No credit policy in insurance to spur economic development

WHEN Mr Brighton Ncube was involved in an accident sometime back, he approached his insurer for compensation, but the process took longer than expected, leaving him frustrated.

As the insurer struggled to gather funds to compensate and replace Mr Ncube’s seriously damaged vehicle, inflation eroded the value of the compensation, which was paid in local currency.

Mr Ncube, who diligently paid his premiums, suffered because many policyholders were not fulfilling their premium obligations.

This situation resulted in insurance being issued on credit, leading to liquidity challenges for insurers and hindering the creation of adequate claims reserves, which disadvantaged policyholders like Mr Ncube.

According to the Short-Term Insurance report by Ipec (Insurance and Pensions Commission), 61 percent of complaints received were related to late or non-payment of premiums, further exacerbating Mr Ncube’s situation.

Apart from disadvantaging policyholders, this situation has significant negative economic consequences as it creates a lack of liquidity in the overall economy. Insurance premiums finance 40 percent of the country’s national cash needs.

To address these challenges, the Government, in conjunction with the Insurance and Pensions Commission (Ipec), the Insurance Council of Zimbabwe (ICZ), and the Insurance Brokers Association of Zimbabwe (IBAZ), introduced Statutory Instrument 81 of 2023.

This instrument states that insurance coverage is contingent on premium payment and prohibits the issuance of insurance on credit.

The introduction of USD premiums, along with other measures implemented by the Government, has contributed to the recovery of Zimbabwe’s insurance sector.

Increased inflows of US dollars have driven the turnaround in the short-term insurance sector, which would have otherwise faced even worse circumstances, as highlighted in a research report by Morgan & Co.

According to the report, premium revenue in Zimbabwe’s insurance market reached US$634,1 million in 2022, with the short-term insurance sector accounting for US$326 million.

During the quarter ending June 2023, short-term insurers wrote a total of ZW$18,1 billion in gross premiums, representing 35 percent of the total business written. The remaining 65 percent of business was conducted in foreign currency.

However, the report also revealed a significant increase in unpaid insurance premiums, which rose to ZW$180,4 billion in June of that year, compared to $15,7 billion in the same period the previous year.

This situation has put short-term insurers in a precarious position, leading to the settlement of claims even for policies with unpaid premiums or claims that have already been filed.

The “no credit policy” has come as a rescue for individuals like Mr Ncube and has brought normalcy to the insurance sector. Ms Ringisayi Batiya, marketing and public relations manager of the Insurance Council of Zimbabwe (ICZ), explained during a recent Insurance Journalism Mentorship Programme that the introduction of Statutory Instrument 81 was aimed at benefiting policyholders and promoting economic development.

The provision of insurance on credit was affecting business models and creating liquidity challenges for both the insurance sector and the wider economy. The implementation of SI 81 was necessary to restore service standards that benefit policyholders.

Ms Batiya emphasised that compliance with payment of claims and other operational and statutory obligations, as well as prescribed asset requirements, is essential to meet policyholders’ expectations.

By ensuring the insurance sector maintains adequate claim reserves, policyholders gain confidence, and the sector can contribute more effectively to national economic development through improved liquidity.

A liquid economy enables major infrastructural developments, which are crucial for economic growth. Additionally, property rates improve, further enhancing the country’s economy.

Ms Batiya highlighted the importance of policyholders practicing good policy management habits, such as maintaining adequate coverage, paying premiums on time or in advance to avoid policy cancellations and notifying insurers of any changes that may impact coverage, premiums, or terms and conditions.

The implementation of S.I. 81, combined with the use of USD in the insurance sector, provides hope for individuals like Mr Ncube that claims will be settled promptly, mitigating the negative impact of delays. Moreover, stability in the insurance sector has positive implications for the overall economy.-chronicle