‘Policyholders can sue over value loss’

23 Feb, 2020 - 00:02 0 Views

The Sunday Mail

Tawanda Musarurwa
Senior Business Reporter

Slow progress on the development of a law to compel insurance companies and pension funds to compensate policyholders and pensioners for losses suffered following conversion of benefits post-dollarisation around 2009 could become a real headache for these firms if a class action lawsuit is launched.

Countless policyholders and pensioners had their benefits significantly eroded due to hyperinflation, which saw Zimbabwe’s inflation hitting circa 500 billion percent by the close of 2008, according to the International Monetary Fund (IMF).

Poor regulatory enforcement and demonetisation of the local currency were largely blamed for value erosion by the Justice Smith Commission of Inquiry, which was appointed in 2015 to probe the conversion process.

The Smith Commission came to the conclusion that “there was a huge loss of value to insurance policyholders and pensioners owing to failure by Government, the Insurance and Pensions Commission (IPEC) and the industry to set up a fair and equitable process of converting insurance and pension values from Zimbabwe dollars to US dollars.”

And it recommended the development of a compensation framework, but to date there has been no tangible outcome in this respect.

Memories of losses incurred around 2009 when the country dollarised, have been reignited by another round of value loss, which occurred last year when the country went full circle by commencing the process of de-dollarisation.

It is estimated that thousands of subscribers to some insurance packages and pension funds received meagre outcomes from their years of investing.

“A lot of products were put on the market, and they just died some natural death. People who took some insurance packages don’t know what happened to their monies. The next thing that happened is that people inquired and were told that that kind of cover is no longer available and premiums just disappeared.

“I think in terms of consumer protection, if the insurance and pensions industry is not careful and if there is someone who can galvanise people to take class actions, they (the industry) will have a problem,” said retired judge Justice Moses Chinhengo at a Zimbabwe Association of Pension Funds (ZAPF) meeting recently.

“It’s time the industry thinks, ahead of time, what approaches to compensation will have to be taken, because the Smith Commission, if it is going to be implemented in terms of its recommendations, it said people must be compensated. If I pay my insurance in US dollars, fair value would mean I must get US dollars or the equivalent thereof.

“The industry must be really careful. Class actions can be instituted; it’s a fact that was established by the Smith Commission that people lost big time in insurance and pension funds.”

A class action — or class action lawsuit, class suit, or representative action — refers to a type of lawsuit where one of the parties is a group of people who are represented collectively by a member of that group.

In Zimbabwe class action lawsuits are guided by the Class Actions Act (Chapter 8:17), which was promulgated in 1999.

This Act extended class action lawsuits to a wider range of circumstances than previously.

According to “A Guide to the Zimbabwean Law of Delict (2018)”, a book compiled by Professor Geoffrey Feltoe, in respect of the Class Actions Act, “a person or organisation wishing to bring a class action on behalf of others will be required to obtain the leave of the court to mount such action.

The court will grant leave if it considers that a class action is the appropriate way of proceeding.

The court will exercise a supervisory roll-over the ongoing action to ensure that this procedure is used genuinely for the purpose for which it was designed, namely, to facilitate access to justice for those who would often, because of poverty, ignorance or lack of motivation to try to manoeuvre through complex legal procedures, end up not receiving justice (Section 8).

The court can also appoint a commissioner to perform such duties as determining particular issues or assessing individual monetary claims of individuals in the class (Section 9).”

With the coming into effect of the new Consumer Protection Act (Chapter 14:14) pensioners and clients of insurance firms who lost out at conversion — both circa 2009 and 2019 — have greater recourse.

The Consumer Protection Act (Chapter 14:14) supersedes the Consumer Contracts Act (Chapter 8:03), and one of the more significant changes is that the new Act broadens the definition of a “consumer” to refer to an individual who purchases “goods” and “services”; it affords the required wide protection to consumers.

By extension, services provided by pension funds are now defined as consumer-oriented services.

The Consumer Protection Act speaks to “good quality” and “fair value”.

Part of the Smith Report unflinchingly states that “the industry players trampled on reasonable benefit expectations of its customers leading to loss of value. Poor corporate governance, arbitrary benefit calculations, shambolic record-keeping and unsustainable expense ratios, among other ills became prevalent in the industry, with policyholders and pension fund members bearing the brunt of such excesses.”

All things being equal, the essence of a pensions or insurance contract is basically to ensure that monies put in at the accumulation phase correspond or are better off at the de-accumulation stage.

Muvingi-Mugadza Legal Practitioners practice manager Ms Rutendo Muchinguri says with the Consumer Protection Act now in place, pensioners can approach the courts if their payouts are not of “fair value”.

“Does that mean that my pension fund now has the obligation by law to give me a good quality pension pay-out? In terms of the Act it appears it does.

“Because as a consumer I have the right to good quality and fair value, but a huge risk to this industry (insurance and pensions).

“It’s open doors and there appears to be no full-stop in the Act, so any consumer can approach the court of law to say my pension fund is of poor value.”

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