forms part of an early warning system with a supervisory ladder of intervention that enables IPEC to timely take necessary measures in the interest of policyholders.
The framework also enables orderly exit of insolvent insurance companies from the market and improves confidence in the insurance sector. It also promotes standardisation across the country’s insurance market and alignment to international regimes.
Other countries such as South Africa and Kenya have already applied the risk based capital regime, which requires or promotes consistent and comprehensive disclosures by insurance companies to protect policyholders.
The new framework considers the overall solvency needs taking into account the specific risk profile, approved risk tolerance limits and the business strategy undertaking.
Consequently, IPEC is implementing Circular 11 of 2016, which requires an effective risk management system to be put in place. It outlines the governance and risk management requirements for insurance companies.
The circular constitutes key pillar 2 of the ZICARP requirements including the establishment of actuarial functions, internal audit functions and documentation of key risk management framework and policies within insurance companies.
ZICARP will ensure that insurance companies will have sufficient capital to meet obligations.
IPEC commissioner, Grace Muradzikwa said ZICARP will reduce operational surprises and losses.
ZICARP will also align local insurance practices with international best practice.
She said insurance companies have been directed to do parallel runs of ZICARP in this second and third quarter.
She said the insurance firms would then be required to submit ZICARP reports in 2022 onwards.
“ZICARP is a continuous revolving solvency regime. It will determine the minimum capital required an insurer is expected to hold to survive. It also determines the risk profile of an insurer,” Muradzikwa said.
She added: “It aligns risk appetite with strategy and reduces operations surprises.”
Tinashe Mashoko, the managing director of African Actuarial Consultants, which is the implementing consultancy said: “It’s no longer going to be a fixed capital regime across all insurers. It introduces a proportionate, risk-based approach to supervision with appropriate treatment for large and smaller insurers.
He added: “ZICARP aims to enhance consumer protection. It will give assurance to policyholders and beneficiaries and also gives incentives to insurance companies to measure and properly manage their own risk. It also aims to bring the market to global best practices as well as to align our own industry.”
Under the new framework, insurers must ensure adequate disclosure of material information to policyholders including mechanisms to keep them well informed and educated about insurance products, claims and complaint handling procedures.
They must also disclose all issues of non-compliance with the Insurance Act, regulations, Money Laundering and Proceeds of Crimes Act and other applicable laws.
These include violations relating to the capital adequacy ratios below the prudential minimum thresholds, prescribed assets ratios below the statutory limits, non-compliance with the minimum corporate governance standards as laid out in the Insurance Act or regulations.
Every non-compliance insurance company is now required to disclose the causes of non-compliance, provide a statement of the proposed compliance plans and timeframes for addressing the non-compliance
The development comes at a time when Zimbabwe’s insurance sector is in dire straits emanating from low confidence after policyholders lost more than ZWL$3bn after dollarisation of the economy in 2009.
The loss was attributable to bad investment decisions and excessive recurrent expenditures by insurers, which was eroded by decade long hyperinflation and low activity in the economy, according to a report by a Commission of Inquiry set up by former President Robert Mugabe in 2015, to look into the conversion of insurance and pensions values from the Zimbabwe dollar to the United States dollars.
The industry is also battling to regain confidence after players in the sector failed to honour their obligations.