Tawanda Musarurwa
ZIMBABWE’S insurance players are seeking to provide cover for Government assets.
The proposal came out at an engagement between insurance and pensions industry, and Finance and Economic Development Minister Professor Mthuli Ncube last week.
“We want Government mainstreaming insurance in the economy by developing a deliberate insurance or risk transfer policy for all Government entities to transfer the cost of insurable events off the fiscus,” said Zimbabwe Insurance and Pensions Apex Council (ZIPAC) chairman Mr David Nyabadza.
Without insurance cover, the Government typically bears the brunt of the costs of disasters, which puts an additional strain on the fiscus on such occasions.
However, for the Treasury boss, the proposed financial protection of public assets has wider benefits.
Professor Ncube said the move goes hand-in-glove with Government’s shift towards accrual accounting.
Government has committed to enhance accountability within its systems by moving from cash accounting to accrual accounting based on the International Public Sector Accounting Standards (IPSAS).
IPSAS are a set of accounting standards issued by the IPSAS Board for use by public sector entities around the world in the preparation of financial statements.
And, consistent with global trends, the Government initially made its commitment in the 2018 National Budget to migrate to accrual accounting based on IPSAS.
Said Professor Ncube:
“It solves another problem for me. Because we are changing our accounting system in the next two years, from cash accounting to accrual accounting, which requires us to know the value of our assets, this will help us get there faster, because as you try and underwrite our assets you are going to put a value on it, albeit an insurance value.
“That way Government accounts will be changed forever, and for the better. Why? Because now we can have a balance sheet. We will know the value of our assets; we already know our liabilities.
“My calculation is that the value of our assets far exceeds the value of our liabilities.”
Theoretically, the proposal by local insurers has the potential of ensuring that the national budget is cushioned from the financial impact of certain shocks, for example, 2019’s Cyclone Idai.
However, a basic requirement for the insurers is that they will need to come together to be able to assume such a huge financial responsibility.
Second, reinsurance companies play a vital role in such a set-up.
“The large sums of monetary exposure associated with public asset insurance will most likely mean that no single insurer can provide the level of financial capacity necessary to cover the potential losses.
“Regulatory rules regarding the maximum exposure that any single insurer is permitted to retain will often act to reduce the level of coverage that is possible.
“In many cases, multiple insurers may be included on a coinsurance basis, with each accepting a share of the overall risk to an agreed level. Usually, this will mean that each participating insurer will receive a share of the premium paid,” reads a draft working paper by the South-East Asia Disaster Risk Insurance Facility (SEADRIF) in partnership with the World Bank titled ‘An Overview of Financial Protection of Public Assets’.
It added:
“Most insurance companies will themselves look to pass on (or cede) residual risk over and above their own risk appetite. Reinsurance companies will be employed to provide coverage, particularly against the largest potential loses (for example, large natural catastrophes). Brokers may well be employed by the insurance companies to assist in the reinsurance process, and a separate reinsurance policy will often be utilised.”