The Sunday Mail
Tawanda Musarurwa Senior Business Reporter
Relationships come in all sorts — family relationships, friendships, acquaintanceships, business relationships — the list is endless.
But what underpins and holds together all these various types of relationships is trust.
With regards to business relationships, there are few sectors where trust is more essential than that of the insurance and pensions industry, especially given the long investment time horizons of insurance and pensions business.
In terms of insurance, in exchange for a premium, a company agrees to cover a policyholder for a specified loss, damage, illness, or death caused by an unexpected event (which may or may not happen). A pension plan, on the other hand, typically spans an individual’s entire years of working.
But while trust is so important for these two critical sectors, Zimbabwe’s insurers and pension funds are having to deal with a distrustful public due to wider circumstances that have affected the country’s macro-economic climate in the past two decades.
First, between 2007-2009 the country experienced its first major hyperinflationary period, which eroded the value of most savings (including insurance and pensions policies).
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”.
In what is seen as a second round of hyperinflation, the Zimbabwe dollar, which was re-introduced last June, has depreciated from an initial 2,5 to the US dollar to current official levels of around 83 to the US dollar, with the Public Accountants and Auditors Board Zimbabwe (PAAB) already having classified the economy as hyperinflationary.
The ‘second round’ appears to be draining any remnants of trust from the first hyperinflationary period.
It’s a development that even the sector’s regulatory authorities acknowledge: “The main challenge that is facing the sector right now is the low confidence mainly owing to the loss of value due to the hyperinflationary legacy issues,” says IPEC commissioner Dr Grace Muradzikwa.
“We have seen a high demand for US dollar-denominated policies. Almost on a daily basis the Commission is having to review and assess applications for US dollar policies.
“And this is really speaking to product relevance and the low confidence levels that the industry is currently experiencing.”
There is probably no better way to get a sense of how people truly feel about an issue than looking at the way they vent on social media platforms.
“In Zimbabwe all insurance companies are still operational, they are still moneyed and twice the policies held by their clients went to 0. If it was fair their balance sheets would have gone to 0 too, but did not,” tweeted one Runyararo Mherekumombe (@runyamhere) earlier in August.
Low confidence in the sector has stalled the deepening of insurance penetration in the country. Official figures from a baseline survey carried out by IPEC, show that Zimbabwe has a 34 percent uptake of insurance products. And to give that figure better context, 76 percent of that uptake is accounted for by funeral assurance products.
So how do Zimbabwe’s insurance and pension entities regain that vital public trust?
In a paper on rebuilding trust after a crisis, Associate Professor Nicole Gillespie, an expert in organisational trust at the University of Queensland Business School (Australia), says the first step is to be open about the problem at hand.
“Organisations often try to cover up what’s happened. However, once a trust failure has occurred, denying it is effectively a second violation which undermines trust further and makes it harder to recover.”
Industry somewhat acknowledges that damage has been done.
Old Mutual Life managing director Tassius Chigariro, said mistrust on the part of the public is understandable, but in the long run people need to understand that insurance business has developmental goals that go beyond the profit motive.
“The loss of trust is understandable. This generation of customers has experienced a difficult phase.
“But the starting point is that insurance companies and pension administrators are not there for self-gain, they are there to service two huge pillars, the country’s economy and the public.
“With regards to the economy, the country needs the national development and infrastructure that comes from public savings as this reduces a massive burden for Government,” he said.
Other observers are of the opinion that the industry needs to be more proactive in dealing with previous value erosion.
“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,” said retired judge Justice Moses Chinhengo.
“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.”
But, as the Justice Smith report has also highlighted, the main cause of the value erosion occurred at macro-economic level, and accordingly should be dealt with at that level.
Said an industry player who chose to remain anonymous: “It starts from the top. By top I’m referring to Government and policy issues. These have to be consistent and the rest follows.”
At least on its part, IPEC has been strengthening the sector’s regulatory environment.
In addition to current reviews of the linchpin insurance and pensions laws, the regulator has, in recent months, issued over 10 circulars covering a number of regulatory issues to the market, as well as developing at least six supervisory frameworks, manuals and policies.
The regulations are aimed at ensuring that insurance policyholders and pension fund members are treated in a fair and equitable manner in an increasingly complicated operating environment.
