Low incomes and confidence deficit haunts insurance and pensions industry

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Nelson Gahadza

Low disposable incomes are resulting in some consumers relegating insurance and pension payments to the bottom of the ladder in terms of priorities, negatively impacting the growth of the sector, an industry regulator has said.

The business of insurance operates within a complex environment shaped by economic, digital and geopolitical uncertainties.

In Zimbabwe, while low disposable incomes are an issue, the greatest risk to the growth of the sector has been confidence issues by consumers.

This is mainly because of the loss of insurance and pension values following the conversion of currencies from the Zimbabwe dollar to the United States dollar in 2009 and from the United States dollar to the local currency in 2019.

From these experiences, policyholders and pension scheme members feel that they were shortchanged and as a result, their confidence in insurance and pensions is low.

“We acknowledge that confidence in insurance, particularly life policies and pensions, is relatively low, if the statistics from the industry quarterly reports are anything to go by.

“We believe that compensation for the pre-2009 loss of value will go a long way in restoring confidence in insurance and pensions.

“However, there are other issues that are contributing to low penetration ratios,” Lloyd Gumbo, the Ipec public relations manager, told Business Weekly in emailed responses.

He said the sector’s growth is also compounded by the development of inappropriate insurance and pension products that do not meet the needs of consumers and the general misconceptions about insurance and pensions.

“Low levels of awareness on the importance of risk management and retirement planning is also an issue for the sector,” said Gumbo.

Ipec, according to Gumbo, is implementing a number of initiatives to increase the insurance penetration rate and confidence in the sector.

“To address the pre-2009 loss of value, the Commission is currently implementing a compensation exercise to ensure that members are fairly treated and are paid what is due to them. We expect this exercise to help in restoring confidence in insurance and pensions,” he said.

He added that regarding misconceptions about insurance and pensions, the Commission has ramped up financial literacy initiatives to educate consumers about insurance and pensions and the benefits of being covered.

“Given that Zimbabwe has a highly informalised economy, the Commission developed and issued Microinsurance and Micropensions Frameworks to facilitate access to insurance and pensions by those with low and irregular income,” said Gumbo.

He highlighted that the Commission is also spearheading the development of agricultural insurance, which is expected to drive access to appropriate and affordable agricultural insurance for smallholder farmers.

“As per its mandate, IPEC is also entrenching fair treatment of policyholders and pension scheme members through focused market conduct supervision. The Commission also issued directives and guidelines that protect the interests of policyholders, such as the Treating Customers Fairly Framework and the Funeral Directive,” said Gumbo.

Gumbo said the registration of more than 10 dedicated microinsurance entities and the introduction of microinsurance products by conventional insurers also demonstrate the sector’s commitment to close some of the identified gaps relating to accessibility and cost.

Finance, Economic Development, and Investment Promotion Minister Professor Mthuli Ncube, addressing the 46th Annual Conference and Annual General Meeting of the Organisation of Eastern and Southern Africa Insurers (OESAI) in Victoria Falls, said the world is witnessing unprecedented technological advancements, shifts in regulatory frameworks, and evolving customer expectations.

He said these changes pose both challenges and opportunities for insurers worldwide.

“The insurance industry in Africa faces several unique risks that may significantly impact the operations and growth of the industry.

“One of the key risks includes inconsistent regulatory frameworks across different African countries. This poses challenges for insurance companies operating across borders. Regulatory changes or uncertainties in local laws affect market entry, product offerings and operational strategies.

“To this end, a robust and forward-thinking regulatory environment is essential for the sustainable growth of the insurance sector,” he said.

Mthuli added; “On our part as policymakers, we are committed to creating a regulatory environment that promotes transparency, accountability, and consumer protection while encouraging innovation and competition.”

He noted that the other challenges relate to political volatility, economic fluctuations and currency risks and these uncertainties have an impact on product modelling and pricing, claim payouts and overall business stability.

“Mitigating these risks requires a proactive and adaptive approach. Insurers can enhance resilience by diversifying operations, leveraging risk management tools and engaging in strategic planning.”

“Collaboration with regional and international partners, continuous monitoring of the external environment and investment in innovation and education are also crucial for sustaining growth and stability in the face of these challenges,” said Mthuli.

According to Mthuli, the low insurance penetration in Africa is a great concern for policymakers and regulators, averaging around 3 percent compared to global standards of 7 percent.

“While 3 percent may appear relatively reasonable, it is important to note that there are significant variations across different countries. For example, the insurance penetration rate in South Africa exceeds 14 percent, while most Sub-Saharan African countries record rates below 1 percent.

“This limits the market size and potential for growth, as well as the ability of insurers to spread risk effectively. Ironically, Africa is one of the most vulnerable regions to a wide range of risks, including natural disasters, economic instability, health crises and political volatility, yet it is the least insured continent in the world,” Mthuli said.ebsinessweekl