‘We need stronger, fewer insurance firms’

04 Jun, 2017 - 00:06 0 Views
‘We need stronger, fewer insurance firms’ Ipec Commissioner Mr Karonga

The Sunday Mail

Ishemunyoro Chingwere
Much has happened in the pension and insurance industry since the switch from the Zimbabwe dollar to the multi-currency system. A lot of value was eroded and many policyholders lost faith in the sector. The legacy issues of hyperinflation, where many pensioners and policyholders got meaningless payouts, have made the situation worse. The Sunday Mail Business Reporter Ishemunyoro Chingwere last week spoke with Insurance and Pensions Commissioner Mr Tendai Karonga on the state of the insurance industry and related issues.

Q: From a regulatory point of view, what is the current state of the insurance industry?

A: I would say it is stable. The reason is that 70 percent of the business is written by five companies, and those five are quite stable. These are NicozDiamond, Eagle Insurance, Alliance, Old Mutual and Zimnat.

The other 30 percent is made up of 15 or 16 companies that, in my view, are relatively weak. But stability is based on the 70 percent. We would like to see stronger and fewer insurance companies.

At the moment, we are having situations where these ones that constitute the 30 percent are struggling with capital requirements; consequently, they also have challenges settling claims timeously.

So I think the most sensible thing is for the 15 or 16 to merge, because as a commission we don’t want to close down any company – we want them to grow and get stronger.

Q: What are the minimum capital requirements?

A: It’s US$2,5 million, but for the life companies its US$5 million.

Q: How much is the industry worth at the moment?

A: In total, it’s worth US$4,4 billion in terms of assets, but the premium volume is around US$700 million. (For) the non-life insurance business as at 31 December 2016, premium was US$216 million; short-term reinsurance companies wrote US$100 million; life insurance $330 million; reinsurance on the life side is only US$6 million; funeral insurance was at US$40 million.

(The funeral insurance) industry is growing very fast from nothing in 2013.

Q: There seems to be public mistrust on insurance companies as a result of policy value that was lost when the economy dollarised. Do you think this mistrust is justified?

A: I would describe it as disappointment with the turn of investment, which did not necessarily lead to mistrust per se.

Yes, there are some doubts as to whether the industry can deal with the needs of the public, but mistrust I think is a bit on the stronger side.

Q: So what are you doing as a commission to make sure that this does not recur?

A: Let’s look at this globally. First of all the answer lies with our macro-environment.

If the economy is functioning well, naturally the insurance industry functions well. The only way we can improve is at a regulatory level; so what we are doing is we are tightening the credentials to make sure that these companies provide.

We are making sure there are no loose ends, tighten the regulations, higher reserves – and the example is the minimum capital level to make sure these guys can deal with the fluctuations, and be in a position to settle claims as quickly as is required.

Q: Can Zimbabweans still trust insurance companies?

A: I think they can and they are; that’s why the insurance business is growing.

Q: Talking about timeous settlement of claims, Ipec has been accused of not doing enough to protect the interests of policyholders. What is your take on that?

A: We are tightening the regulations to make sure we limit the instances where claims are not settled.

Yes, I would admit that some companies are actually making what I call payment plans to pay claims and yet people have paid their premiums up front – that’s unacceptable.

The reason, like I have already said, is that the lower end of the market is fairly weak. So the thrust really – although we can’t force people – is rather persuade them to merge.

If they do not wish to merge voluntarily, we might but reluctantly force them like the Nigerians and others have done.

Q: There are relatively low rates of insurance penetration in the market, what can you attribute this to and how can it be improved?

A: In Africa, you have about one percent (insurance penetration) and for Zimbabwe, its 3,7 percent, so what do you mean we have low penetration?

But we don’t take pride in these statistics because we know it should be higher than that. The average for the world penetration, I am told, is between five percent and six percent.

The advanced economies are at between eight percent and 13 percent and I think South Africa has one of the highest in the world at over 10 percent. But I get your point: we are taking measures to increase the penetration. We think that it can go up, and it will go up.

I am sure you have heard of financial inclusion so what has to be done is to develop products that are accessible to the majority of the people. Fairly priced products, the word for it is micro finance and very shortly we would be looking at micro pensions for irregularly employed people.

So we will be able to reach the informal sector with suitable and well-priced products. We have already developed the regulatory framework for this and we are looking at modifying it to suit micro pensions.

At Ipec we believe this country will be growing rapidly and catch up with lost opportunity.

Q: There are low insurance incentives locally for the policyholder compared to what obtains in other jurisdictions; is this something that worries you as a commission?

A: Anything that prevents our people from participating in the insurance game, if I may say, worries us.

Currently, we are discussing with our parent ministry to see whether there can be tax benefits to encourage people to take up insurance.

You also have to note that our mandate is to protect the policyholder or the public from unscrupulous service providers and we will take all actions necessary to achieve that.

Q: Are you satisfied with companies’ uptake of prescribed assets?

A: If we give a player a license it means we are satisfied. So my answer will be, as a commission, we are happy because the companies are responding well.

You see, the situation is that they are keen to make a contribution, they have not been making as high a contribution as we would like but they are responding so that is the basis of our satisfaction.

Q: What role can the insurance industry play in the country’s economic growth?

A: Exactly what we are actually doing. Supporting the infrastructure projects that are going on – energy, agriculture and so many Government projects.

Right now, we are trying to raise US$50 million for agriculture infrastructure development, especially for irrigation development.

And already we have good pledges. We expect to raise the US$50 million shortly. So we are already contributing and we expect to increase the level of contribution.

There is the Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan) example where their industrialisation success all came from exploiting insurance and pension resources, and this is where we are moving to, where we want to harness insurance and pensions resources for our economic development in the same way these tigers have done.

But we haven’t reached a stage where we can manage because what this basically means is this was domestic investment.

We haven’t reached a level where our domestic investment drives our development, but we are moving there, it is happening.

Q: I might have limited you with my questions, maybe there is something you might want to add. . .

A: One of the problems that we are meeting is on corporate governance and it’s an issue we will be emphasising, because some of the times it’s the people who start these companies who take the money (resulting in failure to honour claims).

Like was the case with people who used to start banks in order to get rich, then when you want your money they say we are bankrupt.

So it could be happening in the insurance industry. We don’t know for certain, there is no one who has been identified as having done that. But on the pension side, there is definitely a problem on corporate governance.

The people who are supposed to govern these pension funds are spending far too much money on administration, but we are dealing with that. In situations where the employers are challenged and cannot make a contribution to your pension fund, we are seeing a situation where it is better to close the fund, make it paid up.

If you leave it open, your administrative structure keeps on eating into it until there is nothing.

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