IPEC urges insurance firms to make payouts in premiums currency

Insurance and policy providers have been urged to pay investors using the currency they contribute in, in a bid to protect policyholders from losing value in their investments.

In an interview, Insurance and Pensions Commission (Ipec) Commissioner Dr Grace Muradzikwa said policy and insurance companies have been hiding behind policies where they are paying beneficiaries in local currency while they contributed in United States (US) dollars.

Following the change of currency in 2017, Dr Muradzikwa said pensioners and policyholders experienced a loss of value in their benefits.

This has seen the Government incurring the heaviest burden of compensating pensioners and insurance policyholders who suffered a loss of value before and after dollarisation in 2009 due to hyperinflation and some regulatory flaws.

Dr Muradzikwa said companies continue to pay policyholders in local currency even if they contribute in foreign currency taking advantage of some available policies, which promote the use of local currency.

“We have pension funds who for instance invested in foreign currency in the US dollar era and when currency changed in 2019, these investments unilaterally changed from US dollars to local currency.

“As a regulatory authority we believe this is very unfair. If one is paying premiums in foreign currency and the investment is generating US dollars, why would you now want to give local currency to investors?” asked Dr Muradzikwa.

She said the challenge emanated from a lack of a regulatory framework to protect investments, which is now being addressed.

“So, now we expect that if an investment is made in US dollars, then the payout should also be in a similar currency. We have made it very clear and we have the legal instrument to back that position and that is why we are allowing our regulated entities to invest in US dollar instruments.”

In 2020, the Government put in place Statutory Instrument (SI) 280 of 2020, which was meant to protect policyholders and investors who invested in US dollars.

Section (2) of the SI reads: “Pension or provident funds that receive contributions in foreign currency in terms of this section, shall, (a) invest the contributions in investment instruments denominated in the same currency the contributions are made; and (b) in respect of fund members whose contributions have been paid in foreign currency, through Nostro-Accounts, pay such member’s benefits in the currency in which the contribution has been paid.”

Section (3) also says: “Where insurers receive premiums in foreign currency in respect of a policy of insurance in terms of these regulations, obligations to policyholders arising therefrom shall also be settled in the currency in which the premiums have been received.” — -chronicle